Opinion Piece:

Mergers alone aren't enough to
save U.S. airline industry
By: Matt Andersson

Just about every major airline in the United States has gone through a bankruptcy restructuring in the past five years, yet they all struggle to survive, let alone prosper. In the meantime, most of them now seek a merger, a partnership, an alliance, or some other way to collaborate.

Merger talks between United Airlines and Continental Airlines broke down, and more recent talks between United and US Airways contain many uncertainties. And the announced deal between Northwest Airlines and Delta Air Lines is far from solidified. Perhaps there's a larger issue at work here — one involving not just the restructuring of airline companies but of the entire industry.

So, what has to change? At least five key things.

First, airlines should be included in a set of "strategic industries" that qualify for structural fuel support. A national energy policy should include investment in refinement and especially alternatives, ideally in partnership with the U.S. Air Force alternative jet-fuel program.

Second, labor management must include mandatory, binding arbitration that allows for fair and efficient dispute resolution while avoiding the painful consequences of work stoppage. And executives are going to have to join the team by accepting limits to wage and benefit multiples while sharing more. Bankruptcy law must be mended to include hard stops on duration and frequency to reinforce cooperation.

Third, antitrust law must move out of the dark ages. Airlines must be free from the threat of "collusion" to share resources, coordinate operations and reduce asset and service duplication, regardless of whether they merge. But trade practices must preclude airlines from the suicide of selling service below cost.

Fourth, government must spend the money needed to upgrade the nation's air traffic control system and airports, including security. Access to development banking capital will help. The United States may be a first-world nation, but much of our infrastructure is in third-world shape.

Fifth, everyone deserves a permanent upgrade: New, more comfortable aircraft must replace our antique fleet design. A combination of investment tax credit and sovereign financial support will help trigger new orders.

Finally, what about ticket prices? Airlines are going to have to learn to live with guidelines:Consumers want more reasonable and predictable average fares (like a commuter train), with less pricing swings and surprises.

Mergers won't create improvements in customer service without a comprehensive postderegulation aviation policy. This includes getting management focused on an industry, vs. corporate, goalpost.

Absent that, airlines may find themselves in a futile battle for survival, while the consumer continues to be hijacked, in this case by the false promises of mere corporate transactions.

Crain's Business News June 02, 2008 from This Week's Opinion

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