Airline mergers are messy for employees, aircraft builders, airports and especially customers. The likely merger of U.S. Airways Group Inc. (NYSE: LCC) and bankrupt AMR, parent of American Airlines, will cause another round of the poor customer service and the high fees people have come to expect as airline marriage rates surge.
Consumers need look no further than the merger between Northwest and Delta, which created the new and bigger Delta Air Lines Inc. (NYSE: DAL), or the link up between United and Continental that created United Continental Holdings Inc. (NYSE: UAL). Each of the new conglomerates has been marked by rough transitions in reservation operations, layoffs of workers and disgruntled employees, and disruptions of routes.
Large carriers already get dismal marks on most consumer surveys. And all the largest airlines charge fees for everything from bags to meals - charges that were unthinkable a generation ago.
The theory behind airline mergers is that they create economies of scale. Back office operations can be chopped in half. Airport gates, most of which are expensive, can be consolidated. Planes can be taken out of service, and some duplicate routes can be cut. Staff reductions save employee expenses. The Delta, United and probable American mergers have each been set in turn to create the largest airline in the world. The size of an American tie up with U.S. Airways will create the largest one of all.
The airlines know that they can risk poor service as they consolidate because consumers have no other choices for transportation. Mergers often mean that many routes are exclusive to the merged company. Passengers can drive, walk or take a bus, each of which is unrealistic when distances are great enough.
The federal government reviews the mergers to make sure that they do not create a monopoly. In the case of recent major airline mergers in the United States, the deals have sailed through the scrutiny, as AMR and U.S. Airways will. The government never asks whether the customer will face poor service and higher fees. There is no federal review board for that.
Filed under: 24/7 Wall St. Wire, Airlines, Mergers & Acquisitions Tagged: DAL, featured, LCC, UAL