After spending a week in Ethiopia with no connection to the civilized world, I returned to Dulles Airport in Washington, D.C., to see the most ridiculous headline of the year: "US Airways makes $8.76 billion bid for Delta."
I thought that maybe I was delusional or suffering from malaria.
But, no. Right there on the front page of USA Today was the news that brash Doug Parker, CEO of US Airways Group, wanted to take over the nation's third-largest airline while still struggling to complete last year's bungled merger of US Airways and America West Airlines.
I admit that my first thought was for my first class upgrades. I have more than 3 million frequent-flier miles with Delta Air Lines, and I get upgraded on every flight I take. But it's not just me. This proposed merger is a no-win situation for everyone except Parker and his executive team.
Let's look at the facts.
Labor tensions. The recently merged US Airways and America West Airlines unions are in a bitter battle over wages, seniority ratings and the blending of two diverse corporate cultures. Adding a third company and its unions would certainly throw a wrench into the system. As Jack Stephan, chairman of the unit of the Air Line Pilot Association at US Airways says, "If this airline can't successfully put two airlines together, we're very skeptical about their chances of putting three together."
Job loss. Mergers are meant to provide synergies and often this means eliminating overlap. In this case, it would mean the loss of well-paying jobs. Delta and US Airways have significant overlap in Atlanta and Charlotte, N.C., Cincinnati and Philadelphia, and Salt Lake City and Phoenix, where Delta and US Airways, respectively, have major hubs. Under the proposed merger, these city pairs would mean excess capacity. The result would be closing or reducing the current hubs, eliminating thousand of jobs. It is estimated that, overall, a combined Delta/US Airways airline would save $1.65 billion in annual costs by reducing redundancies.
Higher fares. Airline executives and Wall Street are hungry for airline consolidation. In fact, US Airways stock shares were up a surprising 17 percent on buy recommendations from stock analysts after the airline announced its merger intentions. Ordinarily, the stock of an acquiring company trades down because of the anticipated cost of the merger, but the perceived pricing power of a new Delta/US Airways airline seems to make Wall Street happy. The proposed merger is expected to reduce current capacity by 10 percent. Such a reduction would hit particularly hard in the South and Northeast, where both airlines have a strong presence.
Poor service. An undertaking of this magnitude is bound to cause confusion and, if past precedent is any indication, the customer will suffer. Currently, US Airways' service rankings are among the lowest in the industry, with complaints ranging from baggage handling to a botched integration of the airline's reservations and frequent-flier systems -- not to mention poor customer service. Adding the complexity of a third airline, especially one the size of Delta, would surely overtax an already troubled operation.
Wealth distribution. Consumers will not share in the wealth of a merger as they will face higher fares and increased competition for award and upgrade seats, but Parker will probably find a bigger paycheck in his pocket. In 2005, Parker was paid $6.2 million -- up from his pre-merger compensation of $1.3 million just the year before.
Opportunistic behavior. I am all for free markets and capitalism. But for this deal to make sense, Delta must be in bankruptcy protection. Why? Because bankruptcy protection gives Delta the legal right to reject or renegotiate leases for aircraft and other assets. This powerful tool would allow Parker to cut costs in ways that would ordinarily be unavailable to him. Good business? Maybe. But how fair is it to those vendors and creditors losing millions of dollars or to the families of the employees laid off because of this special advantage?
Sure, I have a selfish interest in seeing Delta remain independent since a merger means more competition for my prized upgrades. But all travelers -- everyone from the once-a-year flier to the multimillion-miler -- should favor competition and choice. A merger of this magnitude would reduce the number of flights in heated markets such as the South and Northeast, causing an increase in airfares. Moreover, it would limit the availability of frequent-flier awards and other customer options. If you want low airfares, greater choice and sustained employment for hard-working airline employees, say "No!" to this absurd proposed merger.