Airlines Don't Win in Mergers: Shame About the WSJ

We are nary three weeks into 2008, but The Business Press Maven is ready to declare an early front-runner for most misleading headline of the year. It comes from The Wall Street Journal and goes like this: "Mergers Benefit Airlines; Shame About the Fliers."

I agree with the latter portion of this headline. Airline mergers are tough on fliers. From shared frequent flier miles on, airlines are hard to bring in sync and fliers certainly suffer. But how does the first half of the headline make me feel? Well, if you'll permit the understatement, kind of like diving into a pool of stinging bugs.

They Just Don't Get Airline Mergers!

Listen carefully all you out there who are busily chasing rumors about Delta(DAL Quote), UAL(UAUA Quote), Northwest(NWA Quote), Continental(CAL Quote) and U.S. Airways(LCC Quote) merging, in some shape or form. And listen even more carefully if you ever might be tempted to invest in one of these combined companies post-merger, if there is a post-merger. Why? Because despite the excited coverage about how much the big airlines stand to benefit from merging, since deregulation a generation ago, the history of merged airlines has been overwhelmingly bad.

We'll get to who and why in a moment, but first let's look at why you are sold a false bill of goods with articles like this that talk about how magnificent an airline merger would be. In this article, the journalist, like many, simply falls for the story line that the little guy gets hurt while the big guy benefits.

Of course, this story resonates, unfortunately, because it is true all too often. But that means it also gets overlaid on a lot of stories by crusading journalists, or one simply in need of a default story line, when it doesn't apply. This, too, is where political leanings come into play in business coverage. Not in overt favoritism, but in more subtle colorings.

For an example of that shading, the story line here is: Big bad businesses exploit the masses! The problem? Reality. Big bad business does try to exploit the masses but often BBB --especially airlines -- get dumb and desperate and enter into mergers that send them reeling. It's a tough job, trying to exploit the masses, and a hard one to do in an industry that keeps making the same mistake again and again.

Look at many of the roughly two dozen mergers since deregulation and you'll pretty much see the de facto story line is, to borrow from our friends at the Journal: "Mergers Don't Benefit Airlines; Shame About the Fliers."

I can think of only two big airline mergers that were complementary, relatively tidy and turned out well. Delta/Western Airlines, two decades ago, was one, and even though the stock has gotten creamed lately, U.S. Airways and American West may be another. It really says something that I am, as a show of good faith, willing to include a company whose stock has gone from $62 to $12 in the space of a year as a good deal. In this field, though, that's still a winner.

And all of you out there in Business Press Maven-land, can you even name a third? I know there must be one. There have been dozens of mergers in the past generation. Please email me any airline merger of meaningful size that did not become a profoundly troubled combined enterprise.

Fact is, it's a difficult business to integrate. You have to get different union members to play nicely -- those pilots are always prima donnas. It's also an equipment-heavy business and that must be synchronized, hubs can overlap (remember American Airlines and TWA in St. Louis, ouch!), and, most importantly, airline cultures are cat and dog.