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The recent spate of airline mergers - or merger talks - begs the question: Is it better for the industry if two airlines merge or one of them goes bankrupt. Verdict: It’s better if an airline goes bankrupt.
Here’re three reasons why bankruptcies are good for the industry overall.
In a merger, however, lower costs through economies of scale can take very long to achieve, if at all. This is because the newly merged airline often finds it difficult to manage staff homogeneity. This has been a thorn in the US Airways and American West merger, as well as Air India and Indian Airlines merger. Both the airlines’ staff still maintain different seniority levels, different pay scales and often fly their original routes only, resulting in hardly any cost reductions through rationalization.
Survival of the fittest improves service. When fewer airlines operate a route, and make more money on that route, service inevitably improves. This is because these profits can be pumped into improving customer service, on the ground and in the air. Once a couple of airlines have gone bankrupt, the surviving ones generally take the “honor” of being the fittest, and the service often notches up a bit. Not only that, remaining carriers often come to the rescue of the stranded passengers of the bankrupted airlines, as they see a ripe opportunity for acquiring new customers.At the end of the day, if the industry overall benefits from the perishing of some airlines, isn’t that better than going through the cumbersome merger process which is fraught with the risk of failure anyway?
Ponder that!
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Interesting Concept
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