For Frank Lorenzo, chairman of Houston-based Texas Air, triumph was savored in poker-faced silence. For Donald Burr, Lorenzo's onetime protege and chairman of ailing, once revolutionary People Express, it was time to put the best possible face on defeat. The two fierce rivals and captains of cheap U.S. air travel sat at opposite ends of a table last week in Manhattan's St. Regis- Sheraton hotel to announce what many had expected: the long, tortuous People Express saga had ended with the airline's tentative sale to rapidly expanding Texas Air. The price: a bargain $125 million. At the same time, Texas Air will buy People's grounded subsidiary, Frontier Airlines, for $176 million. The complex deals, which come in the wake of several other big airline mergers, could mark a turning point for the low-fare carriers and indeed for the entire industry. The swift consolidation in the skies also raises the prospect of reduced choices and higher prices for consumers.
Within days, the intense Lorenzo celebrated a second coup. The U.S. Department of Transportation announced that it would give tentative approval to Texas Air's $600 million purchase of Eastern Air Lines, an agreement first struck last February. Piled atop the planned acquisition of People Express and Frontier, the Eastern deal confirms that Texas Air is about to become the country's No. 1 passenger airline, with 20.1% of the domestic market, passing former leader United (15.7%).
By its rapid maneuvers, Texas Air has emerged as the high flyer in the country's fierce merger wars. On Oct. 1 Northwest Airlines formally merges its flight schedule with Republic's, creating what will be the fifth largest U.S. airline, with 9.4% of the market. Trans World Airlines, which gained DOT % approval early this month for its $250 million purchase of Ozark Air, will soon be the sixth-place carrier (8.1%). Two weeks ago Delta Air Lines announced a bid to take over the fourth-place spot (11.9%) in the passenger race with an $860 million play for Western. Warns Lee Howard, an economist with the Washington consulting firm Airline Economics: "We see a tight oligopoly emerging in the airline industry, with perhaps a half-dozen major carriers controlling 90% of U.S. travel."
Oligopoly of sorts may already exist. If the latest buyouts take place as planned, eight airlines will control more than 87% of the U.S. passenger market (see chart). The rush of new entries into the passenger business that began with airline deregulation in 1978 has long since peaked: from a high of 123 certified passenger carriers in 1984, the field has now shrunk to 96. Enthusiasm for new airline ventures among financial backers has dropped dramatically. Says Geoff Crowley, a senior vice president of Presidential Airways, a year-old low-fare carrier based in Washington: "We wouldn't be able to get started now. Wall Street is casting too questioning an eye on new airlines." David Hinson, chairman of Chicago-based Midway Airlines, cites another barrier. Says he: "All the infrastructure, like airport gates, has been consumed by the big boys."