Some Myths About Airline Mergers

Wall Street Journal ^ | April 16th, 2008 | RICHARD ANDERSON and DOUG STEENLAND

[The_Republican]

Myth One: Airline mergers cause big job losses.

Reality: Bankruptcies and high oil prices have caused significantly more job losses than mergers. Record fuel prices have led to the shutdown or bankruptcy filings of five U.S. carriers.

Myth Two: This deal will jeopardize employees' benefits.

Reality: The merger will create a financially stronger airline, better positioned to protect jobs, compensation and benefits. The transaction will make employee pensions and benefits more secure.

Myth Three: Prices will go up as a result of the merger.

Reality: In this industry, prices are set by market forces and competition. There is very little overlap between our route networks and the merged airline will face intense competition throughout its system. Southwest now carries more passengers annually than any other airline; even after a Delta-Northwest merger, Southwest would continue to have the largest share of domestic passengers, with no single U.S. carrier holding more than a 20% domestic passenger share.

Myth Four: We need to close hubs to justify synergies.

Reality: Thanks to our complementary route networks, we will keep all of our hubs open.

Myth Five: Consolidation will result in service cutbacks for customers.

Reality: Record fuel prices have forced the industry to reduce by more than 1.6 million the number of seats available to passengers. The merger, by producing a stronger competitor, will make service cutbacks less likely than if Delta and Northwest remained separate.

Myth Six: This is all being driven to fatten profits for Wall Street and hedge funds.

Reality: This has nothing to do with hedge funds. It is about paying employees fair wages, reinvesting in new products and services for customers, earning a return for shareholders who have committed their capital, and being a good corporate citizen.

[The_Republican]

Bunch of edit due to 300 words limit. Good Read! Critical industry - has to survive.

[the invisib1e hand]

Brett Stephens had a good column in the Journal today (never bother with the news side, it’s as wicked as NYT) discussing “core theory” and airlines. Constructively thought-provoking.

[The_Republican]

LInk?

[peyton randolph]

Article in Dallas Morning News suggested that American Airlines should make a bid for Northwest. That would make too much sense. AA is a rudderless behemoth that stays afloat only because of protectionist measures like the Wright Amendment that prevent Southwest Airlines from destroying it.

[oldbill]

I don’t see a single one of his “Realities” addressing any of the “Myths”.

For example, Myth One: Airline mergers most certainly DO cause big job losses. The fact that oil prices and bankruptcies also cause job losses does not change the reality that mergers do cause job losses.

This is another example of modern journalism, where logic and reasoning are no longer applicable. Just throw something out there.

And this is supposed to be the business bible. Of course, the Journal also does not believe 20 million illegal aliens take American jobs, so at least they are consistent - consistently wrong.

[Young Scholar]

Still wouldn’t mean the merger is a bad idea though, since it might be the only thing that could keep either of those airlines afloat.

[the invisib1e hand]

I'm pretty sure you have to be a subscriber.

He cited this article, but it might be a little dry absent the context of his piece.

[cartoonistx]