AIRLINE MERGERS COULD THREATEN SERVICE

AIRLINE MERGERS COULD THREATEN SERVICE

The airline industry is facing yet another wave of mergers similar to those that have transformed the industry in the past 22 years since Jimmy Carter launched the era of transportation deregulation.

Propelled by the May 24 announcement that UAL Corp., parent of United Airlines, plans to buy US Airways for a tidy $4.3 billion, as well as assuming $7.3 billion of the smaller carrier's debt, American Airlines and Northwest Airlines have reportedly entered into their own merger talks. Meanwhile, across the pond, their European alliance partners - British Airways and KLM - have been wooing each other once again, some eight years after the two called off earlier wedding plans.Do any of these deals make sense? Would they be approved by regulators? And how would they affect cargo? Specifically, would service be better or worse? Would prices go up or down? And would the benefits, if any, be short-lived or long-lasting?

If regulators approve the United-US Airways deal, is there any way they could realistically prevent further consolidation in the industry?

But if they reject it, will the smaller carrier go out of business sooner or later anyway, causing far more harm to its customers and the communities it serves than any damage they might suffer from the merger?

And how fair is it that US Airways chairman Stephen Wolf could walk away with a payoff of up to $200 million? Should that even be a consideration?

These are tough questions, with plenty of arguments on both sides.

The United-US Airways deal may make economic sense, by bringing together United's strong international and domestic east-west system with US Airways' north-south network in the eastern United States.

Shippers in Pittsburgh and Philadelphia, for example, would benefit from having same-airline access to Tokyo, Hong Kong and other cities in Asia, where United has a significant presence.

In addition, shippers in smaller cities served by US Airways would have one-stop service via Dulles to European cities such as Amsterdam, Copenhagen and Milan. By way of Miami, they would also be able to connect with Buenos Aires, Caracas, Sao Paulo and Santiago.

Likewise, United's cargo customers would benefit from the prospect of connections at its hubs into US Airways gateways like Pittsburgh and Charlotte, N.C. But most of these domestic connections will be on narrowbody aircraft unable to accommodate pallets, thus limiting the benefits from a cargo perspective.

The only city where there's much overlap between the United and US Airways networks is Washington. Sensitive to the concerns of lawmakers who might be faced with a sharp reduction in their own airline service, UAL plans to sell the bulk of its operations at Reagan National Airport to Robert L. Johnson, who plans to start a new carrier called DC Air.

Thus, from a competitive service perspective, the United-US Airways deal on its own would seem to offer considerable benefits and relatively few drawbacks. But regulators at the Justice and Transportation departments can't look at this deal in isolation. They have to consider the broader competitive issues.

Perhaps the reports of a prospective American purchase of Northwest resulted from deliberate leaks by American - though I can't say I received any - designed to block archrival United from expanding its lead by acquiring US Airways.

Even without any rumors of an American-Northwest deal, though, regulators would have to look at the bigger picture. The United-US Airways would surely trigger further consolidation in the industry, and it would be extremely difficult for Justice, which will have the ultimate say, to reject further airline mergers if it approves this one.

Does anyone really want to see the U.S. airline industry reduced to just three major carriers? I doubt it. Of course, it wouldn't be bad at all if such consolidation resulted in vigorous three-way competition at most airports.

That would, in fact, be far better than the present situation, where a single carrier frequently accounts for more than 50 percent of the flights at many airports. It's highly unlikely that mergers will reverse that dominance. Rather, it's far more likely that even more cities would become beholden to a single carrier. For that reason, I would vote against the United-US Airways deal.

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