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ATA Deal Could Trigger Multiple Airline Mergers

Mergers Often Translate to Fewer Flights, Higher Fares

By Dan Schlossberg
ConsumerAffairs.com

April 11, 2007

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If the domino theory applies to politics, will it also work for airlines?

The old adage, first advanced in the early ‘60s, held that when a single country fell to Communism, neighboring countries would follow. Forty years later, the world of aviation just might suffer the same fate -- and cause more rising fares for passengers.

US Airways has already swallowed America West and attempted to take over Delta. American has superseded TWA. United and Northwest have been involved in merger talks. AirTran Holdings Inc. is staging a $389 million hostile takeover bid for Midwest Air Group.

And now comes word that American Trans Air, the Indianapolis-based carrier better known by the initials ATA, is about to buy World Air Holdings, parent company of World Airways and North American Airlines.

Stockholders have to okay the $315 million deal, which would blend two carriers that depend upon charter business with military clients.

ATA, already the larger military charter airline, also operates more civilian charters than any other airline.

World Airways gets 75 per cent of its business through contractural deals with the U.S. Air Force, while North American Airlines is a regional carrier based out of Oakland International in the San Francisco Bay Area. Between them, they operate 27 planes.

If approved, the proposed acquisition would further strengthen ATA, an airline that rebounded from bankruptcy after streamlining its route structure and forging an alliance with Southwest, the most successful of the discount carriers.

That deal gave Southwest access to many former ATA gates at Chicago Midway.

The latest ATA maneuver might unleash a torrent of acquisitions and mergers in an industry still struggling with fallout from the 2001 terrorist attacks and the skyrocketing cost of jet fuel.

Virtually all carriers have cut expenses by reducing the size of both seat inventory and operational staff. Because of the reduced fleet sizes, passengers stranded by mass cancellations, such as those caused by widespread ice storms, often can’t be rebooked for days.

According to Kevin Mitchell, chairman of the Business Travel Coalition, mergers and acquisitions in the airline industry will increase fares in direct proportion to the decrease in competition between carriers. With multiple merger talks ongoing, the ATA-World Air deal could be the trigger that launches a trend that consumers won't like.

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