Oh, those airlines!

On Monday, two of the largest airline companies in the world, United and Continental, agreed in principle to a merger. It’s no hidden truth that the airline industry has generally struggled to keep its head above the red; high oil prices and the near-disappearance of business and corporate travel the logical culprits. To change this “misfortune”, conventional (and some unconventional) business and economic practices have been tested, to little or no avail. Wage and capacity cuts, higher fares, and polarizing new fees, used independently of one another, only act as temporary bandages.

No one can deny the importance of air travel to the global economy, individual country GDP’s, and local citizens’ lives alike. It affects everyone, everywhere, even if you’ve never been on a plane if your life and that’s the same reason why this merger is so important. This merger is relatively close to providing the industry with a super-conglomerate, and becoming the “Simon-Says” conductor. This merger will create a carrier that will overtake Delta Air Lines, which just completed its own merger, as the world’s largest carrier.

A necessary and pertinent step in a merger is the consolidation process. Through this process, redundant routes between the individual carriers as well as some small city routes will be nixed. Ticket prices are also likely to increase. Industry analysts believe this would have happened anyways because we are coming out of a period in which we witnessed decade lows for ticket prices, so there is nowhere to go but up.

When the public sees increased ticket prices coupled with a decreased amount of flights to smaller cities, blame will be put on this merger. This shouldn’t be the case though. This merger leaves the door open for all of the smaller, regional discount airlines that fly more fuel efficient aircrafts to step up (Southwest, AirTran etc.). In turn, the larger legacy carriers (Delta, US Airways and the new United Airlines) will be forced to become extremely efficient by using their capital to create new airplane and flight technologies.

Moral of the story: don’t be one to persecute the merger when ticket prices increase, some flights are stopped and it looks like two or three mega-carriers are to blame. It will take time, but the smaller regional discount carriers will come around. Just like the old adage; eventually, everything has a way of working itself out.

AAM