Monday, January 30, 2012

Delta Airlines Brilliant Tactical Move

Since AMR (parent of American Airlines) filed for bankruptcy in November, rumors started swirling about more mergers and consolidation in the airline sector. Private equity Texas Pacific Group, US Airways and Delta are "studying" an acquisition of AMR once it emerges from bankruptcy proceedings as a leaner and stronger company without the back-breaking obligations of bad leases and pension obligations. While any possible merger or acquisition will take months to develop, Delta over the weekend signaled what could possibly be a brilliant move by focusing instead on acquiring US Airways. Why is this a smart move? For many reasons. An acquisition by Delta of US Airways, which will pass regulatory scrutiny, will eliminate US Airways from the AMR sweepstakes. Texas Pacific as a private equity will have to team up with an airline partner to clinch a possible deal. Problem is however, there are no (legacy) airlines left to do so. United Airlines will never be able to make a deal for its rival as they compete directly in major hubs such as Chicago, LA and the New York area, not to mention that United is an anchor in the Star Alliance while American is an anchor in the rival One World Alliance. By teaming with US Airways, Delta essentially will take itself out of the American Airlines acquisition. This potential scenario will leave American Airlines without a potential acquirer and will put the airline in a weakened position vis-a-vis behemoth giants United and a supercharged Delta. Delta will have carved a huge market share of the domestic/international market, while simultaneously boxing in American. www.premieretravel.com