The United States airline industry
The United States airline industry had remained under protection from open competition since the very beginning. The CAB allowed the airlines to operate under a policy of guaranteed profit and prevented new airlines from offering reduced fares. This practice continued until the Airline Deregulation Act was promulgated in 1978. Many of the legacy carriers were unable to operate under the competitive deregulated policy and either went bankrupt, liquidated or merged with other airlines to create the big 6 airlines.
The 9/11 disaster had a huge impact on the airline industry and despite considerable help from the government in the shape of billions of dollars in grants and loan guarantees, several airlines were forced to seek Chapter 11 protections. Now as the airlines are coming back into profitability due to improved business, reforms under Chapter 11 protections, many business executives are arguing that further mergers will be in the interest of the US airline industry. Mergers and Acquisitions are a normal part of the business and have both pros and cons from a business perspective.
In this essay we have discussed both pros and cons of US airline mergers. We find that from the industry and shareholders perspective there might be short term advantages of further consolidation and mergers, but from an overall perspective the airline is already short of competition with only 6 major airlines controlling the industry through a number of restrictive practices such as hub monopoly and predatory pricing. The consumer has suffered through these practices while the inefficiencies and inappropriate business practices have failed to restore the health of the airline industry too.
The analysts believe that the airline mergers will not be in the interest of the industry. The government regulations if applied correctly will also not allow further mergers among the big 6 as it will be against the DOJ antitrust policies. We believe that airline merge among the big 6 will not be in the interest of the industry and supporting the airlines to become lean and profitable while retaining their identity and ability to compete in an open sky system will be in the long term interest of the industry.
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