Airlines Prepare for Takeoff
NEW YORK (Real Money) -- We have witnessed a series of mergers between major airlines: the Delta
In the old days, the business was a vicious Hobbesian nightmare, an ultra-competitive war of all against all in which life was nasty, brutish and short. Bankruptcies were endemic. In fact, not a single U.S. carrier that had been around back in 1978, when airlines were deregulated, has survived without going through bankruptcy at last once. There was no other way for these companies to contend with the endless competition, which had put constant downward pressure on ticket prices.
But, after the recent spate of consolidation, the U.S. airline industry has become a slap-happy oligopoly. Once the AMR-U.S. Airways deal goes through, we'll be in a new world order, with the top four domestic airlines handling more than 80% of the domestic traffic. These mergers have allowed the airlines to cut costs and take out excess capacity. In short, running a major airline is now a viable business proposition.
That's not the only thing going right. The airlines spend a fortune on jet fuel, so the falling price of oil is terrific for the bottom line at these companies. Meanwhile, the economy is getting stronger. That means more travel -- another plus.
Why is U.S. Airways-AMR the best way to play the renaissance? Simple: because the much-anticipated merger, a deal I believe based on coverage at The Deal, will pass antitrust muster.
Once this merger is completed, the combined company will be the largest airline in the world, with a fleet of 1,500 aircraft.