Airline mergers are bad news for consumers

As I'm writing this, the airline industry is buzzing with rumors of a merger between Delta and either Northwest or United. And, more broadly, the pundits are saying that consolidation in the industry is inevitable. Any official merger announcement from the parties will be self-serving and likely to include some misleading information for consumers. So, whether it's eventually Delta-Northwest, Delta-United, or some other hookup, the real winners and losers are likely to be the same.

Biggest winners

As far as I can tell, the recent play in post-bankruptcy big airline stocks has largely been on the part of speculators looking to make a fast buck out of a merger deal. These folks—nominally now the owners of the enterprises—don't care a bit for the long-term success of a merged company; they want to cash in on the short-term bounce in stock prices the merger will likely produce.

Biggest losers

Sadly, consumers will lose the most. Yes, the airlines' spin merchants will tout the consumer "benefits" of greater reach, increased frequent flyer opportunities, and such; they'll extol the efficiencies of reduced costs and improved efficiency; and they'll blame the whole process on fuel prices. By and large, these arguments are pure B.S. The plain facts are that the airlines involved are already so big that further increases in size are unlikely to reduce costs—including fuel costs—enough to matter. And they already offer nonstop or one-stop connections on any routes with enough traffic to matter.

The only benefit the big airlines would realize out of consolidation is the resulting reduction in competition—a reduction that will inevitably result in higher fares, fewer choices, and scarcer frequent flyer benefits.

Other winners

Merger midwives: Whatever the long-term merits of any outcome, the dealmakers and facilitators will get a big cut. Investment bankers, lawyers, and consultants will enjoy multimillion dollar fees no matter who else wins or loses—or even if the deal ultimately collapses.

Top airline management: The managers of the surviving company will gain obscene bonuses; the losers will deploy their golden parachutes. Still, they'd all rather wind up on top of any deal that is made. In fact, conflicting egos among the managers of potential merger partners can often derail even a sensible deal because neither group wants to end up in a subordinate position.

Other losers

Investors who buy the post-merger stock at the top of the bounce: Combining two inherently weak competitors does not a strong competitor make.

Rank-and-file airline employees: Airline mergers usually lead to huge losses on the part of employees. Mergers also result in long-lasting and ongoing strife between employee groups of both lines, as they struggle for an edge in seniority and other benefits.

Merger proponents are in something of a hurry. Many apparently fear that the next administration, no matter which party, will be less friendly to anticompetitive mergers than the current one. Certainly a lame duck administration has less to fear from consumer backlash than one seeking long-term voter support.

These days, industrial pundits are fond of assessing the positions of the various stakeholders involved in any given situation. With airlines, the big stakeholders are the stockholders, the employees, the traveling public, and the communities that rely on air service. Unfortunately, among these stakeholders, only the owners have any real say in the matter. And, as I noted, the current stockholders are in it strictly for a short-term bounce that ignores the other stakeholders, not a successful long-term result that would benefit everyone.

I'm sorry if this sounds like a rant. But I really can't see any major consumer benefit in consolidation, and I can see lots of consumer losses. Sadly, I think it will be tough to stop.