January 28, 2008

Merger Mania!

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Written by: Tom Alfano
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EXTRA! EXTRA! Airlines to merge! Cities to lose service! Employees getting the pink slip! Shareholders celebrate by purchasing new BMW!

Yes, folks, the new trend for 2008 is “Mergers.” After years of cutting back on service, removing enough mainline jets from airline fleets to equal one entire airline the size of Continental, the airlines still think there is too much capacity in the United States. Therefore, in order to survive they need to merge and further reduce service and choice.

The key players causing the stir are the male stag Delta courting Northwest and United. It’s going to be like a scene out of the movie “Three Weddings and a Funeral.” While the shareholders, lawyers, consultants and the top brass celebrate like newlyweds. The consumers, cities that will lose service and the thousands of employees who will lose their jobs will watch their hopes and dreams get buried for good by corporate greed and so called “experts” who think one mega airline is the answer to the countries transportation needs.

Photograph by Phil Derner Jr.
(Photograph by Phil Derner Jr.)

Before we go on, I think it’s important to look at airlines mergers in the past and remind ourselves of the reality of what really became of them. Now most point out the most recent merger of America West and U.S. Airways as a somewhat of a successful merger. The facts are HP and US were truly not competing carriers, one being an East coast focused carrier and the other West coast. On paper it looked like the perfect couple. Who said they were a perfect couple? Well, you guessed it…the consultants who I think simply looked at a map and said “Looks good.” The fact though the merger wasn’t pretty, most top brass just say the problems were growing pains but it was more like being in a front end collision at 65 mph. Just to point out a few of the issues that caused US’s performance to collapse because of this merger were.

• Merging the unions under one contract, i.e; labor problems.
• A continued pull down of the former U.S. Airways Hub at Pittsburg, i.e; lost jobs.
• Merging reservation systems caused huge customer service issues.
• A loss of focus on basic performance because of merger related issues, making US Airways the worst on time carrier in the nation and the worst in customer service.

These are just four points that dramatically affected U.S Airways only a year and half after the merger. U.S. Airways is still recovering from these issues all the while airlines like Southwest continue to expand out of key U.S. Airway hubs and markets stealing customers who left because of merger related problems. As for the employees, I don’t ever recall hearing from U.S. Airways how many support personal in US’s former HQ lost their jobs. Eh, they probably just buried them out back.

Other mergers that didn’t go as planned were the AA/TWA merger. Ask the former Flight Attendants of TWA how that went. All of them lost their jobs and only now seven years after the merger are they being asked to rejoin the ranks of American. As for cities that lost service and consumers who lost choice in air travel,this merger saw huge loss in the Midwest and even at our own JFK, where TWA had a much larger domestic and international presence then American. So, yes, it does hit close to home folks. Internationally we lost service to cities like Cairo, Televiv, Riyadh, San Juan, and countless domestic locations. The AA/TWA merger slogan was, “Two great airlines, one bright future.” The only bright future was for the lawyers and consultants who ran away with the farm while thousands were laid off never to work in the industry again.

Photograph by Gordon Gerbert, Jr.
(Photograph by Gordon Gerbert, Jr.)

Now on to the Delta/NWA/UAL proposal and who’s pushing for the merger. Well, for one, it’s not the people at these airlines who know the real facts about the outcome of this. One also must ask themselves why all of the sudden Delta is so keen on a merger when only months ago when U.S Airways was courting them they were dead set against any merger and were determined to remain a stand-alone airline? Why the change of heart? Delta has a good balance sheet right now, a manageable long term debt when compared to United, so why take on that debt? It’s simple who pushing this; it’s the analysts and the Wall Street hawks that see only shareholder value and not what is best for the consumer or the long term sustainability of the airline and its product.

When the news hit the wires about merger talks, all of these airlines stock prices skyrocketed. This is who are calling the shots today folks; the analysts, speculators, and shareholders who don’t care about the overall integrity of the company or a long term investment. They want it now. Ever ask yourself why the price of fuel is so high? It’s not because there’s a shortage of oil or a cigarette boat racing around a U.S. Navy Frigate in the Mid East. It’s because some speculator decided to freak out sending the markets in a spin sending up the price per barrel of oil.

Now back to this merger, the questions we should be asking is; what is the real benefit of any of these three airlines coming together? What will it offer the consumer? How it affect the price of air travel? And lastly what will be the effects on the economies these airlines serve?

I’ve looked at all three of these airlines and, I’ll be dammed, I don’t see one benefit to a merged Delta/NWA or UAL. Not a one. I see lots of negatives but not one benefit. The so called “experts” say it will allow easier air travel between cites these airlines serve now, well here’s a news flash Delta and NWA are Skyteam members with codeshare agreements. Consumer can already book a flight on Delta to destinations NWA serves totally seamlessly.

Trying to merge airlines of this size isn’t an easy process either; just look what happened what happened at American West and US. After the merger and after all the shareholders got their cash and ran with it, customer service sank, the stock price sank, and so did the performance of the airline. Do the lawyers and consultants who touted the merger beforehand care? No they don’t. Why should they?

They got what they wanted and now the employees and consumers are stuck dealing with the mess. Sit back and think for a moment about combining just these support divisions at Delta and United as an example, Training, maintenance, route planning, HR, logistics, ground operations, station operation, dispatch, supply chain, and the hundreds of other divisions at these airlines. Wall Street doesn’t look at that; they leave that up to who’s left to deal with. Oh and yes what about the fleets. My my, maintaining such a variety of aircraft for the period of time, they’ll have to keep a mixed bag which will cost millions each year. Anyone who thinks combining Delta with NWA or UAL will be easy is sorely mistaken. The damage it will cause to these airlines will be evident within a year of the merge. I predict customer service will collapse, the unions will be in an uproar, and performance will decline. While all this is happening the focus will come off long term planning and airlines like American and Southwest will swoop in and steal the hoards of consumers who will run from the problems caused by the merger, just like they did with U.S Airways. A side note, keep an eye on Southwest and American this year. They’ve been flying under the radar for the most part but will benefit the most by their brethren coming together in some kind of incestuous marriage that’s going to produce some very ugly offspring.

Now for a simple example of how the traveler will suffer from having one less major carrier in the market place. If I want to travel to Omaha from LGA, I have choices right now. All the airlines that serve Omaha from LGA require a connection at a hub so it might not truly make a difference who I fly. I have to connect so I’ll see who offers the best price and the best times, remove one of those choices and prices go up. It’s natural. Less choices equal higher prices and not as many options. Service will also suffer; if I don’t have to compete with airline “B” anymore why maintain the same customer service levels that airline “B” offered in the past?

Now what about all the spoke cities that are currently severed by the airlines major and mid sized hubs? A combined Delta and NWA will surely force them to shutter MEM as a hub further reducing air service in the Mid part of the nation. A combined Delta/UAL will see SLC reduced to nothing more then a ghost in the Wild West erasing any vestige of what was once Western Airline’s hub. The fact is cities lose service and economies are going to suffer greatly.

So what are the chances of this happening? Well if it’s completed in 2008, it’s a done deal. The GOP-controlled commissions that approve these deals will vote it through without even blinking. It’s evident the consumer isn’t what’s important anymore; it’s all about shareholder value and making a quick buck. The age of consumer protection is quickly fading. These three giant airlines can’t stand alone because Wall Street won’t let them. Any decline in their stock prices and the hawks demand quick answers, they don’t want long term plans for profitability they want their buck and fast. Competition in the market is paramount to capitalism’s survival; reducing choice in the market place will only benefit the ones who have the least affect on the economy. Let’s keep choice in air travel, let’s keep people employed, let’s allow cities to remain on the route networks of these airlines, and let’s hope these mergers don’t go through

DISCUSS this editorial on the NYCAviation Forum.

About the Author

Tom Alfano



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