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Mergers aren’t a “magic elixir for fixing the U.S. airline industry, said Robert Crandall, former chairman and CEO of AMR Corp. [AMR
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] , the parent of American Airlines.
“The reality of airline consolidation is that it doesn’t generate any cost savings and in many respects it generates cost increases,” Crandall said Friday on CNBC's "Squawk Box." “It tends to create employee dissatisfaction and therefore further degrades service levels.”
Mergers are enticing because managers see the “power of the network” but often make a basic miscalculation, he said.
“Where you find two airlines whose networks link as oppose to compete, you would, in that circumstance, have some system synergies that could be translated into revenue increases,” Crandall said. “But I would caution everyone involved (that) there’s a lot of downside as well.”
He said the airline industry’s basic problem is that it can’t properly price its services because there’s so much competition between hubs.
“If you have a big consolidation, some of the hubs might get closed,” Crandall said. “Whether that would have any long-term positive effect I think is very much open to question because there’s a constant flow of new, aspiring airline moguls into the business.”
Congress needs to fund upgrades to the nation’s air traffic control system and then get out of the way.
“This is one of the things that only government can do and that government has done very badly,” Crandall said. “It has been under-funded, under-planned, under-managed. We have a serious air traffic control problem and we’re falling behind Europe and Asia. We need to get on with it. Congress needs to get out of the way – give them the necessary money and get it done.”
Labor, especially among legacy carriers, is a another problem, according to Crandall.
“There are very strong unions in the airline industry, and inability of labor and management to work with one another in any sort of a civil way has been a terrible curse for the business for years and years,” Crandall said. “It appears to be just as bad today as it ever was.”
Southwest Airlines [LUV
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] and JetBlue [JBLU
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] are good carriers and will continue to grow, but have lost some of the competitive edge they once enjoyed, Crandall added.
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