In a study sponsored by the National Bureau of Economic Research, University of Rochester professor Stacey Kole and I trace the destruction of shareholder value in the US Air-Piedmont deal - and in airline mergers more generally -- to problems with integrating work forces. In the US Air- case, large differences existed in the pay scales and work rules of the two carriers. Piedmont, for example, used smaller crews of flight attendants than US Air, lowering its labor costs. Piedmont also allowed clerks to direct planes on the tarmac, while US Air used costly unionized mechanics. Overall labor costs represented only 32% of operating expenses at Piedmont, but 41% at US Air. ----- Original Message ----- From: "Nick Laflamme" <dplaflamme@xxxxxxxxxxxxx> To: <AIRLINE@xxxxxxxxxxxxxxxxx> Sent: Friday, March 21, 2003 11:30 AM Subject: Re: Re-regulate Again (John Kurtzke) > I'm not John, but.... > > The classic argument would be the mergers reduced competition drastically > in too many markets. I can see this argument in the cases of Republic & > Northwest (upper Midwest) and Piedmont & US Air (eastern Rustbelt). I don't > know how much Delta and Western overlapped before their merger, though. > > Clay asked whether the US government let major airlines such as AA, UA, and > US fail. I think it might -- but local and state governments might try to > keep those airlines flying. > > For example, Pennsylvania, Pittsburgh, and Philadelphia all have a lot to > lose if US goes under. Not that the Commonwealth of Pennsylvania is flush > with cash, but can the state afford to let US go under? Similarly, Chicago > and the state of Illinois would get incredibly nervous if both AA and UA > were close to shutting down; suddenly ORD is close to a ghost town. DFW > without AA? SFO without UA? DEN without UA? There would huge economic > impacts to the O&D traffic to each of the mega-hubs, and consequently to > the local economies. jetBlue, Southwest, Frontier and AirTran couldn't > expand quickly enough to fill the voids, no matter how much they might want > to. > > Nick > > At 11:03 AM 3/21/2003 -0500, Allan9 wrote: > >John, > >Why would you say the mergers should not have been approved? > >Al > > > >>From: John Kurtzke [mailto:kurtzke@xxxxxx] > >>Sent: Thursday, March 20, 2003 2:25 PM > >>Subject: Re: Re-regulate Again > >> > >>Department of Justice allowed some mergers to go forward which should > >>have been stopped. (Republic-Northwest, Delta-Western, US Air-Piedmont, > >>to name a few.) > >> > >>john kurtzke > >> > >>kurtzke@xxxxxx >