Says Government Should Give Money... Then Get Out Of The Way

A former airline executive says the US airline industry is falling behind Europe and Asia, but carrier mergers are not the answer.

"The reality of airline consolidation is that it doesn't generate any cost savings and in many respects it generates cost increases," former chairman and chief executive officer of American Airlines' parent corporation, AMR Corp., Robert Crandall (right) told CNBC Friday. "It tends to create employee dissatisfaction and therefore further degrades service levels."

According to Crandall, the amount of post-merger competition between hubs keeps a company from even properly pricing its services.

"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."

One of the things that make a merger so attractive is the lure of the "power of the network" seen by carrier executives, but they often fail to make an objective, thorough assessment of the merging companies to see if they are truly compatible.

"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 labor is yet another problem to be seriously considered.

"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."

He says the US government needs to step up to the plate, as it were, and fund an appropriate air traffic control system -- and then step aside.

"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."

FMI: www.amrcorp.com