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Airline Mergers and CAK in 2008

Posted on January 03, 2008 3:17 pm by in General

It's only January and already the rumors are flying about airline mergers. To be sure, $100/ barrel oil puts a lot of pressure on carriers who have trimmed so much cost out of their operational structure(s). Even the lowest cost, savviest carriers like AirTran and Southwest are feeling the pinch. Both carriers are hedging fuel, making smart decisions and keeping overhead low…and still 40-45% of their fixed costs are tied up in fuel. Additionally, Frontier Airlines wiped out 20 percent of their headquarter staff, because it was the only place President Sean Menke thought there was room to cut, without affecting aircraft operations or customer service.

So, you can imagine that merger talks and speculation about merger talks are heating up. Ben Mutzabaugh, of USA Today's "Today in the Sky," is reporting on Delta's merger exploration. My guess is that Delta is on pretty much every major airline's dance card, with the exception of US Airways, whom they firmly denied last year.

Mergers seem like a good idea from 30,000 feet but some wonder whether the passenger would benefit from them. Inevitably, they say, fares will go up and choices will go down. Well, it may not matter in the end, because sky high fuel prices could very likely bring the industry to its knees anyway. It may be the only real solution for survival, let alone profitability.

From a CAK point of view, we understand that only the small/ mid sized communities that work in deep partnership with airline partners will be left standing as the industry continues to transform itself. We know too, that Americans love to fly (therefore there will always be a US domestic aviation business) and that market will go to the survivors.

Here's to partnership, innovation, and survival in 2008.

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