Do airline mergers alone produce better bottom line results?

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The news today reports a pending merger between United Airlines and Continental to be completed with a 3 billion dollar stock swap. The combined company will result in the world’s largest airline. The pending deal will surpass the recent Delta/ Northwest merger that  I believe, then created the world’s largest airline.

The real question is do airline mergers add value and increase bottom line profits?

The intent is to merge routes, cut redundant flights and service providers, and reduce costs. The real world result is often different.

Cost reduction gained by reducing headcount is often eliminated by higher wages and benefits given to labor to support the merger the subsequent loss of jobs and changes in work rules. About a year ago I wrote an article for an investment banking newsletter about mergers and acquisitions. The article was entitled “Can Acquisitions Work”?

Research for that article cited a study done by KPMG in 1999 that showed that “83% of mergers were unsuccessful in producing any business benefits regarding shareholder value” (Feldman & Pratt 1999).

The reasons given were loss of productivity of up to 50% for 4 to 8 months following a deal, as well as difficulty in merging systems, cultures, and work rules.

If we apply those findings to any airline merger the potential of adding value and providing better bottom line results is even more questionable.

Is any industry more tied up in regulations and work rules than the airline industry? Government regulations, union agreements, agreements with lenders all put pressure on airline profits. Not to mention fuel costs, inability to quickly reduce unprofitable flights, difficulty reducing workers, or the difficulty in merging reservations systems, call centers, and ticket outlets.

The hope of both companies behind a deal like this is to combine services, cut costs, and keep all of the revenue that both companies have today. The thinking is that passengers at a given city are captive since many cities are only served by one or two airlines.

I think what makes this strategy risky today is the willingness of the flying public to accept more service interruptions and inconveniences is greatly deteriorating. Looking at it from a passenger standpoint and not as an airline industry analyst flying just isn’t a great experience.

Speaking for myself as a former frequent flyer with over 2 million miles on two major airlines, I’d rather do nearly anything than take a commercial flight. Increased security and long lines at airports, poor customer service, flight consolidations and delays, tighter seating, smaller planes make what used to be a tolerable experience a dreaded chore.

I think until airlines realize that they are a customer service provider that provides transportation, not a freight carrier dealing in numbers the public will continue to look for ways to minimize air travel. The recent recession has caused companies to reduce travel due to cost concerns. New technology such as affordable teleconferencing has made some non-critical travel easier to eliminate.

There will always be a need to have face to face contact with customers, but companies are looking for ways to minimize the frequency.

Smaller more nimble carriers such as Jet Blue and Southwest are working hard to gain market share. That market share has to come from somewhere and that somewhere is the large carriers. Bigger is not automatically better, unless the combined entity can increase performance, develop a loyal customer base and maintain sales at current levels or better, this merger will join a long list of those losing value for the shareholders.

For better sales results, find the pain

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Why does someone buy a product or service? Because they have a want or they have a need. If they have a want there is no need to sell them. If you have what they want they’ll find you. A need on the other hand is not as pleasant an experience. It’s not as easy to sign on the line to fill a need, as it is to satisfy a want.

One of the things I was taught a long time ago was find the pain, find the problem that is causing the prospect to lose sleep and solve it.

If the pain isn’t sufficient there is no motivation to buy. Many prospects are in denial, they don’t want to accept the fact that they need help and in some cases that there is even a problem to be solved.

If that’s the case, and you can’t illustrate their problem to them, walk away you’re wasting your time.

There are five components to facilitate a sale:

1.   The prospect recognizes they have a need.
2.   They feel a real need to solve it. (pain)
3.    They have he authority to solve it.
4.    They have the money to solve it.
5.    They are open to help in solving it.

If any of these are missing you can spend a lot of time and come away empty.

I read somewhere that people change only when the pain to change is less than remaining where they are.

For better sales results, find the pain and help them understand the solution is better, more cost effective, easier, than staying where they are.

Improved leadership processes required for strategy execution !

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As the owner, CEO or senior executive of a business, you share many things in common with the coaches of professional sports teams. Can you imagine the head coach of a team – say in the National Football League – going into a game without a game plan? Of course not! That coach would soon be out of work. Coaches literally spend hundreds hours preparing for a 60-minute event.

A good coach not only develops and documents a strategy to win; he makes sure it’s understood by every player on the team. Every successful coach knows that a plan is essential for success.

But every successful coach also knows that a plan alone is not sufficient for success. The best plan in the world is useless if it’s not implemented. When the whistle blows to start the game, the players can’t simply stand on the sidelines and talk about what a great plan they have. They must take the field and play to win.

A coach that doesn’t learn from failures and make adjustments so that his team consistently wins soon finds out what the letters NFL really mean: Not For Long.
Why should you view your business as any different?

Your role as an executive is to execute!

It never ceases to amaze me – I’ll work with a company for weeks to develop a comprehensive strategic plan, and then nothing! Nada! It’s as if management says, “OK, now that we’ve finished the plan, we can check that off our list and get back to business as usual.”

They know they have issues that need to be changed. They pay good money to hire outside assistance to facilitate a planning process. They complete their plan. Then they proceed to ignore it!

Why? Is it fear of change? Fear of making a mistake? Fear of confronting people? A lack of confidence in themselves and/or their staff? Probably it’s a mixture of some or all of these.

For most executives, implementation is harder than planning. It takes determination and courage to actually do what you say you want to do. Implementation requires commitment, accountability, and change. That’s where the majority of companies fail.

Bold actions require bold leadership.

The absence of a decision is a de facto decision. That goes for all aspects of business planning and execution – from acknowledging problems to resolving them.

Tolerating poor personal performance from a staff member is choosing mediocrity. It lowers the bar for the entire staff.

Failing to take action about substandard quality is a decision about quality. It sends a message about core values to everyone in the organization.

It’s wise to gather the facts before making decisions. But postponing action “until there’s a better time” or “until there’s more data” is too often a cover-up for plain old fear to act.

Want to diminish focus and credibility in your organization? Here’s a sure-fire way: Develop a plan, communicate it to your people, and then fail to execute it.

When you fail to act on your plans, you undermine motivation, enthusiasm, pride, respect, commitment, and productivity. Yet 90 percent of American companies do just that, as shown by the chart below.

Paul R. Niven, The Balanced Scorecard (New Jersey: John Wiley & Sons, 2006).

Talk about an alarming statistic! If only 10 percent of American companies take the necessary actions to implement their plans, no wonder we’re losing our edge.

Many executives confuse busyness with effectiveness. They think they’re accomplishing a lot when people come to them all day long with questions and problems. It makes them feel important. They like being the center of the storm.

But executives who react instead of act accomplish little. They don’t produce progress because they’re concentrating on the minutia and ignoring the momentous. They’re playing around instead of playing to win.

But remember that your employees are watching your actions. They’ll respond to your leadership based on how you execute your plan.

To help you maintain your focus on decisive action, here are four principles for you to periodically review:

• If the status quo isn’t working, change it.
• If you don’t make a decision, you’re making a decision.
• If you don’t like making tough decisions, you’re not alone. But winners do it anyway.
• If you want to exercise real leadership, you must act.

You have to “walk the talk” every single day to attain excellence in any organization. You must take the field and play to win!

Action without vision is a nightmare. Vision without action is a daydream.

Japanese proverb

Bottom Line Book available on Amazon

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My first book, “Bottom Line Focus” has just been added to Amazon. It should be available from them in about a week. It took me well over a year to complete and it’s something I’ve wanted to do for years. I have experienced much over my career and I really feel strongly that many of today’s business issues are common among businesses and industries. I see the same things over and over, if I can help a company succeed and save jobs it really will have been all worth it.

My thoughts are we as a society are losing our leadership edge. There certainly aren’t many positive examples being shown us on a daily basis, but it doesn’t change the fact that leadership starts with each of us. Before you can lead others you must effectively lead yourself. Accountability and results start with each of us.