Post-Deregulation Airline Merger Mania - Part One
The passage of the Kennedy-Cannon Act in 1977 had entirely deregulated the airline industry and by early 1980 abolished the Civilian Aeronautics Bureau for good, and with this move came an explosion of mergers, bankruptcies and rebalancing within the previously tightly-controlled industry. A rush to consolidate routes and networks was paired with other airlines following the example of Delta's Atlanta hub or United's Chicago operation after seeing the tremendous success both had in the hub-and-spoke model.
The first major shoe to drop was in 1978, when Continental and Western announced their merger as "Continental-Western," a name chosen after CA's eccentric chairman Bob Six won a coin toss (and a name that would last only until 1983, when the "Wester" was dropped for good). The new Continental, through this merger, was able to dramatically consolidate its operations at their Los Angeles headquarters, becoming the largest carrier at LAX by a good amount, and also handed it Western's hubs at Salt Lake City and Denver. In the long term, these two hubs would serve more as competition for one another than, complements, and by 1990 Continental had dramatically reduced their presence at SLC in favor of constructing another fortress hub at Denver. The move in one fell swoop would make CA the dominant carrier west of the Rockies and the chief competitor for American and TWA in the Plains states.
The next major merger was that in 1979 which produced Republic Airlines, cobbling together North Central and Southern to form a major three-hub network out of Minneapolis, Detroit and Memphis. Republic's next goal was to become the biggest airline in the United States by destinations by adding Hughes Airwest, a flailing West Coast airline, to its portfolio, but in early 1980 they were beaten to the punch by Trans World Airlines, which outside of a small operation in Portland had never had a substantial Western presence and under new management wanted to beef up its small trans-Pacific offerings, which until then had included only Taipei by way of Honolulu. Hughes Airwest at least gave them a large foothold on the West Coast and allowed Trans World to do what they really wanted - go head-to-head with Pan Am in San Francisco (and to a lesser extent the increasingly competitive LAX) now that routes were not protected for the Flying Blue Meatball. The Airwest acquisition would be the first of three major mergers involving TWA in the 1980s during a major and delicate strategic rebalancing that would position it for its run in the 1990s as America's dominant domestic and international carrier.
Nobody could have expected the earthquakes that were to follow, however, which made the Continental, Republic and TWA moves look like a mere appetizer. The top dog for years in US air travel had been Pan Am, which had operated an almost exclusively international route network and in the early Jet Age emerged as a towering symbol of American prestige and soft power. The Pan Am of 1980 was a different animal; its heavy bet on the 747 right before the 1973 oil crisis had looked like a mistake in hindsight, it no longer enjoyed exclusive rights in many overseas markets and it had no real domestic feeder system to speak of outside of line-to-line routes between hubs in JFK, Miami and SFO. That was why securing a domestic partner to absorb became an odyssey for Pan Am board members in the late 1970s once deregulation made it a necessity for survival; CEO William Seawell was determined to get it done before he retired. Pan Am had a number of smaller airlines it was interested in gobbling up: Northwest Orient, which was a dominant trans-Pacific carrier but would not solve the domestic issue, National out of Miami which would boost Pan Am's position in that market, and the unlikeliest but most intriguing option of Eastern, which would largely duplicate an existing route network but do so in a way that provided at least a little more feed.
Pan Am's interest in Northwest declined once National and Eastern both began suffering from labor and financial strife; but the bid for National became a debacle, with the price bidding up and up as other airlines both wanted the Florida carrier's routes for themselves and to kneecap Pan Am. Seawell was approached secretly by Frank Borman, the head of Eastern, with an offer - a merger with Eastern, which despite being profitable in 1977 and 1978 was now entering a period of turmoil again and was being eyed by other airlines. An Eastern-Pan Am merger would interline the two airlines' major operations in JFK and Miami and create a near-fortress hub in the latter, while giving Delta considerably more competition in Atlanta (which was envisioned as a major domestic feeder hub) and then giving the new airline the size and heft to rapidly expand a Midwestern hub at either O'Hare or elsewhere for additional domestic routes. Borman would take over for Seawell as CEO once the merger was complete and the new company would be better positioned to restructure debts accrued by both in the 70s and ward off the dangerous new deregulated world.
Seawell agreed, in private, and quietly declined to meet the latest bid for National in the bidding war - which went to United. As excited as United executives were at their new foothold in the Southeast, mere weeks later Seawell and Borman held a press conference at the Fontainebleu in Miami to announce the combination of two of America's biggest airline brands, Pan American World Airways and Eastern Air Lines, into a single "super-airline" that would continue to be headquartered in New York but with its main operating base, crew training facilities and largest hub at Miami. The news made United's bid for National effectively worthless near overnight, with Miami about to crowd the smaller airline out, but the promissory note was paid and United would expend millions in legal fees over the next few years trying to back out of its obligation to buy the rapidly-failing airline. The first big debacle of the deregulation era had occurred...