The Idiocy Behind Airline Mergers (CAL)(NWA)(UAUA)(DAL)(AMR)

February 18, 2008 by Douglas A. McIntyre

Depending on which rumor is true, Delta (NYSE: DAL) may merge with Northwest (NYSE: NWA), or United (NASDAQ: UAUA).

The math behind airline mergers doesn’t add up, and the fact that the two most successful airlines in the US, American (NYSE: AMR) and Southwest (NYSE: LUV) are not merger happy is because they know the weakness of the math.

A merger of two airlines does nothing to save fuel costs. The price of planes does not get cut. Over time reservations and customer service personnel can be chopped down, but the consumer’s experience is almost always undermined in the process. Putting two reservations systems together is widely acknowledged as being a nightmare. Cutting the costs of crew and pilots may also take a long time because of union resistance. As The New York Times points out  "Any cost reductions, for example, could easily be eaten up by higher wages required to win labor’s support for a deal."

Northwest, which bought Republic Airlines, went into Chapter 11 in 2005. Continental, which bought Texas Air, filed for bankruptcy in 1983. In 1991, after taking over People Express and several other airlines, Continental filed again.

Mergers distract airlines for serving the customer population, and there is no evidence that they save a dime.

Douglas A. McIntyre