It's official. United Airlines is now on the block. The For Sale sign is posted.
United employees: If you thought going through bankruptcy was a fun ride, a merger will be the emotional and financial equivalent of a supersonic ride on Disneyland's Pirates of The Caribbean.
'Cept in this case the Pirates win. You lose. As will communities and airports around the nation.
United grandly announced today that it had hired an investment bank to, as was stated in perfect Airlinese in Crain's Chicago Business: " ...explore a range of strategic options, including possible mergers with other carriers..."
Which means, United management appears to have tossed in the towel in regard to moving United forward as an airline system (not that they ever had a towel in the firstplace) and is trying to merge the airline and then get out.
As another ominous sign, United officials have been quoted using the surefire buzzword that usually indicates that strategic planning is now on the shelf in place of fast gains: they've used the term: increase shareholder value. Not "competitive value." Not "airline value," but shareholder value, which means increasing the price of stock certificates, not necessarily the value of the airline as a vibrant, growing entity. It's often a term that indicates the management goal is to simply get stock price up, not necessarily increase the competitive value of the airline.
In reporting the story, Crain's made the mistake of parroting one of the Urban Legends infesting the airline industry: overcapacity. It's another buzzword that they and others have taken as gospel, regardless of the fact that today airlines are full, chocka-block, no room in coach. Selling all the product. But they and others in the media will earnestly read what's written elsewhere, and listen to folks like those at the top of United, and repeat it without a shred of investigation.
Too Much Competition? Let's Merge It Away.
The new definition of "overcapacity" - a situation where some people want less competition, and the easy solution is to cut seats out of the market, limiting product. Then, because current demand is otherwisefilling virtually all seats, airlines will carry fewer passengers, but be able to charge them more.
It's called cut production to get higher prices. That's exactly how the term "overcapacity" is used today, within an airline industry that is running at 80% plus load factors. And, as we've seen with capacity cuts since 9/11, it doesn't work for diddly in the markets where there is a lot of capacity. That's because the capacity gets quickly replaced in such markets. It's the Roanokes, the Fresnos, the Molines, and the Lansings that get the Bionic Merger Winkie.
Hard Truth: Mergers Always Result In Less.
It's historical fact that a mergers always represent not only less than the sum of the original parts, but almost always less than the heady promises and projections made by their proponents. Less employment, less competition, and - ignore this at your peril, rural America - less air service.
Actually, mergers would be good for some carriers. Like, the ones that don't get involved. Major airline mergers don't bring the instant synergies and immediate revenue cross-flows that generally are touted by university aviation professors, financial "houses" and other entities whose knowledge of the airline industry can be easily crammed on the back of a cocktail napkin.
And while major airline mergers make millions for the folks who concoct them, they tie up management energies and during the messy merger process, hamstring the ability for the new entity to implement aggressive market strategies. The result is that the competition - the ones interested in running airlines, instead of pulling stock deals - can exploit the situation. Going forward, with new fleets coming on line, new market opportunities that will be coming up in the next three years will require focused strategy and the ability to implement such strategy.
Meanwhile the airline newlyweds will be tied up in trying to bridge maintenance programs, merge seniority lists. combine training and operational systems, and try to rationalize disparate airliner fleets. Mergers take years to effect the supposed benefits they promise. And even then, they don't.
