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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 29, 2012 at 9:50 AM

Airline mergers keep failing; let’s do another

When United Airlines merged with Continental Airlines in 2010, it was sold as salvation for both carriers. As the New York Times puts it, the deal “promised an unparalleled global network, with eight major hubs and 5,500 daily flights serving nearly 400 destinations. As an added benefit, the new airline would be led by (Jeffrey) Smisek of Continental, which was known for its attention to customer service.”

As anyone who has followed the industry since deregulation could have predicted, the merger has turned into a disaster. The merged United has the worst on-time record of any airline, computer systems have repeatedly failed, employees and customers have been alienated, finances are a mess and shares of United Continental Holdings are in the cellar. This always happens. The good never survives. When plucky, beloved Piedmont Airlines was bought by the old USAir in 1989, all the pathologies of the acquiring airline survived and were amplified. Piedmont’s reputation for great customer service and excellent operational performance became history.

This is no mere history lesson, though. American Airlines, which was partly dragged down by its 2001 merger with Trans World Airlines, is preparing to exit bankruptcy court protection and a marriage with USAirways is the talk of the industry.

Why do these deals keep happening? They eliminate competition in one of the most consolidated of American industries. Executives, investment bankers and lawyers involved in the merger make huge compensation. Suddenly “redundant” hubs, often expanded with local tax money, can be closed and thousands of employees (“carbon-based life cost centers”) can be eliminated. Maintenance can be further outsourced to questionable outfits, often out of the country.

It’s all about short-term looting and knocking off one more rival. None of it deals with the problems of “legacy” carriers, much less focuses on building business by, er, serving customers and being innovative. But in the absence of antitrust enforcement, they will keep happening and the damage will continue. The friendly skies, indeed.

And Don’t Miss: Social Security and the national debt || Baseline Scenario

Today’s Econ Haiku:

Geithner’s on the case

Point man for the fiscal cliff

Sell us out, he will

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