Ideally, a merger combines the best features of one company
with those of another company such that the whole is of greater value than the
sum of the two parts. Optimal combination as such may imply or at least depend
on a rough power-balance between the two adjoining companies, for otherwise
distended dominance could translate into the worst of one company (i.e., the
dominate one) being foisted onto the merged entity. The opportunity cost, or
benefit lost in going with the worst of the dominant company, could be measured
by the extent to which the same function in the other company is better than
that of the dominant company. Put another way, it would make no sense to go
into a merger planning to let each company continue to do what it does worse
than the other. Sadly, power can eclipse economic criteria even in a company.
The merger of Continental Airlines and United Airlines provides a case in
point.
According to The New York Times, “The merger . . . was supposed
to combine Continental’s reputation for solid customer service with the broader
reach of United’s domestic and international network. Instead, [the merger
turned into] an exercise in frustration for [the] fliers, with frequent delays,
canceled flights, and lost bags.”[1]
Customer unhappiness is a pretty good indication that something went horribly
wrong in the formation of the combined company.
One business passenger, a frequent flier, provides us with a
synopsis. “Continental was probably the best airline . . . that you could
travel on pre-United. I would say United is one of the lowest.”[2]
Specifically, he cited poor service, bad wifi connections, and cut-backs on
perks and upgrades that evince little appreciation for frequent fliers. “I feel
that at 100,000 miles, somebody should care and make me feel like a valued
customer. You’re treated as just a commodity, and it’s a race to the bottom.
They don’t really appreciate me at all.”[3]
He would have quickly switched to another carrier, but the new United held 70
percent of all routes in and out of Newark, his main hub, at the time. Monopoly
in a market, and perhaps even oligopoly, may enable sub-optimal merged
companies to continue when they otherwise would have gone bankrupt.
United's "Love in the Air" promotion highlighting couples who met in the air. The case of the winning couple pictured here just happens to involve an "upgrade." The love in the air does not refer here to the employees on board or at the gate, even though the impression intended may be that flying United is a loving experience. (United Airlines)
In any case, the poor service of the pre-merger United
somehow trumped Continental’s excellent service in the combined airline; the
sordid mentality survived the salubrious one. Behind this dynamic lies dominance,
or power, disproportional, I submit, from the standpoint of an optimized merged
company according to business criteria—that is to say, power over
effectiveness. Lest it be presumed that business principles and calculation
play a predominate role mergers, the management of the power dynamics should
not be left out of the equation.
[1]
Jad Mouawad and Martha White, “Despite Shake-Up at Top, United Faces Steep
Climb,” The New York Times, September
15, 2015.
[2] Ibid.
[3] Ibid.
