Filed under: Deals, Industry, Southwest Airlines (LUV), AMR Corp (AMR), Contl Airlines’B’ (CAL), UAL Corp (UAUA), Delta Air Lines (DAL)
In the airline industry, it seems that any deal will due. Northwest Airlines Corp. (NYSE: NWA) is already fairly far along in discussions about merging with Delta Air Lines Inc. (NYSE: DAL). Now UAL Corp.’s (NASDAQ: UAUA) United Airlines is speaking with Continental Airlines Inc. (NYSE: CAL). But one set of negotiations in not enough for Continental. It is also talking to AMR Corp.’s (NYSE: AMR) American Airlines, according to The Wall Street Journal (subscription required). The paper reports “the talks were exploratory, and it isn’t clear they’ll go further.”
Airlines are seeking mergers under the premise that combining companies saves costs. While that is true to some extent, the marriages also hurt customer service — badly. Putting together incompatible reservations and service operations can take years and be extremely complex, which can make it hell for consumers who just want to take an airplane ride from here to there. Bad customer service is a sure way to drive off fliers, and that’s not good for revenue.
The savings in a merger also might not be as great as imagined. Fuel costs stay the same. The number of pilots and crews might drop some, but that can also cause labor disputes and strikes that interrupt service. The number of people needed to handle customer support and processing of reservations probably cannot be cut by much, especially if retaining revenue with unhappy fliers is important.
In an industry where mergers and Chapter 11 filings have been part of the landscape for decades, combining airlines might be no panacea. It is good to remember that the two most successful carriers in the United Says, American and Southwest Airlines Corp. (NYSE: LUV) have never been much enamored of merging.
Douglas A. McIntyre is an editor at 247wallst.com.
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