Mergers that make sense

What are some travel industry marriages that might work? (Photo: Rosmary / Flickr)

What are some travel industry marriages that might work? (Photo: Rosmary / Flickr)

Over the last few years, we’ve witnessed a wave of travel industry mergers that seemed implausible a decade ago.

Yet here we are today with four major airlines (American, Delta, Southwest and United) that control at least 80% of the domestic market. Similarly,  the hotel industry is dominated by four giant companies: InterContinental, Hilton, Marriott, Starwood. (Just this week, Hilton squealed about hitting the 700,000 rooms mark. Marriott recently opened its 4000th hotel.)

Nearly 100% of the airport rental car market is now controlled by just three companies: Enterprise (National, Alamo), Hertz (Dollar, Thrifty), and Avis (Budget, Payless, Zipcar).

Big brand names that we’ve all known and loved (or hated) have evaporated or been gobbled up by conglomerates.

Have we reached the end of merger mania in the travel biz? I don’t think so.

Let’s speculate on a few more mergers that might make sense:

Uber's clever bashing of rival Lyft would disappear if the companies merged. (Facebook screenshot)

Uber’s clever bashing of rival Lyft in social media would disappear if the companies merged- but fares could increase. (Facebook screenshot)

Uber + Lyft

Uber is sitting on a valuation of $19 billion and is the undisputed king of the brand new ridesharing industry with an excellent product and a very loyal customer base. With that kind of money and power, Uber must be thinking about buying out its closest competitor, Lyft (valued at around $700 million), right? I would if I were Uber CEO Travis Kalanick.

The services offered by UberX and Lyft are nearly identical, so I could easily see Uber buying and folding in Lyft as part of its new carpooling initiative announced this week. And it’s curious that Lyft and Uber both came out with the same idea about carpooling almost simultaneously, no? Are the two companies already coordinating product launches?  Hmm.

The combo would probably make many buttoned up, Uber-loving business travelers a bit more comfortable with Lyft, which is known for its “citizen drivers,” fratty fist bumps and fuzzy pink moustaches. Those moustaches might be getting a makeover- Lyft recently hired a new design director to polish up its image. 

“Uber has been aggressive in its efforts to add both cities and capacity, and a merger could help it accomplish both,” said Henry Harteveldt of the Atmosphere Research Group. “A larger Uber would be more appealing to individual consumers and business travelers, and would have considerably more political clout.”  But he also warned that removing a competitor from the marketplace could lead to higher prices. 

What are the odds that these two will merge? Leave your comments below.

Virgin America and JetBlue jets in Los Angeles (Photo: InSapphoWeTrust / Flickr)

JetBlue and Virgin America jets in Los Angeles (Photo: InSapphoWeTrust / Flickr)

Virgin America + JetBlue

Virgin America and JetBlue are currently the darlings of commercial aviation in the US. Both are known for excellent service, new planes and positive consumer feedback.

But both are also in a bloodbath with financially healthy legacy carriers anxious to eat their lunch. It is increasingly difficult for these two upstarts to fight against the attraction of the major carriers’ robust frequent flier programs.

Wouldn’t it make sense for the two to combine forces to fight back?

Their route maps don’t overlap too much– JetBlue is primarily an east coast carrier and Virgin is big out west. JetBlue has a nice foothold in the huge New York City market. Virgin is adored in San Francisco and Los Angeles. JetBlue boasts the modern, convenient airport terminal (T5) at JFK. Virgin has the state of the art T2 at SFO. The two carriers could share the mod Virgin Loft at LAX since they both operate out of Terminal 3 there. Both carriers fly Airbus narrowbody jets.

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“JetBlue would benefit greatly from having one less competitor on the highly competitive transcon routes.  For Virgin America, its owners would likely love the idea of a merger so they could recoup their investments. If the price is right, then it should make sense for them,” said Brett Snyder who runs the popular Cranky Flier blog. “But my guess is that it would be tough to find the right price.”

If the two carriers did merge, which brand would survive? Snyder thinks it would be JetBlue due to more national name recognition and the fact that they would not have to pay the Virgin Group any royalties to use the Virgin name.

Aviation analyst Robert Mann told TravelSkills, “Only partially in jest, the three most important questions in mergers are where will it be based, what will we call it, and who gets to run it?  M&A is all about egos, right?”

What are the odds that these two will merge and which brand would survive? Leave your comments below.

Some other likely combos? 

The fabulous, colorful lobby at Kimpton's Hotel Monaco in Portland. (Chris McGinnis)

The fabulous, colorful lobby at Kimpton’s Hotel Monaco in Portland. (Chris McGinnis)

There are numerous other merger possibilities that make sense in the travel space. I’m thinking Kimpton and Hyatt would make a good pair– both do a great job executing excellent upscale customer service, and Hyatt is likely eager to enlarge its relatively small footprint in the market.

Like Uber, Airbnb is sitting on a huge valuation ($10 billion) which it could use to buy out competitors… I wonder if Airbnb has its eyes on VRBO, which used to lead in this space, but now operates in the shadow of Airbnb?

Then there’s the notion that the major air carriers in each global alliance may one day merge to form truly global carriers. SkyTeam Air Lines? Oneworld Airways? Star Airlines? That’s probably years, if not decades away, but these global alliances are likely precursors. Sounds implausible, right? Well, maybe not!

What do you think are some likely merger possibilities in the travel space? Leave your comments below! 

–Chris McGinnis

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  • jim6555

    With the possible exception of Jet Blue combining with Virgin America, I don’t want to see any more mergers occur. We’ve had too many and the result is high transportation costs and poor service to the consumer. All you need to do is look at the current prices of airline tickets and car rentals and compare them with what you paid three years ago. I nostalgically wish for a return to the days when Continental, Northwest, US Airways and AirTran were directly competing with the four major surviving carriers and there were seven or eight car rental companies to chose from instead of just three.

  • http://bidontravel.com/mobile/index.html Don Nadeau

    ” . . . I’m not sure why the poster a little further back refers to Alaska as ‘competitively challenged.'”

    We’re not looking at 2Q/14 here, we are looking at the future. With its new routes already making Seattle a significant focus city/hub, with many more to come, how can Delta not be a huge competitive challenge to Alaska?

  • Tom McNamara

    Craig,

    Just as Samuel Adams would rather go out of business than merge with Bud, Miller, or Coors…Alaska would rather declare for bankruptcy than be eaten up by American, United, or Delta. All of them I am sure find pieces of the Eskimo’s network attractive, but all of them are much more focused and invested on the East Coast than the West. It is almost as if the great railroad empires of the 19th century have been reborn determined to wipe out any air carriers that focus on serving the Western US.

    Thus, the airline that is closest in profile to Alaska (and its best merger candidate, ironically) is Southwest. But just as AS demostrates you can use Southwest’s fundamentals and deliver a more premium product, it has no reason to sacrifice its reputation to serve routes that are barely profitable (like Las Vegas- LA) just to gain market share.

  • Craig

    Porter might work as a partner, but under current law couldn’t merge with a merged Virgin America/JetBlue – a Canadian airline can’t operate between two US points, and vice-versa, and foreigners can’t own more than 25% of a Canadian or US airline. There’s no relief between the US and Canada on these restrictions under NAFTA.
    And I’m not sure why the poster a little further back refers to Alaska as “competitively challenged”, Alaska is solidly profitable (for 2Q/14 profit was up substantially over prior year, it even pays a cash dividend). In the long run Alaska’s fleet difference (they’re a 737 airline) isn’t that big a deal, Delta’s shown that – they’ve actually increased their number of types since the NW merger with the 717 purchase from Southwest/AirTran, and they’ve continue to snap up lightly used MD-90s. However, Alaska also has a regional operation, something that JetBlue and Virgin America have no experience with, as well as the unique intra-Alaska operation (which could be spun off.)
    Alaska is more likely to merge with a network carrier – their west coast operation would benefit any of the three network carriers with minimal (at most) antitrust concerns.

  • Hajime Sano

    Never mind- I see someone already addressed this tongue-in-cheek comment.

  • Hajime Sano

    Didn’t Virgin Australia used to be named Virgin Blue?

  • Sean

    Marriott has owned at least one amusement park in the past. Great America in Santa Clara, California.

  • Douglas

    Yes I see you have added the word “just” . Better then ” JetBlue don t operate airbus ” :) we are aligned with the correction

  • http://www.travelskills.com/ Chris McGinnis

    Interesting! Good ideas, all. Thanks for coming out to play! 😉 — chris

  • Chauncey_Gardiner

    I’ll play!
    On the hotel front, I would merge Red Lion into Hilton, and reflag them as either Doubletrees or Hiltons.
    I would get Kingdom Holdings to finally bring Four Seasons, Fairmont & Swissotel under one flag. (and do something with Movenpick, too, please!)

    I would rescue what’s left of Pan Pacific and place it in the care of either Marriott or Hilton. PanPac seems to be the RadioShack of hotels…
    While we’re at it, how about if we tuck Omni into Hyatt.
    I agree with the VirginAmerica+JetBlue, as well as the Kimpton+Hyatt proposals.
    For airlines, could something come of an MH-CX merger? Dual headquarters, strength in China and North Asia, good counterweight to SQ and EK for SEAsia; both are OW partners; nice transpac and transcon routemaps.

  • Tom McNamara

    …I actually read in the book “DisneyWar” that at one point in the M and A craze of the 1980s that Marriott was prepared to buy the eponymous Mouse’s whole company from the parks right down to the TV channel.

    The Allegis merger is precisely the thing I don’t see happening…the Big Four of the Hotel industry and Airline industry are going to try and acquire collateral interests — not each other…

    As for the Big Hotels, one cagey strategy for a brand like Marriott would be to buy a theme park with heavy name recognition but poor capitalization like SeaWorld.

  • Simon

    Yes, that’s precisely what I said….the article says they operate just Airbus’, but they also operate a fleet of E190s.

  • Lyndon

    Add in Porter Airlines for a… a double date? Porter has the same culture as Virgin and JetBlue [can’t speak for Alaska as I have no experience of them] and if it gets permission to fly jets from downtown Toronto would fly complimentary routes.

  • http://www.travelskills.com/ Chris McGinnis

    ooh Don! I like that idea…had not considered it. –Chris

  • http://bidontravel.com/mobile/index.html Don Nadeau

    A LOT of sense. Their corporate cultures seem to harmonize perfectly, especially so in their emphasis on the customer experience.

    Virgin America would gain JetBlue’s superb social media and branding expertise.

    Am wondering if we could get a very positive ménage à trios going by adding a competitively challenged Alaska to this mix. For example, that might significantly power a combined award program by adding many attractive destinations.

  • Douglas

    They operate A320 and A321 … I do believe they operate Airbus and not just E190.

  • Douglas

    Would love to see IHG be referred correctly as IHG or InterContinental Hotels Group but not InterContinental. That’s only one brand that is not the master brand like Hilton, Marriott. Hence the rewards program is IHG Rewards Club. Thanks :)

  • http://www.travelskills.com/ Chris McGinnis

    Thanks, Tom! I think airlines have been there before… At one time in the 80s (I think) United combined with Westin and I think Hertz to form a company called Allegis. Didnt work out. And Pan Am used to own InterContinental hotels back in the 40s or 50s. That’s not saying that it couldnt happen again, tho! — chris

  • Simon

    Yes, my wink after VirginBlue was intended.
    Experiences aside, they’re pretty complimentary products, both can improve the other and their route networks would make sense to merge…honestly, I don’t see how Virgin will survive other than doing something like merge and I can’t think of a better brand than JetBlue to do that with. Of course, this is all speculation for now.

  • alanbill

    JetBlue and Virgin America would make a great merger and could help them get traction with corporate travel. Individually, their frequent flyer programs are not compelling, but in combination, they should be able to attract partners. The two airlines maintain hubs at two of the most important airports in the US, which can provide a lot of feed to international carriers. The Virgins to date, Atlantic, Australia and America, have done a poor job of coordinating their schedules and programs. With Delta’s ownership in Atlantic and its marketing program with Australia, Virgin America should join in. Even better, they should all join Sky Team.

  • Matthew

    I bet that they can’t do Virgin Blue… that’s the old name of what is now called Virgin Australia. 😉

    I’ve had a couple of bad experiences on JetBlue so, while the merger makes sense in many ways, I’d hope for the Virgin brand and management team to end up on top of the merged company. Other than the first class seats I think Virgin has a better product than JetBlue.

  • Tom McNamara

    Just a note on how anti-trust law works: in the u
    US, regulators won’t allow an industry to be dominated by more than three firms. In Europe, the number is four. Sometimes this can be waived if the merger can argue some joint revenue sharing is beneficial (common in newspapers) or if technology has added firms that compete indirectly with the two merger using similar methods of distribution.

    In other words, look for more vertical consolidation in the coming days, not more horizontal mergers. I think the airlines could easily get into passenger rail or cruises or even hotels if it makes sense. The other thing I believe is that the US really has four distinct geographic economies which make it difficult to have true national monopolies. Add in the federal structure of our government, and you get a sense for what mergers are really only a matter of time.

    Delta Airlines and Omni Hotels: Delta wants to corner the market on business travellers and owning a hotel network popular in the South is one way to do it.

    Alaska Airlines and Princess Cruises: The only major airline and only major cruise company on the West Coast are a natural fit with the ability to offer a mix of tropical, arctic, and exotic itineraries.

    Expedia and Fodors: Google bought Frommers thinking the same thing, but the beauty of this deal is Fodors having its vast, vast library of content combined with Expedia’s name recognition.

  • Simon

    JetBlue don’t just operate Airbus, they operate the E-190 too. That said, I would like to see JetBlue and VX merge, it would make total sense to me, perhaps call it VirginBlue ;-)….they have a mutually agreeable product and merging with JetBlue and incorporating Mint would solve VX’s headache over revamping their transcon product.

  • http://www.travelskills.com/ Chris McGinnis

    Thanks, Bill! I agree, but foreign ownership laws can change. Who would have ever thought that Tata would own Land Rover or that Fiat would own Chrysler? Your comment about Starwood reminds me of the recent rumor that it wanted to buy IHG! — chris

  • Bill Rubin

    I can imagine JetBlue and VA merging to stop their bleeding against the big 3 legacy carriers and SW. But there is no way the airline “alliances” will ever be able to merge, due to laws constraining foreign ownership in flag carriers that were the reason the alliances were created in the first place.

    I’ve been curious for years whether Kimpton might be acquired either by Hyatt or by Starwood, as Kimpton properties have on many occasions individually changed hands to both chains (Le Meridien Arlington used to be Kimpton). Hyatt does seem more likely, but I don’t think they have the cash on hand like Starwood to make it happen, and Starwood seems more content to acquire chains/properties with more foreign brand recognition (as with their recent agreement with Design Hotels) and build their new Aloft and Element brands around the domestic US market. Either way, I’d love to see Kimpton become the next Hyatt or SPG brand!

  • Lyndon

    Virgin and JetBlue makes a LOT of sense!