As Bill Ayer prepares to retire as chairman of Alaska Air Group at the end of the year, one of the greatest achievements of his 31-year career has been to keep the company independent as the industry has consolidated into a handful of giants. The latest came Monday, as US Airways merged into American Airlines.
American CEO Doug Parker, who steered the merger of his US Airways into the new entity, promised the deal won’t drive up fares. Executives have also said it will result in few job cuts. Labor supported the deal, which brought the old American out of bankruptcy protection.
Neither of these commitments are to be taken seriously. I still remember when the then chief executive of US Air, seeking to acquire Piedmont Airlines in 1989, promised Ohio Sen. Howard Metzenbaum in 1989 that the Dayton hub would stay open. It soon closed along with a reservations center.
Job reductions make the numbers work on mergers. So does reducing service. Gigantic companies in heavily consolidated industries gain enormous pricing power. It also gives these companies the hammer to demand what they want from communities. The new American has hubs in Los Angeles, Phoenix and Dallas-Fort Worth. How long will that last? Several hundred US Airways headquarters jobs in suburban Phoenix are already toast.
In opposing the merger, the Department of Justice said the merger would result in four carriers controlling 80 percent of the domestic market for commercial air travel. It also cited evidence that the big mergers that preceded it had indeed driven up fares.
But with only token measures extracted, the Justice Department waved the merger through.
It’s easy to build an airline, and gain big compensation for top execs, investment bankers and lawyers, through anti-competitive mergers. Until the next trouble hits. It is more difficult to build one largely organically, as Ayer did, and steer it through the storms.
One thing is certain: If Delta Air Lines comes after Seattle-based Alaska, President Obama won’t stand in the way.
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Today’s Econ Haiku:
A better deal than two wars
Do the big wheels see?