Tuesday, December 05, 2006

Indigestion at US Airways

So US Airways Group is trying to take over Delta Airlines. As someone who studies mergers (and who flies a lot), why am I not reassured by this deal? Here are a few reasons:

1. US Airways Group is an amalgam of America West and US Airways, but America West and US Airways are still digesting each other. And now they want to devour another huge meal at the same time? I foresee some big competitive indigestion.

2. The America West/US Airways merger has been “successful” inasmuch as the new company has slashed costs so much that it might post a profit in Q4. But in the process of eviscerating resources, customer service problems have (unsurprisingly) multiplied. Upshot: Once the low-hanging fruit of obvious excess costs has been fully harvested, how are the leaders going to profitably grow the company when more customers are unhappy?

3. The answer to question #2 seems to be: Hell, I don’t know, so let’s buy another airline and use synergies to slash more costs. But the track record of companies whose growth strategy revolves primarily around serial acquisitions is pretty poor. Without a solid “organic” grounding of cutting edge services, brand uniqueness, and customer loyalty—none of which seem to be in abundance at US Airways Group-- it’s unlikely that serial acquisitions will, long term, yield much more than a house of cards.

4. I get the sense that the leaders behind the deal confuse “being the biggest” (and the new company would be the biggest U.S. airline) with “being the best.” If being biggest was the magic secret, you’d want to have invested in GM rather than Toyota, or in Albertson’s rather than Whole Foods Market—or in Delta and US Airways rather than Southwest Air and Jet Blue. Wrong.

5. It’s a hostile bid, in a business that requires resources and employee commitment to cost containment, quality enhancement and face-to-face customer care. Enough said.

6. Most important, let me quote from my book Break From the Pack, the subtitle “The Dinosaurs Mating Syndrome”:

“Perhaps the greatest delusion executives have about mergers is the belief that somehow, two bureaucratic, backward-looking corporations will join forces and spawn an impregnable giant. The underlying assumption is that two companies that have individually managed to generate flat earnings and declining share will be able to magically continue their comfort-zone strategies by jumping into bed together… Ultimately, a merger might temporarily prop up any two beasts by providing them better scale and better marketing, but the end result is still extreme vulnerability, if not extinction.”

Well, as the holidays approach I don’t mean to sound like a Scrooge, but I do believe I’ve answered my original question.

10 Comments:

Anonymous Anonymous said...

This is a great website! Easy to find helpful information. Your web site is helpful. I will be back!
- www.harari.blogspot.com p
spaghetti alla carbonara

12:04 AM  
Anonymous Anonymous said...

Would you like to have a brief chat before engaging in any kind of “face to face” relations? Welcome to site
- www.blogger.com 5
spaghetti alla carbonara

10:07 AM  
Anonymous Anonymous said...

Hi List of hot girls in your area. ENTER
big tit hotgirls xanax sex sexcam phentermine+cheap xanax+online phentermine sex hotbabe sexforadult sex sexygirlsfree sexygirls sexfree adult hotgirlsonline
freeadult soma sexvideo valium meridia ativan xanax drugs valium xanax+cheap viagra drug store viagra levitra cialis
Check prices of these useful pills:tramadol pharmacy search cialis soma ambien meridia ultram tramadol carisoprodol viagra
Enjoy

11:57 AM  
Blogger Tiago said...

I thought that Delta could not avoid the US Airways hostile takeover, because:

1- Delta's creditors had rejected their plans for exiting from bankruptcy.

2- The extra $1B that US Airways recently had thrown on the table also pleased some of those creditors.

3- And the talks between Delta and Northwest about a merger were frozen.

But I was WRONG!

Here is the News Alert from the WSJ for Jan. 31, 2007:

"The creditors for Delta rejected the hostile takeover bid by US Airways and formally endorsed Delta's plan to reorganize and exit from bankruptcy this spring as an independent company. US Airways said it has withdrawn its offer, formally valued at $9.75 billion in cash and stock, which would have expired Thursday."

12:55 PM  
Anonymous Anonymous said...

http://tramadol-sqllt.blogspot.com/
See you.

6:15 AM  
Anonymous Anonymous said...

Hi all!. Use this search engine for best result: TFOsearch Find all you need in your area!
Enjoy

12:13 PM  
Anonymous Anonymous said...

Latest news. Viagra, cialis

viagra
cialis
tramadol

3:36 AM  
Anonymous Anonymous said...

http://levitra-quik.blogspot.com/
Good Luck!

3:53 PM  
Anonymous Anonymous said...

Hi
For those who worries about health
Tramadol, Xanax, Phentermine, Skelaxin, Viagra, and all that is necessary.
Only for adults!
To not enter if to you is not present 18!
Welcome to Love+Chat, Movie+Pages & Porno.
G'night

7:56 PM  
Anonymous airway said...

Good article, this article make some interesting points.


airway data

1:03 AM  

Post a Comment

<< Home