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Ex-AA CEO: Mergers Are Not the Answer

Former American Airlines CEO Robert Crandall and I DO have something in common:  we both think the idea of airlines merging in this environment to be nutty.  In an op-ed in the NY Times, Crandall bashes the proposed (and rumored) mergers writing, “The case for mergers is unpersuasive. Mergers will not lower fuel prices. They will not increase economies of scale for already sizable major airlines. They will create very large costs related to consolidation. And they will anger airline employees, who will perceive themselves to be hurt by the mergers.”

Amen.

Delta’s terrible financial results they announced today do not suggest that a merger is a good idea, it suggests that slamming it together with another airline in a difficult financial position is a miserable idea.

Don’t get me wrong:  The CEOs of these companies aren’t idiots – they are very smart people.  But no airline has really tried anything drastic yet (remember that Pan Am sold off its Latin, Pacific, intra-European and Shuttle operations piece-by-piece in a bid to save the airline.  THOSE are drastic measures.)  Ultimately, of course, those measures didn’t save the airline, which had far more fundamental problems than Delta does.  But Delta hasn’t tried everything — in fact, it turned down an acquisition offer by US Airways about a year ago.  That was supposedly an awful idea (because it was being acquired) whereas the Northwest deal is a great idea (because it is the acquirer).  You can’t tell me ego isn’t driving some of this.

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  1. I agree that the first paragraph is good, but I have some reservations about the rest of the op-ed. New air traffic control system and new runways? And cut fees at the same time? He does say that airlines need to cut down on the number of flights, but wouldn’t that solve 50% of the congestion problem?

    And the recent open-sky agreements that favor “consumers” over airlines is something I am all in favor of.

    I’m starting to think the economists and airlines execs are right. You can’t make any money flying passengers. Nationalize all the US carriers and turn them into Amtrack 2.0

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