The prospect of the six largest US airlines consolidating into three mega-size carriers is prompting calls for a fundamental review of government regulatory policy and existing restrictions placed on foreign ownership and the rights to compete in the domestic market.

The proposed link by Northwest Airlines' partner KLM with British Airways, in the oneworld alliance with American Airlines, could have ramifications on the USA's side of the Atlantic.

Following United Airlines and US Airways' recently announced plans to merge, there have been new consolidation talks as the other four major US carriers attempt counter manoeuvres. The result could be the emergence of three dominant players, controlling 86% of US traffic.

American Airlines, the USA's second-largest carrier, is widely reported to have held separate talks to acquire either of the next two largest carriers, Northwest Airlines or Delta. The latter, in turn, is seen as a potential buyer of Northwest's 13% controlling interest in Continental, which it may have to shed in the event of merging with American.

"The regulatory community is being put on the line and asked: 'Do we want to reduce competition to three major airlines, plus Southwest?'," says Global Aviation Associates consultant George Hamlin. He says the government's overall policy needs reviewing, rather than just individual mergers.

An American merger with Northwest is a better geographical fit and would probably be more favourably viewed than a merger with Delta, which would only strengthen the former carrier's controversial dominance at Dallas Fort Worth, say observers. The Northwest/KLM and BA/American links may also come into play.

The fast-changing US situation is renewing the debate about giving international carriers cabotage rights to raise domestic competition, as well as raising the current 25% limit on foreign ownership. "We'll be getting there sooner than many believed a few years ago," says an industry analyst.

Meanwhile, United Airlines is facing growing scrutiny from its own pilot unions, concerned about seniority, and from the US Congress, addressing issues of competition. The US House of Representatives' judicial and transportation committee has already called hearings to review the proposed merger. The debate is only likely to intensify, leading to speculation that talk of further mergers is intended to undermine the United-US Airways deal.

Source: Flight International