Kamil Krzaczynski/European Pressphoto Agency United Airlines and Continental Airlines agreed Sunday to a $3 billion merger that would create the world’s biggest airline, with 10 major
hubs, dominating in New York, Chicago and Los Angeles. If the deal wins antitrust approval from the Justice Department, the new company would replace Delta as the largest carrier after it merged with Northwest Airlines
in 2008.
Is airline consolidation good for consumers? Does it depend on the region of the country and other factors? What are examples of mergers that turned out well for travelers, or badly?
Good for Fliers
Patrick Smith, a commercial airline pilot, is the author of Salon.com’s Ask the Pilot air travel column.
The announced merger between United and Continental is unprecedented in its size, as was the earlier Delta-Northwest combo, but we have been dealing with mergers and acquisitions, takeovers and alliances for decades.
Northwest and Republic, Delta and Western, Pan Am and National, Air Canada and Canadian. And so on.
Consolidation means less congestion and fewer delays.
Fliers fear that increased consolidation will mean higher ticket prices and the monopolization of certain markets. But we’ve yet to see any such trend emerge, and it’s doubtful that we will. Indeed, for
all the griping we hear, airfares remain at or near historic lows. And competition is more cutthroat than ever before, and is likely to stay that way. It’s not for nothing that low-cost carriers like JetBlue
see these mergers as positives. Meanwhile there will remain a plethora of carriers to choose from both domestically and internationally.
Not to mention, consolidation means less congestion and fewer delays — at least in theory. Mergers often result in fleet-trimming and the elimination of redundant services across certain markets. That’s
potentially bad news for airline employees, but good news for fliers.
Read more…
Fewer flights between certain cities isn’t necessarily a negative. What good are 15 daily flights between city A and city B when half of them are an hour or more late? Operating together, carriers can
better rationalize their timetables.
If you ask me, the only really worrying thing about this latest merger is the corporate branding aspect. They decided to keep the United name and the Continental livery. Slapping the word “United”
onto Continental’s PowerPoint-style paint job makes for one oddball hybrid.
Though at least they didn’t call it, “Continented.”
A Long, Mixed History
Brett Snyder is the author of the consumer air travel blog, The Cranky Flier and president of Cranky Concierge, an air travel assistance service.
Will the United-Continental merger be good for travelers? It’s hard to tell this early, but the potential is certainly there. You’d want to see more convenience (more flights, better schedules), better
service and lower fares, right?
Some mergers have done nothing good. Remember AirCal, Reno Air, T.W.A.?
Well, in a perfect world, yes. In this case, I think we have a shot at two out of three. Let’s consider how some previous mergers went.
If you’re looking for a successful merger, don’t look at American. American’s past is littered with combinations that have resulted in absolutely nothing good for the traveler. Remember AirCal?
Reno Air? T.W.A.? In the long run, American failed to gain much from any of their networks and service levels didn’t really change. It was basically an exercise in eliminating competition without bringing
any other benefits.
Read more…
But we’ve seen the opposite happen as well. If we want to go way back to the 1980s, the Delta-Western merger was one that created a large domestic network that spanned the United States. It gave customers
options to fly between smaller cities in the West and smaller cities in the South and East all on the same airline.
Delta’s high service levels were well-known throughout the industry for years afterward. Today, Western’s Salt Lake City hub remains as the centerpiece of Delta’s western operation.
We can look more recently for a merger that provided traveler benefit, though some may disagree. Before US Airways and America West came together, US Airways was on the edge of liquidation and America West saw
the writing on the wall.
Now, the two airlines together have created a legitimate competitor that, while it’s had its share of problems, provides traveler benefit by being an airline that actually flies instead of being another
headstone in the graveyard. It has become a more reliable airline than the old US Airways as well.
What does the traveler stand to gain from the Continental-United merger? There is opportunity for additional convenience, but much of that is already being realized with the current codeshare and international
joint venture.
Still, being a single airline can open up new opportunities, especially on flight scheduling. In this case, where I think the real benefit for customers can come is if Continental’s culture rubs off on
United’s employees.
United employees have been unhappy for years, and this finally provides them an opportunity to have a solid management team. Can the United folks be turned around? Well, the Continental people were in a far
more dire situation 15 years ago and they now work for the leader in service among legacy carriers. A happier workforce will result in better service, and that’s good for travelers.
As for fares, well, have you seen the income statements lately? Airlines need fares to increase to cover the crippling increase in the cost of fuel. Whether there’s a merger or not, fares are going to
need to head up. In this case, the overlap between the two airlines is so small, that it shouldn’t have much of a direct impact. It will just make raising fares easier because there will be one less
cook in the kitchen.
The wild card here is how well the task of merging these two very different entities is carried out. If labor is willing to give the new management team a chance and management doesn’t blow the opportunity,
then there could be substantial benefits for travelers when all is said and done.
A Way Forward
Holly Hegeman is founder of PlaneBusiness.com
The question here is whether Continental-United merger will follow the blueprint set by the Delta Air Lines-Northwest merger. I don’t think there is any question that in terms of passengers, employees, union-management
relations, and improved financial stability — the Delta merger “rewrote” the book on how it should be done.
Would consumers prefer airlines that engage in self-destructive pricing that lead to insolvency?
It also improved the revenue-generating capability of other airlines in the industry — because the merger removed excess capacity from the system.
For those who would say that any merger will “raise fares,” which is bad for consumers, I would argue that air fares need to be raised anyway. To put it another way, what scenario would consumers prefer
— one in which airlines continually slash fares and engage in self-destructive pricing moves — or one in which airlines charge fares and/or fees that allow the airlines to remain financially solvent?
Read more…
I don’t think it is a mere coincidence that the airline that regularly logs the fewest customer complaints with the Department of Transportation month in, month out, has also, for more than 30 years,
been the one with the strongest balance sheet in the industry. That airline: Southwest.
We’ve all seen how the first scenario works, and it’s not pretty. For anyone. On the other hand, what we have seen with the US Airways-America West merger and the Delta merger is that consolidation
creates more financially healthy companies. That is what airline passengers should want — not simply lower fares.
Employee Morale and Your Safety
Scott Sonenshein is an assistant professor of management at Rice University’s Jones Graduate School of Business.
Whether the United-Continental merger has the potential to benefit consumers is still an open question. I wonder what consumer benefits this merger will bring beyond the marketing agreement the two airlines already
have in place with the Star Alliance.
The key is keeping the airlines’ work forces from becoming distracted or disgruntled.
But I think the more significant issue to watch is whether employees will become distracted, or even disgruntled, with the changes. Continental employees, who have a reputation for providing good customer service, may
resist being subsumed under the United brand, which has a less prestigious reputation.
Read more…
Employees are likely to be (rightly) asking questions about their job stability, such as where, how or even if they will continue to work for the combined company. Even with the company’s reassurances of limited job cuts and changes, employees
nevertheless are likely to be asking these questions because management teams have a tendency to underestimate the impact of strategic change on front-line employees. In fact, work rule changes created distractions
that led to two Northwest pilots to overshoot the Minneapolis-St. Paul airport, as they worked on their laptops to understand new work rules after merging with Delta.
Good leadership and management of change, especially authentic and constant communication with front-line employees, can provide employees with a greater understanding of how the change will affect them. Absent
this type of leadership, I would watch out for distracted or disgruntled employees who do not perform their jobs as effectively as they could, resulting in poorer service, or potentially more serious mistakes.
Better International Service
Pablo T. Spiller is the Jeffrey A. Jacobs Distinguished Professor of Business and Technology at Berkeley’s Haas School of Business. He has published extensively on the economics of the airline industry, and been a Special Advisor to the Bureau of Economics of the Federal Trade Commission.
The new United will be a formidable competitor in the international arena, to the benefit of its frequent travelers, while business travelers in a few selected routes such as Chicago to New York may have some second
thoughts about this merger.
The merger could make international routes more competitive, with better prices.
Most other passengers, including those of us living in other United or Continental hubs, will not see much of a change. Yes, airline colors and names will swap in peculiar ways; yes, airline cultures differ and not
clear how it will evolve; yes, one is well managed and the other… well, has some serious legacy (more than 30 years now) problems.
But overall, these are two airlines who compete directly in very few domestic and international routes and whose international networks are highly complementary (United’s strength in the Pacific while Continental’s
strength is in Europe and Latin America).
Read more…
I can see very few serious antitrust or competition issues except for the fact that four of the five airports currently subject to slot constraints — O’Hare in Chicago, and Newark, J.F.K. and La
Guardia in New York, and the fifth being National Airport in Washington D.C. — are all located in important markets for these two airlines. United has a major hub in Chicago and Continental has a
major hub in Newark.
In particular, the merger could have a small effect on business travelers’ fares in the Chicago to New York/Newark route because they will face some reduced price competition.
It is a fact that the reduced competition in routes where the two end-points are hubs for the same airline (such as Chicago to Denver, where United has hubs in both cities, or the Newark to Houston route where
Continental has hubs at both ends) means that business travelers pay slightly higher fares than passengers flying between the hubs of competing carriers.
This situation could motivate the Justice Department to demand that the airlines give up some of their Chicago slots to a third, non-hub carrier like Southwest or Jet Blue, which would probably be delighted
to expand there.
On the other hand, for tourist travelers, who benefit from the competition from non-hub airlines, which will remain strong, I can see no detrimental effects, and possibly some beneficial
competition.
The merger could have major potential benefits for frequent international business travelers as well. United’s substantial abandonment of the Latin America and European markets has led to lower frequencies
and higher fares for its frequent travelers into those markets.
Continental’s lack of a strong presence in the Pacific has had similar effects for its frequent travelers. The merger could reverse this decline, making these international routes more competitive, with
more frequencies and better overall prices.
This deal will transform United and Continental making them, apart from the largest domestic airline, a formidable international competitor
of global reach.
