Thursday, April 17, 2008

DL + NW = Sheer Stupidity

It has come to this....the traditional "full fare" carriers are entering MERGER-MANIA and so the courting of Delta and Northwest has gone beyond nudging to full fledged fluid swapping. So why is this stupid? Aren't some "low cost" airlines like Frontier having problems too? Well let me set the record straight.

First - I am fond of Delta and I am not an expert air industry analyst. If flying were a drug I'd be an addict - Platinum Medallion on board (and a private pilot). I want Delta to survive and thrive. I grew up on Delta - literally - because my father worked for them and this allowed me to see the golden days of flying when planes were admired and service still meant something to an airline. You could say Delta and me...we have a history.

Second - this is not a done deal yet, but let's face it - the Bush Administration likes big business and this merger creates one heck of a big airline. Want to bet me that United and U.S. Airways aren't close to their latest lovefest? How about American and Continental? Ohhh...consolidation is the wave of the present so get ready for 3 majors in the U.S., more packed planes, screw ups on baggage, and disgruntled employee's that are upset their horse didn't get picked. By the way, did I mention Unions yet? Are you getting anxious? Personally I am beginning to experience hypoxia!

Domestically the large, full fare airlines are getting killed because they have to compete on many routes with low fare airlines like Southwest, AirTran, JetBlue, Frontier and Spirit. These airlines cost structures are far lower than the majors and in the latest Airline Quality Ratings AirTran, JetBlue and Southwest topped the list with the majors a very distant 4th and below. When American business starts figuring this out and making the low cost carriers their carrier of choice expect to see more regionals at the airport near you. Notice how Aloha got put out to pasture by go! (a Mesa airline) and while I am at it let me address Frontier. They are based in Denver and contrary to what you might believe United didn't push them into bankruptcy - Southwest did along with First Data Corp. They entered the Denver market in 2006 and in two years have caused some serious heartache for both United and Frontier. In other words competition is abundant in the airline industry and what the majors are finding out is that frequent flyer programs don't buy loyalty - cheap fares and good service do and with the cost of oil going up and the incompetence of the majors to show transparency they cannot compete domestically - they must expand to international routes. So here we go....merge away.

The problem is simple. Growing your business to be global protects you from some market fluctuations, but it introduces new competition - and with fledgling startups like V Australia and others on the horizon the promise of survival in international waters seems like a red ocean strategy to me.

So skip the fact that Delta has a streamlined Boeing fleet and Northwest has a hodge podge, that Northwests pilots oppose the merger, none of the hubs will be closed and the integration issues of pulling together two very different cultures...consider this fact. The airlines were deregulated in 1978 and got there fully around 1983. Most airlines didn't fully embrace deregulation until the late 80's so we essentially have a 22 year old industry. Like most 22 year olds I know it is not about the future or longevity - it is abut the here and now. So to me this wave of mergers is like 22 year olds having babies and getting married - not concerned about the future or how best to get there...only immediate gratification. Simply put - sheer stupidity.

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