Airline Troubles: Mergers Won't Keep Away Chapter 11 (UAUA)(NWA)(DAL)

The dumb money in the market is betting that one or two mergers will save air carriers like United (UAUA), Delta (DAL), and Northwest (NWA) from high fuel costs and a flagging economy.

Since 2002, Delta, Northwest, and US Air have all gone into Chapter 11. Go back a little more than a decade and the list expands to Braniff, Eastern, Midway, TWA, and Pan Am. The market respects no airline icons.

The carriers that are gone now, bankrupt or sold, went out of business due to three things: high labor, high fuel, and downturns in the economy. Labor unions have been beaten to a pulp. The other two forces are still in effect.

A look at the cost base of big airlines shows that a merger does not take much out in the way of expenses. Eventually reservation systems and airport personnel get cut. In-flight and ground crews stay about the same. Customer service goes to hell for two or three years. Clients are unhappy and some of them use competing airlines.

There is no virtue in the cycle and no evidence that mergers interrupt it.

Douglas A. McIntyre