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!
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Listen carefully all you out there who are busily chasing rumors about
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
: "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.
It stands to reason, of course, and anyone from a less dysfunctional industry (that's airlines and newspapers) knows that combined airlines could not benefit long-term if they gave their customers the shaft.
Don't forget that hedge funds with positions in several struggling airlines often seek to push for mergers (or just spread rumors about them) because it's the only way to get out of their positions. Not because the combined entities will thrive.
Back in the reality-based world, the big bad business usually has a bit too much trouble on its hands after the merger to get on with the work of exploiting the little guy for profit. To be sure, the little guy does get exploited, but even the exploitation usually occurs at a loss to the airline.
The Wall Street Journal
article ends, strangely enough, with a paragraph about how
, which hasn't made outright acquisitions since some long-ago stumbles, has benefited by taking business away from competitors who have. Apparently these competitors merged and ticked off customers, which allowed Southwest to poach the customers of the merged airlines.
But didn't the headline read, "Mergers Benefit Airlines"? It's funny how articles with forced story lines always end up disproving themselves.
At the time of publication, Fuchs had no positions in any of the stocks mentioned in this column.
Marek Fuchs was a stockbroker for Shearson Lehman Brothers and a money manager before becoming a journalist who wrote The New York Times' "County Lines" column for six years. He also did back-up beat coverage of The New York Knicks for the paper's Sports section for two seasons and covered other professional and collegiate sports. He has contributed frequently to many of the Times' other sections, including National, Metro, Escapes, Style, Real Estate, Arts & Leisure, Travel, Money & Business, Circuits and the Op-Ed Page. For his "Business Press Maven� column on how business and finance are covered by the media, Fuchs was named best business journalist critic in the nation by the Talking Biz website at The University of North Carolina School of Journalism and Mass Communication. Fuchs is a frequent speaker on the business media, in venues ranging from National Public Radio to the annual conference of the Society of American Business Editors and Writers. Fuchs appreciates your feedback;
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