Is the Possible Merger of United and US Airways Good or Bad?
The United and US Airways return to the table to discuss a possible merger begs the question: is this a good or bad thing? I guess the answer depends on who you ask. From the perspective of the shareholder / investor, it has to be a better deal. From the perspective of the traveler, it may not be a better deal. It may mean higher prices when there is one less major player to beat up on the others.
The airlines have had a dismal record when it comes to profitability, regardless of what part of their history you examine. They make money some years, but lose it in other years; so, for the most part, they have lost in the aggregate.
The airlines must find a balance between the traveling public’s demand for better service at lower ticket prices (how does that work?) and their own need to make a profit for their shareholders. Where is the winning solution there? And we haven’t even taken the employees and unions into account. What about them? Nothing seems to happen without their approval.
I am not sure that anyone can find the winning solution or the right mix with any certainty. Most likely, you will get as many different answers as the number of different interest groups you ask. Everyone has an agenda and none of them seem to align.
An article published by Gannett on April 12 says the following:
Consolidation is appealing to many in the U.S. industry and to investors who have witnessed the erosion of traffic for old-line, legacy airlines such as United and US Airways at the hands of discounters.
But analysts say those issues could pose less of a stumbling block than they did just a decade ago, when United and US Airways first talked of combining.
Today, there are more discount airlines with stronger market shares, which could offset higher fares for travelers and offset regulators’ concerns about a lack of competition.
A merger would create a giant, second only to Delta. United is the No. 3 U.S. carrier in passenger miles flown. US Airways is No. 6.
Globally, the pair flew a consolidated 158.4 billion revenue passenger miles in 2009 compared with the 163.7 billion flown by Delta.
Even experts, such as Hoffer, who are skeptical about benefits to travelers from airline consolidation say consumers won’t necessarily be doomed to paying significantly higher prices if the U.S. airline industry shrink to just three or four conventional carriers.
“The history of this industry always has been that of new entrants coming into markets where they saw opportunities,” Hoffer said.
“The airline business is like the restaurant business,” he said. “Every decent chef thinks he can run a restaurant, and every decently rich man thinks he can run an airline. So they keep buying or launching new restaurants and new airlines. Most of them don’t succeed, but it helps to keep prices down, at least for a while.”
So when all else fails, how about letting a free market decide?
If the merger provides a stronger company, maybe they will be a better competitor in the worldwide market where US airlines struggle? Without profit, business cannot reinvest and compete; so, we have to remember that profit is not a dirty word in the airline industry or in any other.
Agreed. Airlines have a dismal record of profitability. That extends into moral of the industry. Result: airline employees are not service orientated anymore. A merger usually means layoffs. That certainly doesn’t contribute to moral either.