You may have seen the op-ed piece in the Wall Street Journal that Delta CEO Richard Anderson and Northwest CEO Doug Steenland put together. They argued that there are six myths about airline mergers that are all wrong. I’ll argue that they’re (mostly) full of it.
Myth One: Airline mergers cause big job losses.
I suppose it depends what you consider to be a “big” loss. If you can’t cut redundant jobs in a merger, then you’re doing something wrong. Notice that they say, “We will furlough no frontline employees as a result of this merger.” That doesn’t mean there won’t be job losses. They may try to slim down with voluntary leaves or attrition, but the jobs will go away. And you may notice that they don’t talk about corporate jobs. Those will certainly be slashed.
Myth Two: This deal will jeopardize employees’ benefits.
Well, this one probably is actually a myth. I’m just not sure it’s one I’ve heard before. And frankly, I don’t see why anyone would think that would be the case.
Myth Three: Prices will go up as a result of the merger.
Again, if fares don’t go up, then you’re doing something wrong. The whole point of a successful merger is to be able to trim capacity and gain more pricing power. If you can’t raise fares, then you’re going to have a hard time paying for those merger costs.
Myth Four: We need to close hubs to justify synergies.
There’s not much that makes me cringe more than the word “synergy,” but there’s no question in my mind that they need to close hubs. Memphis and Cincinnati are prime candidates for going away. On their own, neither Delta nor Northwest will want to get rid of those hubs because neither of them have a way to replace those connecting opportunities (nothing else is nearby). But together, those hubs become unnecessary because there are other hubs close enough to serve the same markets. That doesn’t mean service will necessarily disappear, but it means that it needs to be drastically scaled down to serve only the routes that can be supported on a point-to-point basis in the local market.
Myth Five: Consolidation will result in service cutbacks for customers.
This one sounds suspiciously like Myth Four above. I doubt cities will lose service completely, but there are bound to be cutbacks.
Myth Six: This is all being driven to fatten profits for Wall Street and hedge funds.
Well, I’m not in the board room, so I can’t say for sure, but it’s hard to argue that this isn’t about Wall Street. If the leaders aren’t looking to maximize shareholder value, they’re being negligent. (Now whether they actually do increase shareholder value is another story.)
This is a very thinly-veiled PR piece for the merger, but it also points out a roadmap of how NOT to do a merger. If all of these things were true, there wouldn’t be much logic to the merger itself. Of course, the more they spin these things, the more they’ll need to backtrack and break promises later on. Still, I suppose they’ll do anything necessary until the merger officially goes through.
