Trader Talk

Airline Mergers: A Dismal Assessment

With all the talk about the benefits of airline mergers, there are some sad realities around this entire business.

Here is a somewhat downbeat -- and controversial -- assessment about what all these airline mergers might really mean, from Peter Schiff, president of brokerage firm Euro Pacific Capital:

"The recently announced mega merger between Delta and Northwest may usher in a newer, harsher era for the American airline industry.

"In truth, given the rising costs of building, flying, and servicing aircraft, U.S. carriers currently supply more planes and passenger miles than American consumers can afford to utilize. While this may seem illogical, given that domestic flights are usually fully booked, it is important to realize that these crowded planes do not translate into profit at current ticket prices.

"While mergers may help the airlines hold down costs for a bit, the only lasting pathway to profit is fewer flights and significantly higher ticket prices. Of course, this will mean that Americans of modest means will travel less by air. Unfortunately, that fact is simply an inevitable consequence of a sagging currency and diminishing national wealth."

Questions?  Comments?