Merger Talks, Low Rivers, and Lounge Wars: The State of Travel Right Now

The Wall Street Journal broke the story that United CEO Scott Kirby called Delta's Ed Bastian to float a merger between the two carriers, and that the call came before United's rejected pitch to American. Mike and James dig into what was really going on there, whether a mega-carrier could help U.S. airlines compete against government-subsidized international rivals, and what happens to fares and secondary airports when competition shrinks. They also look at the Allegiant and Sun Country merger, the loss of Spirit, and why the three highest-volume airlines on the planet are all American.

Then the conversation heads to Europe, where wildfires in Spain and France are making headlines and low water on the Danube and Rhine is forcing river cruise lines to bus passengers between ports. James shares a genuinely useful piece of insider advice for anyone with a river cruise booked or planned: the size of the cruise line's fleet matters more than almost anything else when water levels drop, because only the larger operators can move you to a mirror-image ship downstream instead of canceling your trip outright.

The guys close out with the escalating airport lounge arms race, including crowded Centurion lounges and Southwest's new partnership with Chase to build co-branded lounges, plus the busiest day in commercial aviation history on July 23rd with more than 153,000 flights worldwide. Add in Edinburgh's new visitor tax and airfares up 25 to 50 percent year over year, and the takeaway is hard to miss. People are traveling anyway, because getting out into the world is something close to a human need.

Introduction to No Tourists Allowed

Mike Putman: Hello, I'm Mike Putman.

James Ferrara: And I'm James Ferrara. Welcome to No Tourists Allowed. None. None whatsoever. Not a little, not a few, not a small amount, but none.

Mike Putman: No tourists allowed. Or at least no touristy traveling allowed. That's what we're really about. We're trying to help you travel better, travel in a more memorable way, and have authentic experiences while avoiding the tourist traps or some of the common mistakes that travelers make.

You've got two guys here with a combined travel experience of several hundred years, I think.

James Ferrara: Many decades, yes. And we're professionals in travel technology and in the travel industry of some reputation, good or bad. Me—me good.

Mike Putman: I, not so much. We're trying to share with you what we know, but also what we learn. We learn every time, every trip, every day, something new, and we enjoy sharing it with you. So, James, a lot going on in the travel industry. What an interesting year this has been.

James Ferrara: It has. We thought we would take this episode and highlight some news and trends in the industry, just to have a discussion with you about the state of travel at the moment.

Potential Airline Mergers: United, Delta, and American

Mike Putman: This is one thing that did make the news, but you might not have read it unless you're a travel nerd. The Wall Street Journal reported just this weekend that United’s CEO, Scott Kirby, called Delta’s CEO, Ed Bastian, last year and pitched this concept of doing a merger between the two carriers.

For those of you who don't know, there are really four major carriers in the U.S. There are three legacy carriers—American, United, and Delta—and then Southwest. Those are your big four.

It was reported earlier that United had made suggestions or opened talks with American Airlines about merging together. So it just came out this weekend that Scott Kirby also had other conversations with Delta.

The article noted that the call to Delta actually came before Scott made a pitch to American's CEO, Robert Isom, which American summarily rejected. There are some questions about whether his intention was to have this call with Delta just to set off an alarm with American to make that merger more likely, or what his true intention was.

Whether you like them or not, Delta is the most profitable airline in the world and they run a very tight ship. For United, which has a valuation of around $38 billion, to approach Delta, which has a valuation of around $56 billion, is a pretty gutsy play. Some people think this pitch to Delta was a way to cause a more likely merger approach with American Airlines. What do you think, James?

Analysis of Airline Competition and Consumer Pricing

James Ferrara: I think two things. One is that in order for the U.S. airline industry to compete on the international stage, a merger of two legacy carriers like this makes some sense. Most people may not realize that many international carriers are subsidized by their governments, which makes competition with private U.S. airlines somewhat unfair.

There are a lot of international airlines that fly into the United States and have a good deal of the market share of inbound and outbound travel.

Mike Putman: Yeah, like Qatar and Etihad.

James Ferrara: Right, there are lots who really focus on the U.S. So I get that a merger can make some sense here. But on the other hand, I like competition in terms of what's best for the consumer.

I want the best choice and the best service, especially to secondary and tertiary airports for better pricing. I like more competition, not less. There is a bit of fear in me that if United and American or United and Delta merge, it creates the largest airline in the U.S. that might own certain markets and push out competitors, which means we don't have the same price control.

All of that said, it doesn't always work in favor of consumers anyway. We're in a time right now where airfares, both domestic and international, are up somewhere between 25% and 50% year over year. For all my talk about competition, it hasn't protected consumers from those kind of fare hikes.

There are other issues as well. We have seen in different markets that the service into tertiary airports or secondary cities can disappear on customers overnight. So that's what I think.

Global Rankings and Low-Cost Carriers

Mike Putman: It's interesting to note that in terms of global passenger volume, the top three airlines in the world are all U.S. airlines. It's American, and I can't remember if it's Delta or United at two and three, but it's Delta, United, and then I think fourth is Ryanair and fifth is Southwest.

There's a lot of movement because we do a lot more domestic travel than other countries do. It's a combination of things. We've got a large country, but we also have a poor train system. In Europe, you're much more likely to take a train because it's more convenient, lower cost, and better for the environment, but we don't really have that opportunity here in the U.S.

But anyhow, it's just an interesting point. I'm glad to see that neither of the two suitors wanted to pursue that. We did have one merger that happened this year, which is Allegiant and Sun Country. I think that's probably a good thing.

I think Sun Country was struggling a bit. Allegiant has a pretty strong balance sheet and they're a good operator. I know you don't fly low-cost carriers, but in this part of the world, flying to Florida, Allegiant offers a lot of nonstop service.

It's like being on a bus in the sky. There are no frills, but they get you there safely. They try to sell you a bunch of stuff while you're on the plane, but if you can get around that, there are a lot of nonstop destinations at a really low cost.

I was sorry to see the Spirit merger talks fall through. They couldn't find anyone to sell to or merge with, and we wound up losing Spirit, which for some people made things more expensive and more difficult out of their particular airports.

James Ferrara: They have a place. Ultra-low-cost carriers have a place. Low-cost carriers have a place. But I will say I flew on Spirit one time and that was the one and only time. I have a cutoff on expectations and I was not treated well. So I fled them all.

Environmental Challenges and River Cruising in Europe

Mike Putman: We've got some interesting things going on with the environment in Europe, James. At the time of this recording, there are a lot of wildfires in Spain and France, and some of the rivers are running dry. This affects a very important part of travel in Europe: river cruises.

There is lower water on the Danube and Rhine. There are impassable areas on these rivers where the cruise lines are having to deploy buses to move people between areas. This is very unusual. It's not the typical thing, so don't get worried if you have a cruise booked. I'm sure this will resolve itself as soon as they get a little more rainfall, but it's causing quite a stir right now.

James Ferrara: We can give a little insider tip on this because this does happen. It doesn't happen every year; it runs in cycles every few years. It's all-natural and depends on the weather. But there is a way to hedge your bet if you're doing a river cruise.

By the way, river cruising is incredibly popular and I highly recommend it. I love to travel that way, and it's a really fast-growing segment. There are sixty new river cruise ships on the order book. That tells you how much demand is there.

The insider tip is to book a river cruise with a company that has a large enough fleet to swap ships. They may come down the Danube to a certain point until the water is too low, then they'll take you off the ship and bring you one or two ports down to where the water level is okay.

They will have brought one of their other ships there to meet you. Oftentimes these ships are mirror images of each other. You get on the new ship and continue your cruise. But that can only happen if you're cruising on a line like Viking, AmaWaterways, or Riviera—larger lines that have enough ships to be able to do that.

There are a lot of beautiful small river cruise lines, but they cannot accommodate you in the same way and they wind up canceling the cruises.

As for the wildfires, we have it on good account from people in Spain and France that the media has hyped up the situation quite a bit. It's really not affecting tourism or the areas that you would visit as a traveler. As we get closer to the fall, this becomes less of an issue, but everyone is keeping an eye on it.

The Growth of Airport Lounges

Mike Putman: One other thing I wanted to share is about airport lounges. These were traditionally dominated by airlines; Delta has its lounges, American has its lounges. Then there are independent companies that build lounges to service airlines that don't have enough inbound flights to support their own lounge.

Maybe Qatar has one flight a day. They want to provide lounge service, but it would be crazy to rent and staff a place just for an hour and a half a day. So these independent lounges might serve six or seven airlines to make it affordable for everyone.

Then American Express started their Centurion lounges, which are really nice, but they have gotten really crowded because anyone with a Platinum card can get in. I see it every time I travel; people are waiting an hour or two just to get in, which is not ideal.

Then Chase came out with the Sapphire card lounges, and Capital One came out for their premium card. So you have these different tiers of lounges.

An interesting thing came about this past week. Bob Jordan, the CEO of Southwest, announced that they, in partnership with Chase, are in construction for a set of lounges that will serve both Chase and Southwest. The belief is that there will be a premium card from Chase for Southwest that allows people into these lounges. This is a new spin—a combination of an airline and a credit card operator.

Record Flight Volumes and New Tourism Taxes

James Ferrara: It would be remiss not to mention that the busiest day in commercial aviation happened earlier this month on July 23rd. There were over 153,000 commercial flights worldwide that day. That is 11.8% above the previous record.

Some reports say a couple of different festivals might have had something to do with it, but the point is people are getting out. This is a busy time of year for travel, especially leisure travel. People are moving despite higher than normal airfares due to oil prices.

Mike Putman: Oil prices and whatever other friction is in the world—these are all real things. Even when you were in Scotland, did you see that the city of Edinburgh announced a visitor tax of 5% of your daily spend up to a maximum of twenty-five percent in your trip? Everyone's out to get a little piece, sometimes with these annoying drip fees that don't show up up front in your hotel room quote.

Despite these things, we're still breaking records. That tells you something about the nature of travel and how imperative it is to us as human beings to get out in the world, have new experiences, visit places, try food, and expose ourselves to different cultures. It's in our bones.

Conclusion and Sign-off

James Ferrara: It's a good thing for our business, but psychologically, it is good for people to get off the couch and experience what it's like to be in the know.

Mike Putman: That's right. It's a mental health imperative. I am a doctor and I am prescribing travel. All right, I think that's about it for this week's show. Listeners, thank you so much for spending part of your day with us. I hope you enjoy our little podcast. How many years now, James?

James Ferrara: It’s got to be going on four, maybe three and a half.

Mike Putman: Thanks to those who have been with us since the beginning and thanks to our new listeners too. Please spread the word to listen to No Tourists Allowed. Tell your friends they can download the podcast from any point they want. Thanks so much. Have a wonderful week and we look forward to talking to you next week.

James Ferrara: Thank you, everybody.