Aside from the domestic issues of competition that the proposed
raises, the bigger picture cannot be emphasized enough. UAL's move is gutsy -- yet one it was forced into, given what's going on in the rest of the world.
This is not the same old merger fever that has gripped the domestic airline industry from time to time in the past. This is global. For the first time, the markets and the basic necessities of doing business on a worldwide scale are seriously pushing the limits that politicians and regulators have placed on airlines.
Setting the stage is
, which just struck a deal with the Belgian government to take an 85% stake in Belgian carrier
. SAirGroup, the parent of Swissair, is a Swiss company. Under today's bilateral agreements, will Sabena be allowed to continue to fly as a Belgium carrier? Apparently SAirGroup is prepared to fight the fights this deal will create.
Speaking of bilateral agreements -- they need to be dismantled. Open skies? The concept itself is simply not good enough.
The world needs to start becoming familiar with the concept of common aviation areas.
Recently, yours truly was honored to participate on two panel discussions at the
9th Annual International Airline Symposium,
held each year in Phoenix, and sponsored by the Phoenix
Sky Harbor Airport
and Washington D.C-based
Unlike conferences where the big kahunas in suits get up to the podium and pontificate, this one is different.
This conference is always controversial, frequently contentious, and always thought provoking, as high-ranking industry and government officials from the U.S. and abroad gather to argue a cutting-edge issue in a casual and interactive manner.
Last year, the topic was whether industry and government ownership and control laws could and would be changed.
This year, the issue was common aviation areas. Specifically, the discussion was over the problems with the regulatory mess we have today and an eventual transatlantic common aviation area.
Think about it. In the U.S., domestic carriers can fly anywhere they want to -- with the exception of the slot-controlled airports. Now, suppose that situation existed all over the world. United Airlines could fly from London to Paris with no problem.
, owned by AMR
, could fly from Dallas to wherever it wanted in Europe. Conversely,
could fly from Los Angeles to New York if it desired.
And yes, Richard Branson could finally start his Virgin America product.
There would be no more ownership restrictions dictating which airlines could fly where. There would be no more bilateral agreements to contend with, no issues of cabotage (the ability of an airline from one country to fly passengers freely within another country).
That's the idea behind what's called a common aviation area.
In fact, the U.S. could already be considered a common aviation area because domestic carriers can theoretically fly wherever they want.
The formation of the European Union also created the start of a common aviation area there as well. And the beginning of an Asian-Pacific grouping of airlines also has the potential to result in a full-fledged common area.
But what about a transatlantic common aviation area? Aye, this one is a bit more difficult.
At the heart of the discussion is this simple thought: Why shouldn't airlines be allowed to compete globally in the same manner as telecommunications giants, news organizations, or any other business for that matter? What is it about the airline industry that makes this impossible to do?
Politics and Regulatory Hamstrings
Let's face it. The whole convoluted concept of alliances between carriers is merely a way to get around existing ownership and flight restrictions placed on the industry by the various government regulatory agencies.
In the U.S., we've seen code-sharing alliances and marketing alliances spring up, but we've not seen that much merger activity between the major airlines until now for one reason. The general consensus has been that the
Department of Transportation
will simply not approve a merger between two large U.S. airlines.
Meanwhile, overseas, we're seeing an incredible number of acquisitions and equity investments into airlines by other airlines. Just recently Singapore Airlines, which already owns 49% of
, completed a deal to acquire 25% of
Air New Zealand
is now rumored to be looking at investing in
, and Swissair's parent, SAirGroup, is gobbling up airlines right and left.
Alas, the U.S. airlines are pretty much out of the running when it comes to coupling with foreign carriers. Why? Foreign ownership restrictions coupled with bilateral agreement issues.
After three days of discussions, what did the group in Phoenix decide? There's a lot of ground to cover before a worldwide common aviation area is possible, much less a transatlantic common aviation area. But what intrigued me was the progress that the European and Asia-Pacific countries were making on the issue.
The upshot? If I were an executive with a U.S. airline, and if I took the time to stop and consider all the moves being made overseas right now, I would be concerned. Why? Because the airline industry in the rest of the world is much closer to a point where a global market mindset is taking shape.
This, I believe, is the overriding reason UAL took the plunge and decided that it was worth the risk to do the deal with US Airways. As one industry consultant said to me last week, "Holly, it's a real-estate move, now. The big players had best carve out their stakes now -- because the landscape is not getting any bigger and the players across the pond are getting much stronger."
As an investor, I
to see common aviation areas succeed. And I want mergers to be able to take place on a worldwide basis -- not on an us-vs.-them basis.
As you can see, it was a very lively conference, and one that, as it usually does, makes you stop and think about how life could be outside the box.
And for this industry, this is a much needed exercise.
Holly Hegeman, based in Barrington, Rhode Island, pilots the Wing Tips column for TheStreet.com. At time of publication, Hegeman held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. You can usually find Hegeman, publisher of PlaneBusiness Banter, buzzing around her airline industry Web site at
www.planebusiness.com. While she cannot provide investment advice or recommendations, she welcomes your feedback at