The CEO of a major airline that is in the early stages of merging two very diverse operations and cultures, recently bragged about how good things were going, much better than expected, certainly better than the United/Continental union which hit some large speed bumps over the last 18 months.
His company is profitable. If you stop and really think about it, that fact alone was the fuel for his rosy assessment. But here is the catch, they haven’t started the hard job of merging flight operations and customer service functions to any great degree, much less the union agreements and seniority lists. This is where most airline marriages encounter turbulence. His current enthusiastic outlook notwithstanding, it will be interesting to see how his customers feel about their progress in a year.
In defense of the United/Continental deal, they seemed to have weathered most of the tribulations save the union agreement with flight attendants which remains an open question. For perspective, the Delta/Northwest Airlines merger, which many industry analysts believe was one of the smoothest in the history of aviation consolidation, still experienced major service hiccups that drove passengers a little crazy.
Airline executives were big proponents of consolidation because they saw that as a way to wrench excess capacity from the market and drive fares back to a sustainable level. Today we have fewer choices of airlines, fewer available seats and the fares are indeed more costly. Moreover, cities across America are facing reductions in service as connecting flight hubs are eliminated or downsized. No city in America was hosed more than Cincinnati. That airport, once a busy hub for Delta, is now a shadow of its former self.
Hospitals are entering an era of consolidation. The conventional wisdom is that they must get bigger to deal with Accountable Care Organizations, shared risks and population health management initiatives, not as a way to eliminate competition and stabilize rates. If this is true, then while we may have a system that is better suited to deal with these healthcare reform initiatives, it is not clear whether the bigger-is-better national systems can deliver coordinated care at a lower cost with improved quality and safety.
There is another issue at play. For years the notion that all healthcare is local, which seemed to resonate as some big providers tried to roll out national brands and failed, is being tested in a very big way as increasing numbers of health systems adopt an operating company model with central control and ever increasing overhead.
The merger rush is picking up speed but the truth is that no one knows for sure whether consolidation will actually work. If it doesn’t, turnaround consultants and outplacement firms will be busy.
© 2020 John Gregory Self