Airline Mergers Could Be Bad News for Flying Public -- and Airlines

Analysts Say Consolidation Would Create a Marketing Nightmare and Less Customer Loyalty

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WASHINGTON (AdAge.com) -- Could the friendly skies soon become less friendly?
One analyst believes a merger with United and another airline could have considerable trouble deriving real economic benefits, given it would face a tangled mess of different fleets, different unions and different policies.
One analyst believes a merger with United and another airline could have considerable trouble deriving real economic benefits, given it would face a tangled mess of different fleets, different unions and different policies.

Reports that United Airlines may be seeking a partner (the latest rumor: Delta Air Lines) might be good news for hedge-fund managers but less so for the flying public -- and maybe even the airlines themselves. Analysts said a consolidation wave may well create a marketing nightmare of more competition, considerable new operational challenges and potentially less customer loyalty.

Mike Boyd, an aviation analyst with Boyd Group, said that based on recent past history (for example, the U.S Airways/America West merger), a consolidated United could have considerable trouble deriving real economic benefits, given it would face a tangled mess of different fleets, different unions and different policies.

Why it won't work
Capacity "is full today and there is nothing in the immediate future that is going to send demand up precipitously," said Mr. Boyd. He said consolidation only works if it lessens competition, decreases costs or allows higher prices, while, of course, keeping existing customers. Part of achieving those aims depends on competitors not rushing in to take advantage of new opportunities from service cutbacks, and Mr. Boyd said that's pretty unlikely. Southwest has been challenging U.S. Airways in Philadelphia.

"If I as a CEO can pull 15% of capacity as a result of consolidation and run five flights less a day to Roanoke, it would work. But the facts are not in evidence that consolidation would in fact reduce capacity." Instead, he said, big-markets rivals will simply rush in.

"There's such myth and lore about consolidation," said Mr. Boyd. "The truth is there is no compelling industry need to merge airlines."

Yet, he said, United "is perfuming itself to be in play, so everybody else is looking."

Delta: 'No talks with United'
Denying news reports that its executives had met with United to discuss a combination, Delta tonight issued a statement. "There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions," CEO Richard Anderson said.

United Airlines advertising is handled by Barrie D'Rozario Murphy, the Minneapolis startup by former Fallon executives who had worked on the airline account there. Delta is handled by SS&K, New York.
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