Another busted airline merger
It seems that United Airlines and US Airways have called off their engagement. The litany of reasons is familiar, labor opposition, yada, yada, yada. I think the old saying, “You can’t make a silk purse out of a sow’s ear,” comes into play.
No matter how the board of directors looked at this combination of US Airways and United, they couldn’t come up with a merger that made financial sense. When the powerful United pilots’ union came out against the combination, the proposal started to falter. With falling stock prices and massive operational losses, getting financing for the merger was facing a steep uphill battle as well.
This setback to merger mania is also based on the reality that high fuel prices will not disappear when two airlines join forces. The minimal executive-level savings and purchasing-power savings just can’t justify the legal and administrative costs of a merger and the certain resulting labor disruptions.
The entire merger push is finally taking a real breather. No new mergers would be ready to go through vetting by the Bush administration, so the rush is now over. Many are reconsidering the entire misguided (in my view) merger concept.
“Mergers in and of themselves are not the answer. Look around the world — airlines are making money, in Europe, Asia and Latin America,” said Mo Garfinkle, a veteran airline industry consultant. “There’s a more fundamental problem here. We need to cut capacity” meaning both aging aircraft and flights, Mr. Garfinkle said in a New York Times article.
It looks like United is going back to the drawing boards and reconsidering the option of pursuing an airline alliance with Continental. It looks like shades of yesterday’s post where Christoph Franz, the chief executive of Swiss International Air Lines, suggested maintaining individual airline identities and a spirit of competition while finding ways to save money by working together.
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