American Airline TWA Acquisition will be good for airline industry
American Airlines recently announced that it is acquiring most of TWA. This will most likely help to raise airline ticket prices in the St. Louis region and in many other areas of the U.S. Some seem to think that it is a bad thing because ticket prices will go up. Well, I on the other hand think that this is a great thing.
Sure, people don’t like to have to pay more for things, but in this case, prices need to go up. The reason for this is that airlines have been filing for bankruptcy year after year. In fact, it seems so common, that it doesn’t seem unusual whenever news comes of another bankruptcy.
And, the cause for this doesn’t seem that it is bad management. Many of these airlines such as TWA have turned over management many times, and even with new management, the company still has and is having financial problems. And, the problem isn’t just TWA, but many other airlines as well.
In addition to the obvious financial losses that have been occurring with many airlines, many have said that if airlines were to add the cost of the frequent flyer miles given out, they would have huge losses.
Billionaire Richard Branson, has joked about how tough the airline industry is by saying “How do you become a millionaire,..you start as a billionaire and buy and airline!” The airline industry has too many competitors and needs to consolidate to raise profits and stabilize the industry.
Profits are needed to innovate and maintain planes. With such fierce competition, many airlines have aging planes in their fleets. The airlines need to be financial stable and the consumers need this as well. Sure, consumers will pay more, but it is better than having a plane ticket on an airline or airlines that are running out of money. Some people in the past have bought tickets and their tickets were voided after finding out that the airline had run out of money and couldn’t pay to fly them. This is very bad.
I believe that the best policy for industry is one that is moderately profitable with just enough competitors. This allows for stability and profits to be used for innovation and good maintenance. Too many competitors leads to financial losses, instability and causes poor innovation, and maintenance.
The oil industry before Rockerfeller came along was overly competitive with numerous mom and pop oil rigs. Nearly everyone was losing money and much of the oil was poor quality. Well, Rockerfeller came along and bought many of his competitors and caused many to fail. He consolidated much of the industry and built a national pipeline network and increased the quality of the oil.
Sure, Rockerfeller went so far as to eliminate almost all competition and probably harmed some innovation due to lack of competition, but if the industry were to stay as it was initially when he got into the business, their probably would not be major oil pipelines and the quality of the would be poor.
And, the oil industry probably would have been a little better if their had been more competitors leading to a moderate profit for the industry instead of one company with excessive profits. It is the balance which leads to moderate profits and ample competition which is probably best for all.
Hopefully, the airline industry will reach this point in the future.
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