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 first place) 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 otherwise filling 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.
The HP/US Deal - A Non-Overlapping Asset Buy. Not A Merger of Two Global Carriers.
It's important to point out that the America West purchase of US Airways is galaxies away from the types of major carrier mergers such as that contemplated by the folks at the top of United. US Airways was essentially an East Coast cadaver, and America West bought it, with the goal of tying the two systems together. Not much overlap. Actually, employees of the former US Airways should have votive candles lit in front of images of Doug Parker. If HP had not decided to take a chance buying an airline system on the other side of the continent, unemployment lines would be a lot longer today in Charlotte, Pittsburgh, Washington, and Philadelphia.
But, say, trying to put United together with Continental would be a whole 'nuther smoke.
There is overlap. Lots of expensive overlap. There are incompatible fleets. There are disparate systems of all types that would need to be put together over time.
But, aside from the financial types, the lawyers, and the others who would cash-in on such a deal, there would be another very happy beneficiary of a Continental merger with United. That would be American Airlines, which would find its number one biggest future competitive threat - Continental - taken down for years, rolling in merger mud, instead of going after the same domestic and Asian flows that American would also be after.
The Merger Dance Steps.
Now that United is officially for sale, we can watch for the following:
The Glowing Studies & Analyses. Think back to the first attempted merger between US Airways and United. It was a land office bonanza for the usual suspects in the consulting business, eagerly doing paid "independent" studies to "prove" how taking out one entire competitor would be beneficial to everything from rural air service to World Peace. Back then, United even illuminated one"study" from an "independent institution" that touted the benefits of the UA/US merger, conveniently leaving out that they had paid for the consultant that did the study for the prestigious institution. (There's a link at the end of this section. Click on it for some great previews of the stuff that'll be used to promote the "benefits" of a major airline merger.)
The Citizens' Coalitions. One word of advice. Run from any organization that uses the term "coalition." It's often some bunch that's posturing itself as something it's not, trying to look like it's a genuine group of citizens who have joined together to further their collective needs. Too often, its some private company trying to imply that it represents "the people." In the event of a major merger proposal, these types of front organizations will pop up like dandelions, funded and supported somewhere in the background by entities who're making the big bucks on the merger.
The Oh-So-Concerned Politicians. Not to be cynical, but it's a fact that money talks in Washington. So do powerful investment houses. So don't be surprised when Senator Snort comes out blatting like a moose in rutting season to support the wonders and wisdom of the merger. Watch for promises of better rural air service, lower fares, and a stronger US airline industry. All of which will be pabulum fed to the good Senator by industry lobbyists.
The Employee Coalitions. Take this to the bank: employees always get the short end when two overlapping airline systems merge. That does not preclude creation of Trojan Horse "committees" hyping the deal, though. But take a look at any past merger: it's always fewer employees, generally who are forced or hornswaggled into taking pay cuts to "make the merger benefits possible." Not to mention making possible the big payoffs to senior management and the outside institutions doing the deal.
These are just for starters, but do plan on the Merger Theater to start in earnest this week. United will be lining up all its trained bears and its wind-up toys from academia. They'll likely push the media to do stories on mergers, with the aim of building support and clouding the real issues. Like how smaller airports get the short end of the flight schedule, and how employees generally do the funding with cuts and givebacks.
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 first place) 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 otherwise filling 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.
The HP/US Deal - A Non-Overlapping Asset Buy. Not A Merger of Two Global Carriers.
It's important to point out that the America West purchase of US Airways is galaxies away from the types of major carrier mergers such as that contemplated by the folks at the top of United. US Airways was essentially an East Coast cadaver, and America West bought it, with the goal of tying the two systems together. Not much overlap. Actually, employees of the former US Airways should have votive candles lit in front of images of Doug Parker. If HP had not decided to take a chance buying an airline system on the other side of the continent, unemployment lines would be a lot longer today in Charlotte, Pittsburgh, Washington, and Philadelphia.
But, say, trying to put United together with Continental would be a whole 'nuther smoke.
There is overlap. Lots of expensive overlap. There are incompatible fleets. There are disparate systems of all types that would need to be put together over time.
But, aside from the financial types, the lawyers, and the others who would cash-in on such a deal, there would be another very happy beneficiary of a Continental merger with United. That would be American Airlines, which would find its number one biggest future competitive threat - Continental - taken down for years, rolling in merger mud, instead of going after the same domestic and Asian flows that American would also be after.
The Merger Dance Steps.
Now that United is officially for sale, we can watch for the following:
The Glowing Studies & Analyses. Think back to the first attempted merger between US Airways and United. It was a land office bonanza for the usual suspects in the consulting business, eagerly doing paid "independent" studies to "prove" how taking out one entire competitor would be beneficial to everything from rural air service to World Peace. Back then, United even illuminated one"study" from an "independent institution" that touted the benefits of the UA/US merger, conveniently leaving out that they had paid for the consultant that did the study for the prestigious institution. (There's a link at the end of this section. Click on it for some great previews of the stuff that'll be used to promote the "benefits" of a major airline merger.)
The Citizens' Coalitions. One word of advice. Run from any organization that uses the term "coalition." It's often some bunch that's posturing itself as something it's not, trying to look like it's a genuine group of citizens who have joined together to further their collective needs. Too often, its some private company trying to imply that it represents "the people." In the event of a major merger proposal, these types of front organizations will pop up like dandelions, funded and supported somewhere in the background by entities who're making the big bucks on the merger.
The Oh-So-Concerned Politicians. Not to be cynical, but it's a fact that money talks in Washington. So do powerful investment houses. So don't be surprised when Senator Snort comes out blatting like a moose in rutting season to support the wonders and wisdom of the merger. Watch for promises of better rural air service, lower fares, and a stronger US airline industry. All of which will be pabulum fed to the good Senator by industry lobbyists.
The Employee Coalitions. Take this to the bank: employees always get the short end when two overlapping airline systems merge. That does not preclude creation of Trojan Horse "committees" hyping the deal, though. But take a look at any past merger: it's always fewer employees, generally who are forced or hornswaggled into taking pay cuts to "make the merger benefits possible." Not to mention making possible the big payoffs to senior management and the outside institutions doing the deal.
These are just for starters, but do plan on the Merger Theater to start in earnest this week. United will be lining up all its trained bears and its wind-up toys from academia. They'll likely push the media to do stories on mergers, with the aim of building support and clouding the real issues. Like how smaller airports get the short end of the flight schedule, and how employees generally do the funding with cuts and givebacks.
