The airline industry has been the butt of a lot of jokes lately.
Last week, "Politically Incorrect"’s Bill Maher had lots to say about the plight of airline travel in his “New Rules” segment:
“Airlines should just get it over with and start putting passengers in the cargo hold. Let’s face it, you’ve already taken away the legroom, the food, the pillows — the only thing left is to tag us, load us onto the conveyer belt and let us fight over who gets to sleep on the bag of mail.”
And Mad TV recently did a skit that’s making the rounds on the Web, featuring a flight attendant giving passengers the safety speech before takeoff: “Please make sure that your seatbelt is securely fastened. Seatbelts can be purchased for $5. To fasten, insert the metal fitting into the buckle and then pull the fitting away from you. To release, purchase a release flap for $7.”
Funny? Definitely. Ludicrous? Maybe not.
In the months and years ahead, air travelers are likely to face an even bumpier ride as the remaining large "legacy" carriers scramble to merge, as Delta and Northwest plan to do, and do everything they can to cut costs amid escalating fuel prices.
Ultimately there might be only two old-line carriers left, say analysts, reducing competition but increasing headaches for workers, passengers and eventually long-term investors.
Consolidation among the major carriers will mean layoffs, reductions in routes, continued hikes in fares and a further diminishing of travel amenities like food, drink and baggage. Yes, baggage. Many U.S. carriers have already announced plans to charge passengers up to $25 for that second valise.
“Eventually we might have to check our own bags in and put them on a conveyer belt,” predicts Tom Mobley, professor of management for Miami University's Farmer School of Business. “Who would have thought when we went to the grocery store we’d be checking out our own stuff?”
It’s all about cutting costs.
And one of the airline’s biggest costs: employees. As carriers continue to merge there are going to be major work force reductions. "That’s a foregone conclusion," says Mobley.
Mobley predicts fewer flight attendants on each flight, fewer agents at ticket counters, fewer baggage handlers and, of course, fewer corporate staff.
Among those left, rocky relations between labor and management are likely to drag down the combined companies, as they still do at US Airways, which merged with America West in 2005 but is still trying to improve employee relations.
In the most recent proposed combination, Northwest’s pilots have said they want to derail the deal with Delta because they believe they’re losing hard-earned seniority rights. Executives of the two airlines defended the merger plan on Capitol Hill Thursday.
Since the airline industry was deregulated in the 1970s, there have been 26 mergers, mainly aimed at improving efficiency, says Guillaume deSyon, a historian of aviation and technology at Albright College in Reading, Pa.
“But mergers also mean headaches, as the cultures of merging entities clash and often fail to meld," he said. "Mergers of legacy carriers may in fact add to consumer dissatisfaction. It is a conundrum managers are aware of, but it is unclear how much weight they give it in their discussions.”
Bill Catlette, a human resources management expert, says the Delta-Northwest merger is likely to fail because “these are two large organizations with radically different cultures, sets of norms, and value systems. Whereas Northwest’s management and its heavily unionized work force have been at war for years, Delta enjoys relative peace with its employees.”
(Maybe not for long. Delta’s flight attendants, who rejected a union in 2002, began a new vote this week on whether to unionize.)
While the new entity may “enjoy some lucrative new routes, be able to sell off some of the uncommon equipment models, and wring a little more fat out of the system,” Catlette explains, “hell will freeze over before these two families fall in love, work harmoniously and produce a consistent customer experience.”
Other merger rumors also don't look promising when it comes to customer service and work force issues.
The most likely next partnership is United and Continental, according to Alan Bender, a professor of airline economics at Embry-Riddle Aeronautical University in Daytona Beach, Fla., but he believes any number of legacy airline combination is likely.
“I think mergers are not to be unexpected,” he says. In particular, he says, airlines are trying to find ways to compete with Southwest Airlines, which has become a domestic "colossus."
So the airline industry will go the way of retail in the United States, Bender surmises. “It’s like Wal-Mart and Macy’s,” he says. “How many retail department stores do you need?”
But Thomas Kochan, professor at MIT Sloan School of Management, warns that the urge to merge by major airlines could a “perfect storm” of work force and customer service problems unless the airlines involved plan carefully.
For investors, he adds, the Delta deal looks good on paper, but in the long term “you can’t build a successful airline unless you have support from the work force.”
Ilker Baybars, professor of operations management and manufacturing deputy dean of the Tepper School of Business at Carnegie Mellon, is a bit more optimistic.
“I think it’s going to be good for the industry,” he says. “Consolidation is inevitable with escalating fuel prices. It’s more economical.”
As for economy-class fliers, he admits they will continue to be viewed as “cattle.”
That approach may create more opportunities for upstart airlines, says Harlan Platt, a finance professor at Northeastern University's business school. He expects the merged legacy carriers to dispose of unprofitable routes.
“The merger activity will induce entry by carriers, similar to Virgin America and JetBlue, to provide a lower-cost alternative and force the legacy carriers to compete,” he says.
But, he adds, “It will be a painful journey to get there because it’s going to become far more difficult to fly.”
We’ve come a long way since Congress deregulated the airline industry in the late 1970s with the hope of putting air travel within the reach of all Americans.
It remains to be seen whether the coming consolidation will fulfill one of the stated missions of the law deregulating the industry: “the avoidance of unreasonable industry concentration which would tend to allow one or more air carriers to unreasonably increase prices, reduce services or exclude competition.”