Airline Merger Menace

WASHINGTON — House Transportation and Infrastructure Committee chairman Rep. James L. Oberstar, D-Minn., yesterday vowed to try to stop airline mergers, a trend rating agency analysts agree could be disruptive to airports and their finances.

“Hell no,” Oberstar said about airline mergers, including a rumored consolidation of Delta Airlines and Northwest Airlines or United Airlines, at press conference on the committee’s 2008 agenda.

Oberstar said consolidation in the airline industry reduces the number of air service providers, particularly to smaller communities, which leads to less competition and can drive up airfares. Mergers also spur other consolidations as competitors seek to remain competitive.

“In this era of hub-and-spoke aviation, when mergers occur, those communities at the farthest end of the spokes are the ones that are left out and left behind,” he said. “Consolidation will mean fewer carriers, less competition, fewer choices, fewer communities served, higher prices for consumers, and that is not in the best public interest.”

“We did not enact deregulation in order to create golden parachute opportunities for airline executives, and that is what results from mergers,” he added.

Oberstar said that he would “engage and encourage and badger, as necessary” the Department of Transportation, as well as hold hearings in order to “expose to the public the adverse consequences of such actions and do all we can to mobilize strong public understanding of, and hopefully, opposition” to merger proposals.

Oberstar’s comments come as Delta has been rumored to be on the prowl for a merger partner and has been in contact with both Northwest and United.

One reason that airline mergers are difficult on airports is that combined airlines tend to redraw their service network, which can cause some airports to lose passengers and related revenue.

“We’ve had some concerns about the potential for airline consolidation particularly in 2008 — given some of the comments made by airline executives and Rep. Oberstar — because of the potential reduction in service at many airports,” Moody’s Investors Service analyst Kurt Krummenacker said yesterday. “Reduced service would reduce competition on many routes, would likely lead to increasing fares, which could then cycle into further reduced enplanements, which could have a potentially negative impact on airport revenues.”

Kurt Forsgren, an analyst with Standard & Poor’s, said that mergers are difficult for airports, but that it is also important for airlines to be financially healthy, since airports depend on airlines to pay rents and charges, which airports pledge to repay debt.

“Clearly, to the extent that you have airlines that combine operations and the net effect are efficiencies that result in reductions of service levels, that can negatively affect airports,” Forsgren said. However, “in the grand scheme of things it does no one any good to have airlines that are not solvent.”

Meanwhile, Oberstar said that he hopes to include $15 billion in funding for road, transit, rail, and wastewater projects in a second economic stimulus package, which has been called for by some lawmakers. The House yesterday passed a stimulus package that did not include any funding for infrastructure because experts have said that the economic benefits of road building and similar projects do not materialize quickly enough.

“We have put together …f or the Democratic leadership a $15 billion baseline package that would include investment in about 2,600 surface transportation projects that are designed, engineered, are ready to go; within 90 days you can have people on the job, working,” Oberstar said.

However, it is unclear if there will be second stimulus. Oberstar said that he has had conversations with the House Speaker Nancy Pelosi, D-Calif., about a second package, but that he has been given no assurances on the matter. He said he plans to make the case again for infrastructure funding in a second package in meetings with Democratic leaders on Wednesday and Thursday.

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