Maybe you didn't hear it, but somebody turned on the merger music box and set it at Mach 1. Airlines that not long ago were cutting fares are now assembling investment bankers to run the numbers on newfound objects of desire. United Airlines was the first on the dance floor when it announced on May 24 that it was buying US Airways--a union that would enlarge what is currently the world's largest airline.
Soon American Airlines began talking with Northwest Airlines, which already owns a slice of Continental Airlines. Yet Continental was rumored to be making eyes at TWA. But analysts said Delta Airlines might be linking up with Continental. Then American covered its flank and began flirting with Delta. Industry experts were so shocked that the nation's second (American) and third (Delta) largest carriers might even consider creating such a monster that they suggested the chitchat was a ploy to get the feds to stop the music.
There might not be much chance of that. In the 22 years since U.S. airlines were deregulated, consolidation has been the tune most often heard, despite the attempts of hundreds of new carriers to get airborne. In the U.S., the market is so mature--with fortress hubs and finite runway space--that organic growth is difficult. United's pairing with US Airways, for instance, strengthens its position in the East, where it would have had a long, costly fight to gain market share.
Airlines around the globe have already been moving in this direction by forming worldwide pacts--you see it in code-share agreements, when you buy a ticket on, say, Delta, and end up flying Swissair. There are dozens of cooperative arrangements and three major alliances, with a fourth to be unveiled next week (Delta, Air France, AeroMexico and Korean Air). Foreign carriers hear the merger beat too. Last week British Airways confirmed it is in discussions to join up with KLM Royal Dutch Airlines, and Switzerland's SAir Group won approval to buy Belgium's Sabena Airlines.
You don't have to be an economist to surmise that fewer airlines do not coincide with cheaper fares. The Department of Justice, which already has two suits pending against major U.S. airlines for antitrust violations, is looking closely. Like a disapproving chaperone, Assistant Attorney General Joel Klein, fresh from crushing Microsoft, last week took the unusual step of making public his concern over increasing concentration. There are now "significant competitive concerns," he said. Better be careful, flyboys and girls.