AirportInfo
Airline Mergers & Acquisitions
July 2013
Airline Mergers & Acquisitions (M&A)
In the last few years, the United States has held the lead in airline mergers and
acquisitions (M&A). Airlines engage in M&A to control capacity, realize savings
through economies of scale and to gain access to additional, valuable markets.
As airports rely on the sustainability of airline operations, this edition will
highlight how recent consolidation has affected airports.
 Airline Mergers and Acquisitions (M&A) Timeline and Process
 Impact of M&A on Mainline and Regional Fleets
 Market Share
 Flight Schedule
 Airline Hubs
 Pre- and Post-Merger Airline Operating Cost and Revenue Performance
Timeline of Recent Mergers and Acquisitions (M&A)
Airline Focus
• United Airlines /
Continental Airlines
• Pinnacle Airlines /
Mesaba Airlines
• Skywest / Atlantic
Southeast Airlines /
ExpressJet Airlines
2005
2006
• Republic Airways /
Shuttle America
2007
• Pinnacle Airlines /
Colgan Air
2008
2009
• Delta Airlines /
Northwest Airlines
• US Airways /
America West
• Republic Airlines /
Midwest Airlines
• Skywest / Atlantic
Southeast Airlines
• Republic Airlines /
Frontier Airlines
2010
• US Airways /
American Airlines
2011
2012
• Southwest Airlines /
AirTran Airways
The last several years have seen an increase in airline consolidation in order to control capacity,
realize economic savings through economies of scale and gain access to valuable markets.
Spikes in input costs, such as oil, forced rationalization in the industry among both the legacy
and regional carriers. From 2005 to 2012, there were 12 mergers and acquisitions.
3
Mergers and Acquisitions Process:
United and Continental Airlines Example
May 2010
September 2010
September 2010
November 2011
• Government Approval
• Shareholders Approval
• Senior Leadership Appointments
• Merger Transaction Closes
• Issuance of Single Operating Certificate
March 2012
• Single Reservation System
March 2012
• Single Frequent Flier Program
April 2012
August 2012 - Current
27+ Months
October 2010
• Merger Announced
18 Months
August 2010
Airline Focus
• Single Livery and Uniform
• Union Negotiations
Mergers and acquisitions are lengthy and complicated processes. United announced its intention
to merge with Continental in May 2010 and did not achieve a single operating certificate for more
than a-year-and-a-half. Even to this day, United continues to negotiate new agreements to bring
some of its labor groups together in the merged carrier. Airports play a key role in facilitating the
operational impacts of a merger while ensuring customers’ needs are being met.
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M&A Mainline Flight Schedules by Aircraft
(Pre-Merger vs. Current)
Q1
2011
Q1
2013
Q3
2013
166,868
292,662
39,155
116,595
326,952
37,698
117,488
356,481
B717
B737-3/4/5
B737-6/7/8/9
B747
B757
B767
B777
B787
A320
Q1
2010
Q1
2012
3,841
33,245
8,954
11,062
9,846
69,614
3,109
42,517
11,366
13,175
68,018
64,938
Q3
2013
93,376
2,424
38,486
6,550
11,061
1,043
67,774
Q4
2012
Pre Consolidation
15,926
9,463
74,551
25,715
11,013
5,850
5,533
2,078
31,368
13,095
7,303
101,008
3,299
120,232
4,227
7,808
135,652
80,542
11,162
351,943
2,155
MD-80
E-Jet
TOTAL
Q3
2013
61,925
A330
Canadair CRJ
Q4
2012
Airline Focus
75,871
459,530
482,702
511,667
127,275
214,565
220,714
180,374
Post Consolidation
Airline mergers lead to a complex flight integration, sometimes with multiple aircraft that do not always
fit the merged carrier’s business strategy. For Southwest, the merger with AirTran resulted in the
acquisition of the B-717, which added complexity to Southwest’s single fleet strategy. Conversely,
United’s integration with Continental resulted in the acquisition of the B-787. American’s merger with
US Airways will lead to a greater fleet mix of narrow body aircraft potentially allowing for earlier
retirement of its older 737 and MD80 fleets.
Source: Form 41
Note: Flight schedules based on marketing airlines
Pre Consolidation includes only the airline listed
Post Consolidation includes both merged airlines
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M&A Regional Flight Schedules by Aircraft
(Pre-Merger vs. Current)
Q2
2008
Q2
2010
Q3
2013
Q1
2010
Q1
2012
Q3
2013
188,664
306,816
218,925
7,613
6,297
43,449
25,965
6,056
26,721
29,521
4,113
15,778
114,175
3,446
17,639
28,916
24,863
9,878
118,576
28,624
20,457
31,616
148,488
3,518
115,934
30,114
21,399
26,446
166,343
18,009
1,068
12
376,728
3,779
1,172
4,688
368,705
147,114
Beechcraft
Canadair CRJ
Q-Series/Dash 8
E170/175/190/195
Embraer Turbo
ERJ
MD-80
Saab 340
ATR
Other
TOTAL
Pre Consolidation
16,334
8,083
6,636
252,659
381,892
268,337
197,122
Q4
2012
Q4
2012
Q3
2013
25,345
115,879
31,128
37,897
167,652
29,928
40,743
117,081
8,805
117,797
193,709
356,120
Airline Focus
Post Consolidation
Airline mergers also lead to complexity for regional affiliates. After merging with Northwest, Delta used
the dynamics of the regional airline market to make major shifts in its regional aircraft strategy resulting in
the elimination of Comair and the acquisition of Pinnacle. The American/US Airways merger has the
potential to be challenging as the airline wrestles with US Airways’ diverse use of regional partners and
American’s historical reliance on American Eagle.
Source: Form 41
Note: Flight schedules based on marketing airlines
Pre Consolidation includes only the airline listed
Post Consolidation includes both merged airlines
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M&A Airlines Market Summary
Domestic markets:
Pre-merger – 229 destinations served
Post-merger – 231 destinations served
114 overlapping destinations
(+) 44 new markets acquired
(-) 7 destinations cut post-merger
International markets:
Pre-merger – 31 destinations served
Post-merger – 52 destinations served
5 overlapping destinations
(+) 36 new markets acquired
(-) 22 destinations cut post-merger
Domestic markets:
Pre-merger – 136 destinations served
Post-merger – 142 destinations served
39 overlapping destinations
(+) 25 new markets acquired
(-) 11 destinations cut post merger
International markets:
Pre-merger – 4 destinations served
Post-merger – 8 destinations served
No overlapping destinations
(+) 4 new markets acquired
(-) 0 destinations cut post merger
M&A allows airlines to enter new markets and strengthen pre-existing destinations but not all
newly acquired destinations are profitable. In a period of high fuel expense and a focus on
yields, United acquired 36 new international markets but cut 22 existing destinations in favor
of utilizing resources for entrance into destinations with higher demand. Southwest’s
acquisition of AirTran led to cuts in service to several cities.
Source: Diio Mi
Note: Market summary based on full year flight
schedules and include destinations cut prior to
the actual merger transaction closing date.
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M&A Flight Schedules by Fleet and Hub Sizes
Pre-Merger vs. Post-Merger- % Change Airline Focus
Narrowbody
Widebody
Regional >50
Regional <50
20%
10.4%
10%
5.5%
4.6%
1.7%
1.0%
0%
-0.3%
-10%
-1.4%
-6.1%-6.3%
-15.2%
Large
Medium
Narrowbody
20%
0.1%
Small
Widebody
Non-Hub
Regional >50
International
Regional <50
8.8%
5.5%
0.0%
-5.3%
-20%
-40%
-4.6%
-9.7%
-20%
0%
-1.6%
-5.3%
-8.8%
-5.6%
-10.6%
1.1% 1.0%
0.0%
-1.6%
-3.8%
-17.0%
0.0%
-2.4%
-8.5%
-13.6%
-3.8%-2.0%-5.2%
-9.4%
-19.8%
-24.4%
-28.4%
-49.6%
-60%
Large
Medium
Small
Non-Hub
International
Airlines striving for operational efficiency post-merger results in a decline of flights to various airports.
Flights producing low yields and load factors are often transitioned to smaller aircrafts with the same
or greater frequency. United and Delta post-merger decreased its widebody flights and replaced
them with modern narrowbodies. For some small and non-hub airports, narrowbody flights and
regional flights with 50 seats or less were replaced by regional aircraft with more than 50 seats.
Source: Diio Mi
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M&A Hub Review
Market Share by Passengers
AirTran Hub
Baltimore (BWI)
Orlando (MCO)
Atlanta (ATL)
US Airways Hub
Charlotte (CLT)
Philadelphia (PHL)
Washington (DCA)
Phoenix (PHX)
AirTran share (%) Southwest Focus Cities
16
13
16
0
5
4
7
1
US Airways share
(%)
90
71
43
49
3
2
3
3
1
Airline Focus
Southwest share (%)
Pre Merger Total (%)
Current* Total (%)
Dallas Love Field (DAL)
Chicago Midway (MDW)
Houston Hobby (HOU)
Denver (DEN)
Los Angeles (LAX)
55
22
0
97
88
89
19
13
71
35
16
97
93
93
26
14
73
33
15
96
93
93
25
13
American Hub
American share (%)
Pre Merger Total (%)
Current* Total (%)
Dallas (DFW)
Miami (MIA)
Chicago (ORD)
Los Angeles (LAX)
New York (JFK)
2
4
15
3
84
69
35
18
16
92
75
58
52
87
71
38
21
17
A merger transaction strengthens the passenger market share at airports operated by both airlines.
Southwest’s merger acquired majority market share within its focus cities and gained new capacity in
heavily competitive markets like Orlando, Denver, and Washington (DCA). There is potential for the
same effect with the American and US Airways merger anticipated for later this year.
Source: T100
Current*: Based on February 2013
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United and Continental’s ORD Flight Schedules
Flights by Fleet Type and Hub Sizes
Airline Focus
Flights to ORD
Flights from ORD
Pre-Merger
Large
Medium
Small
Non-Hub
TOTAL
Pre-Merger
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
133,976
14,805
5,205
327
154,313
Narrowbody
131,800
15,927
5,000
429
153,156
Widebody
15,935
180
134
16,249
Widebody
16,667
303
133
Regional
130,587
29,407
51,693
21,061
232,748
Regional
130,905
28,674
51,748
21,067
232,394
TOTAL
280,498
44,392
57,032
21,388
403,310
TOTAL
279,372
44,904
56,881
21,496
402,653
17,103
ORD
Post-Merger
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
124,798
11,338
3,368
545
140,049
Widebody
11,719
58
104
Regional
170,996
33,543
56,680
24,657
285,876
TOTAL
307,513
44,939
60,152
25,202
437,806
CAGR
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
-4.9%
-15.9%
-17.2%
-2.6%
-7.7%
Widebody
-25.8%
-5.5%
-43.6%
Regional
23.7%
6.8%
4.7%
8.0%
7.7%
TOTAL
-1.4%
-0.2%
3.0%
7.9%
1.3%
11,881
-26.1%
Post-Merger
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
123,988
11,662
3,427
482
139,559
Widebody
11,576
582
144
11
12,313
Regional
170,635
32,624
57,593
24,670
285,522
TOTAL
306,199
44,868
61,164
25,163
437,394
CAGR
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
-3.0%
-14.4%
-17.2%
6.0%
-4.5%
Widebody
-16.7%
38.6%
4.1%
Regional
14.2%
6.7%
5.5%
8.2%
10.8%
TOTAL
4.7%
0.0%
3.7%
8.2%
4.2%
-15.2%
Flight consolidation from airline mergers has resulted in an increased use of regional aircraft
flying to and from the small and non-hub airports. At United’s ORD hub, flights departing
ORD show the upgauging to widebody aircraft at medium hubs and a downsizing of
narrowbodies to regional jets at small hubs. Flights to non-hub airports grew due to the
addition of regional affiliates from Continental.
Source: Diio Mi
10
Delta and Northwest’s ATL Flight Schedules
Flights by Fleet Type and Hub Sizes
Airline Focus
Flights to ATL
Flights from ATL
Pre-Merger
Large
Medium
Small
Non-Hub
TOTAL
Pre-Merger
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
222,941
45,046
27,521
5,302
300,810
Narrowbody
223,135
45,148
27,547
5,124
300,954
Widebody
45,465
1,674
1
47,140
Widebody
45,332
1,827
1
47,160
Regional
179,495
21,766
66,480
56,806
324,547
Regional
179,474
21,764
66,577
56,727
324,542
TOTAL
447,901
68,486
94,001
62,109
672,497
TOTAL
447,941
68,739
94,124
61,852
672,656
Post-Merger
Large
Medium
Small
Non-Hub
TOTAL
Narrowbody
237,145
44,512
18,403
1,784
Widebody
28,014
763
Regional
189,500
23,729
82,666
TOTAL
454,659
69,004
CAGR
Large
Narrowbody
ATL
Post-Merger
Large
Medium
Small
Non-Hub
TOTAL
301,844
Narrowbody
237,096
44,370
18,407
1,775
301,648
28,777
Widebody
27,800
780
58,983
354,878
Regional
189,432
23,761
82,689
58,995
354,877
101,069
60,767
685,499
TOTAL
454,328
68,911
101,096
60,770
685,105
Medium
Small
Non-Hub
TOTAL
CAGR
Large
Medium
Small
Non-Hub
TOTAL
3.1%
-0.6%
-18.2%
-42.0%
0.2%
Narrowbody
3.1%
-0.9%
-18.3%
-41.1%
0.1%
Widebody
-21.5%
-32.5%
-21.9%
Widebody
-21.7%
-34.7%
Regional
2.7%
4.4%
11.5%
1.9%
4.6%
Regional
2.7%
4.5%
11.4%
2.0%
4.6%
TOTAL
0.8%
0.4%
3.7%
-1.1%
1.0%
TOTAL
0.7%
0.1%
3.6%
-0.9%
0.9%
28,580
-22.2%
Due to rising fuel expenses and a slowing economy during the Delta and Northwest merger, the
airline consolidated flights and matched capacity with demand on narrowbody and regional
flights at ATL. As airlines continue to chase profits, regional hubs may face additional pressure
as airlines realign services following mergers to large hubs within close geographic proximity.
Source: Diio Mi
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AirportInfo
Contact:
Economic Affairs and Research
Tel: 202-293-8500
Email: EconomicAffairs@aci-na.org
www.aci-na.org
July, 2013