Sunday, November 24, 2013

The American and US Air Merger

There have been a number of Articles and blogs recently celebrating the merger. Some of them say this will create the world's largest airline. Others talk about taking market share from United and Delta.

Gosh, I am not an airline expert, though I have probably flown over two million miles. I am not an investment expert, though I purchased my first stock at age 14.

However, I have been a CIO and CEO for more than a couple years. Please let me be clear, what you are about to read is not a criticism of American Airlines, they were my go to airline until 9/11 when they cut the direct route to Kauai and closed the club at Honolulu airport essentially forcing me to switch to United.

Most of you have read about problems with the United Continental merger. And trust me, there were problems. Since I was on a plane almost every week as well as someone who follows investment analysts, here is what I think makes or breaks the effectiveness of the merger:

1) The merger of the IT systems. United Continental had some glaring and famous problems, but as an IT guy, I think they actually did fairly well. Trust me, at that scale it could have been a lot worse; think Obamacare, (and I am not being political, I am talking about large scale IT). If the IT systems do not work, then passengers will not get to where they need to go and United and Delta will gain customers.

2) Culture. With the United Continental merger, the Continental folks really seemed to have a chip on their shoulders. If American/US Air should lead to employees that want to abuse customers, they will lose market share. Make no mistake about it, travel today is about two things, the least pain and lowest cost.

3) Leadership. Say what you want about Jeff Smisek, but he is not a passive leader. And that is important. The American/US Air employees are going to need someone to look up to for guidance.

4) Cost management. This goes everywhere from reducing redundant routes and employees to fuel efficient planes, though I am starting to wonder about the success of the dreamliner.

The bottom line: I wish the merger the best, I really do. Competition not only helps with the cost of flying, but also can be a driver for better customer service. But I have to be honest, all of my instincts, observations and analysis lead me to believe this is going to be a very bumpy merger. They may start out as the largest airline, though if you made me bet, that will not be true 18 months after the merger.

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