The combining of two airlines into one entity is as old as commercial flying itself but such activities have been headline stories in the last few years as large and long-established US carriers become merely names in history books. Familiar ‘NWA’ (Northwest Airlines) and ‘Continental’ (Continental Airlines) on airliner fuselages are the most recent brands to disappear.
The term ‘merger’ has been bandied about on the internet in reference to any airline get-together but, in reality there are differences between the two types of consolidation. While the end result may be similar – usually operations under one banner – the paths to that end differ. A merger brings two firms, usually of roughly equal size and business activity, together to form one company. From a financial standpoint, it involves the exchange of shares in the merging firms for shares, in some predetermined ratio, in the new entity.
An acquisition, on the other hand, is just that. One company buys another via cash payment, and sometimes stocks, to the shareholders of the acquired firm. The purchased firm can be another airline, usually of smaller size, or an airline facing financial difficulties as was the case when American Airlines’ parent – AMR Corporation – bought what was left of Trans World Airlines in 2001.
In any event, US airline consolidation, after decades of relative calm due in no small part to federal government protection, became an almost normal activity in the years following airline deregulation in 1978. Many were acquisitions of smaller airlines by the so-called ‘legacy’ air carriers – those large companies which had been in existence for decades – in the quest for success through the ‘bigger is better’ philosophy. More than a few were attempts by the established carriers to stay afloat, or airborne, against the tides of bankruptcy or competition from low-cost carriers and their corporate culture of efficiency and customer service (with a smile).
Does consolidation improve the airline’s bottom line? Those supporting consolidation use the argument that ‘bigger is better’. Considerable savings, the thinking goes, can be had by eliminating redundancies in administration and operations and decreasing capacity through a reduction in aircraft and overlapping routes. However, most airline, air travel and economic experts have been hard-pressed to find the rosy outcomes predicted and some ‘legacy’ airlines have been in and out of bankruptcy even after consolidation with other carriers. Countering possible savings are the costs of consolidation which include the merging of two sometimes very different corporate cultures, collective bargaining agreements, information/reservation systems, aircraft fleets and workforces of different efficiencies.
Does consolidation benefit the consumer? If you prefer to travel with one carrier and the new airline’s route system includes destinations or regions previously served by one or the other of the merging companies, then that would certainly be advantageous. However, apart from business travel, much or all of which is eventually written off at tax time, most folks are more concerned with the cost of getting from Point A to Point B and any savings that might be passed on in the form of reduced ticket prices. Many who study the industry have come to the not altogether unexpected conclusion that on routes which were previously served primarily by the two consolidating airlines, it is not uncommon for prices to increase. It would seem that the main influence in keeping prices from rising, at least domestically, is the existence of competition from low-cost carriers – coined a while back as the ‘Southwest effect’ – and those carriers’ 2009 operating costs (per seat mile)* were, when averaged, around 35% less than those of the ‘legacy’ carriers.
For those interested in airline-related numbers, a link to the Massachusetts Institute of Technology’s Airline Data Project is provided: http://web.mit.edu/airlinedata/www/default.html
(above) Consolidation, North American style. Airlines tend to disappear following consolidation and, since 2001, seven ‘legacy’ airlines – American, Continental, Delta, Northwest, Trans World, United and US Airways – have been reduced to four. American Airlines, Delta Air Lines and United Airlines all integrated smaller companies into their operations while America West Airlines bought the larger US Airways and, for reasons of brand recognition, elected to retain the latter airline’s name. The registration of this Airbus A319-132, N831AW, on approach to Toronto Pearson International Airport in June 2007, is the only indicator that the bird was once part of America West’s fleet.
(above) Several European airlines- notably Lufthansa/Swiss, Air France/KLM and British Airways/Iberia – have merged in recent years but a different approach has been taken. With the exception of Swiss International Airlines, all were at one time state-owned, well-protected flag carriers with very good brand recognition and they continue to operate under umbrella groups with their original names today. Despite the blue paint and abundance of KLM titles, this Boeing 747-406, PH-BFG Guayaquil, seen landing at Toronto in September 2009, displays proof of company ownership by the French corporation Air France-KLM below the dark blue stripe.
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