Only Handful of Major Airlines Will Be Left
For the last eight years or more, since deregulation, some people have been warning that the day was coming when we’d have only a handful of major airline operators left.
An analysis of the current market share rankings--assuming approval of all pending mergers--suggests that the day may be close at hand. Of the top 10 air companies, only one--Pan Am--has not bought, or merged, its way to significant growth in the last three years.
Heading the list, with 18.9% of the total U.S. air travel market, is the Texas Air group. That organization encompasses no fewer than five carriers--Eastern, Continental, Frontier, New York Air and People Express.
Fierce Competitors
These were all fierce competitors at one time, before being gobbled up into the Texas Air network.
United ranks second, with 16.4% of the total market.
United hasn’t bought another airline recently, but it picked up a gigantic slice of business--both financially and internationally--when it acquired (for $750 million) the Pacific services of Pan Am a couple of years ago. That portion of Pan Am’s system alone was bigger than most other airlines.
Projecting the airline rankings a little further, American will likely have 14.1% of the market share when its deal to take over AirCal is consummated, perhaps by late summer.
The rest of the list includes Delta (now that it has acquired Western), 11.7%; Northwest (and Republic), 10.1%; TWA (and Ozark), 8.2%; USAir (with Piedmont and PSA, whose takeovers await formal Department of Transportation approval), 7.1%; Pan Am (minus the Pacific region), 6%; Southwest (with TranStar, formerly Muse Air, which it acquired), 2%, and Alaska Airlines (along with its subsidiary, Jet America), 1%.
Those 10 operators comprise what recently were 22 competing airlines. Now 92.5% of air traffic in this country is handled by 10 companies.
Not long ago, you wouldn’t have found a smaller airline like Alaska Airlines or TranStar ranked until around 15th or 20th place.
It’s clear that we are losing airlines rapidly. Nor will the contraction end there.
The Department of Transportation appears to be in no mood these days to put up roadblocks to any potential mergers; those now on the books will almost certainly be approved.
In addition, some of the companies mentioned above are, themselves, vulnerable to buyout by competitors. Rumors surface frequently that Pan Am is on the block. That airline’s 6% market share could have a significant effect on any buyer.
Alaska Airlines, with its strong Pacific Northwest profile and profitable track record, is often mentioned as a potential takeover target.
Downward Pressure
What does this all mean for the airline traveler? How inclined will the airlines be to offer low fares when their competition has finally shrunk to a “manageable” level?
Right now, the company that’s causing the downward pressure is the Texas Air group. Its Continental and Eastern subsidiaries have both recently introduced deep discounts on several types of tickets. Continental, in fact, has become the darling of the deregulationists, just as People Express once was.
There is still enough competition around to keep fares down. But how many more airlines will have to disappear before the incentive to discount prices also disappears?
