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United-Continental Merger: Do Agents Have a Dog in the Hunt?June 15, 2010 By: George Dooley
This week's Congressional hearings on the proposed merger of Continental and United are sure to be controversial. But do travel agents have a dog in the hunt? The answer is yes. Travel agents should be wary of the proposed merger and join in the debate in the media, in Congress and in the airline industry.
One reason is that the merger, if approved, will be a major step toward airline consolidation. And consolidation makes many perceptive observers and analysts very nervous, especially as the Continental–United merger will follow the merger of Delta and Northwest and could impact any potential merger by American American and US Airways or other partners.
Wall Street wants the merger to happen, and advocates have rolled out a host of solid arguments to show the benefits of the merger for stakeholders. While agents are stakeholders, the people really impacted will be employees of the merged airline, their managements, unions, suppliers, stockholders, communities served and competitors and a host of others.
Last but not least, the traveling public will be impacted in terms of price, service quality and safety. Travel agents and travel management firms should care and let their voice be heard— if only as a demonstration of their concern and commitment to their clients.
A truth is that neither the proponents nor critics of the merger can know with absolute certainty that the merger will work as promised or benefit the many stakeholders. Will the merged carriers deliver innovation or will it rely on tired formulas that compound the merged airlines problems? Will the new United be stronger financially? Will a merger help it compete globally as well as in the U.S.? Will Congress or the Department of Transportation politicize what is fundamentally an economic question?
Hubert Horan, a respected airline analyst highly critical of the United-Continental merger, offers one answer. Horan’s arguments are a useful counter balance to the public relations campaigns offered by advocates of the merger. They may provoke some thought by travel agents and the travel industry that will have to live with the results of the merger.
In a paper made public, Horan addresses directly the arguments of pro merger advocates. They are also the basis for Horan’s testimony this week to the House Transportation and Infrastructure Committee, titled: "The Anti-Competitive Impacts Of a United-Continental Merger and The Consolidation Of 80 Percent Of The US Aviation Market Into Just Three Competitors."
Horan questions if the data used to justify the merger is correct or if advocates are using misleading data to distort market share/market power claims. He probes if the merger will achieve the multibillion-dollar synergies advocates claim. “It does not lay out the comprehensive argument as to why United/Continental and the ongoing industry consolidation movement violates longstanding antitrust laws and directly threatens consumers and long-term efficiency,” Horan says.
He questions claims that the legacy carriers do not dominate the market and that low cost carriers have the ability to dissolve competitive problems. Other key questions Horan raises include if cuts in capacity will drive financial benefits and the validity of estimates of multibillion-dollar cost and revenue synergies claimed by pro merger advocates. He contests assertions that the U.S. airline industry can only support three large network carriers and that mergers will increase services to smaller communities.
As might be expected, he also doubts that the merger meets antitrust tests or that consolidation is needed because of structural barriers that prevent profitability. He asks if consolidation is a market solution or driven by government intervention. Finally, Horan questions the viability of an America-US Airways merger, raising questions of cost structure, culture and union issues that would “enormously complicate any real world AA/US merger.”
Are Horan’s arguments against a Continental-United merger correct? Or a contrarian's view? One certainty is that he raises provocative questions that travel agents might also ask. Like members of Congress, the traveling public and the airline industry, travel agents have a dog in the hunt for a strong, profitable, innovative airline industry.
(Editor’s Note: For pro merger arguments visit www.United.com and www.Continental.com. Visit www.horanaviation.com The House Transportation and Infrastructure Committee is expected to have the testimony of all witnesses online following the hearings.)