United-Continental Merger Is 'Endless Decisions'
RENEE MONTAGNE, HOST:
For the last two years, United and Continental have been engaged in the enormous task of merging their two airlines. Mergers are often messy and don't have a great reputation for working.
The new issue of Bloomberg Businessweek magazine offers an intriguing glimpse into how this particular merger is going. Reporter Drake Bennett joined us to share some of what he found.
Thanks for joining us.
DRAKE BENNETT: Thanks for having me.
MONTAGNE: Your article gives the sense of the enormity of the undertaking. It's much more detailed-oriented than any airline passenger might think. And you give a few examples. One of them is the kind of coffee each airline used and how it brings that together.
BENNETT: Right. The new United has been in the midst of a real saga - the coffee saga. There's actually a committee – the beverage committee - and for the past year one of their big endeavors has been coffee. There were lots and lots of taste tests. The CEO of the company tasted some of the coffees. Over a thousand flight attendants were given coffee to taste. And last summer, United rolled out their new coffee and it turned out to be a huge disaster. People were saying that the coffee was watery, despite this very extensive process that had gone into choosing it. And so I thought this was a wonderful example of just how these very simple seeming decisions, that are one of thousands upon thousands that you have to make to run airline to merge two airlines, actually take on these unpredictable complexities.
MONTAGNE: Well, there are issues that would seem clearly bigger...
MONTAGNE: How do you deal with the frequent flyer plans, which are so precious to customers, or pay scales, even where the headquarters are going to be.
BENNETT: Well, in airline mergers the two biggest issues tend to be IT – information technology – and labor. Passenger information is the other part of it, and that's bedeviled mergers in the past. The US Airways-America West merger hit a pretty big snag when they tried to merge these two passenger information systems and it's basically reservation and ticketing stuff.
United is going to merge their passenger service systems sometime in early March. They won't say exactly when, I think, because they're apprehensive about making sure they're ready to do it. But that's going to be a pretty big hurdle for them as well.
MONTAGNE: This is ongoing. This is a work in progress, still, between United and Continental. From what you learned, is it working?
BENNETT: So far, yes. And their financial results for the past year were good. They made $840 million.
MONTAGNE: Is that from cost cuts?
BENNETT: Well, partly it's from the fact that people are traveling more. US Air also had a good year and a good fourth quarter, so did Delta. But one thing about this merger that worked very well for the new United, is that these are two airlines that did not have a lot of overlap in their routes.
In terms of employees, in terms of people who fly planes or flight attendants or people who service planes, they're not planning to cut, really, at all, because they say they don't need to. The next year is going to be the year, I think, that's really taken up with labor negotiations and that's always a tough one. You know, you look at past airline mergers; America West, US Air - the merger was six and a half years ago. They still haven't fully merged their work forces. Delta-Northwest - which was widely seen a very successful merger a couple of years ago, they still haven't fully merged their work forces either.
But I was surprised, in doing the reporting for the story, when you talk to people, you know, everyone in the industry, whether it's people in unions, management, airline industry analysts - the consensus is, despite the fact that these labor negotiations get a lot of press, you actually don't need to resolve them to get a lot of the savings out of a merger.
MONTAGNE: Drake Bennett is a reporter for Bloomberg Businessweek magazine. His piece on the merger of United and Continental is called "Marriage at 30,000 Feet."
Thanks very much for joining us.
BENNETT: Thank you.
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