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.

Increases industry revenues. Many airlines are not making money because fares are too low, compared to costs. More bankruptcies mean less price competition for the remaining airlines. They can then raise fares with less fear of undercutting. This would help them cover costs, and increase profits for the industry overall. Cathay Pacific was able to optimize flight times between Hong Kong and Vancouver after Oasis HongKong went bust.By contrast, in mergers, the new combination of airlines takes long to rationalize routes, and when they do, they still charge low rates since fares never really increased the way they could have, due to sudden disappearance of competition from a route.
Dramatically lower costs. When airlines close for business, they lay off a large number of people. These people increase the labor supply in the market, and are hired by other airlines at lower wages. This reduces the overall wage component of the costs. When airlines go bust, they also get rid of their planes at very low prices. They are sold to other airlines, which can then put them on their under-serviced routes. Again, reducing the cost of the equipment. AirAsia is a great example of an airline, which inherited two planes with just a $0.50 down payment, and  was able to tap on the abundance of cheap labor, right after 9/11.

I wonder what it would be like to take a flight on the new Northwelta from Boston to Singapore via Detroit and Tokyo on a Boeing 747, once the US$17 billion merger between Northwest and Delta comes through. Will I get the Northwest experience or a predominantly Delta one, a mish-mash or none?
There’s been a lot of chatter around the merger, though more negative than positive (check out the one by Center for Asia Pacific Aviation for a different view). But I’ve hardly read anything about how the merger would affect the brand. Even though the new airline (largest in the US with over 70,000 employees) will be operated under the Delta name, which currently doesn’t have any 747s and also doesn’t fly to Asia Pacific, the brand experience can certainly be enhanced to make the sum greater than the parts combined.
…

With airline mergers and takeovers happening around the world, and now looming in the US too, one of the biggest “obstacles†encountered by airlines is airline staff unions. I beg to differ.

Here are a couple of the latest news about crew unhappiness in the last few days:

Air France Agrees to Buy Alitalia for $1.2 Billion (but faces union troubles), March 17, 08 – Bloomberg
British Airways Pilots Protest Plan to Start New Airline, March 15, 08 – Bloomberg
Pilots have much to lose during mergers, March 9, 08 – USA Today

Internal branding as a strategic corporate communications tool
Airlines should ensure that they take good care of their employees in case of a merger, and not construe it as an obstacle. Having them in the fold and ensuring their happiness would help ensure that the passengers receive a superior brand experience. Some branding experts refer to this as internal branding, other claim this is integrated branding. Regardless of the terminology, it is an established fact that if the working conditions are good, the crew is happy, and that rubs off onto the passengers so that they too are happy.