Latest airline merger gives TWA a stronger regional footing
Trans World Airlines' agreement to purchase Ozark Air Lines caps the third big airline merger in five weeks, putting even greater pressure on medium and small airlines to find partners. Following close on the heels of Eastern Airlines' decision last week to sell out to Texas Air's Frank Lorenzo, TWA agreed late Thursday to pay some $250 million for Ozark.
Though negotiations between Ozark and TWA had been going on for nearly a year, the starting gun for serious talking may have been Northwest Airlines' decision to purchase rival Republic Airlines in January.
Eastern's decision last week to accept Mr. Lorenzo's offer added to the pressure, although both Ozark and TWA spokesmen say that that merger was not a deciding factor.
Nevertheless, analysts say TWA chairman Carl Icahn, who wrestled Lorenzo for control of the airline last summer, had to do something to stem continued losses of about $1 million a day.
Mr. Icahn said that the purchase of Ozark ``will deliver much-needed facilities, smaller aircraft, and a presence in regional markets we simply could not gain quickly any other way.''
Analysts agree that the move gives TWA badly needed feeder service connecting the interior of the country to the St. Louis hub and on to its lucrative overseas flights. Together, TWA and Ozark will have 56 of 74 gates at St. Louis's Lambert International Airport and control nearly 70 percent of the market there.
Although it reportedly rejected a higher offer from TWA last year, Ozark has felt the competitive pressure industrywide that has made it more difficult for a medium-size carrier to operate profitably.
In 1984, St. Louis-based Ozark made a profit of $12.7 million. But even though passenger traffic rose more than 11 percent in 1985, Ozark made only $636,000 on revenues of $480 million. TWA lost more than $193 million in '85.
``If TWA can bolster their international traffic with added feed in St. Louis, it will be a big magnifier on their revenues,'' says Lee Howard, executive vice-president of Airline Economics, a consulting firm.
Helping TWA was a recent marketing agreement with Piedmont Airlines, which operates primarily on the East Coast. Piedmont agreed to feed Europe-bound passengers to TWA in return for gates and ticket counter space at New York's Kennedy International Airport.
Such agreements portray the trend of the industry toward perhaps half a dozen major airlines, with a couple of dozen feeder carriers serving them.
``What we're seeing now is the wave of the near future,'' Mr. Howard says. ``Last year there were a number of domestic hubs set up, while this year we're going to see the building of more international hubs. . . . This process is obviously in full bloom.''
Indeed, airlines such as Eastern, Delta, and American, which before deregulation in 1980 had no serious interest in overseas routes, each have a number of overseas routes now. No-frills Continental has seen the potential and has flights directly from Houston to London.
``There is also a gradual shift to an oligopoly that isn't unexpected, given the administration's laissez faire policies,'' says Robert Joedicke, an airline analyst at Shearson Lehman Brothers. ``It's just more of what you'd get in any Transportation 101 class.''