Michael Pascoe Has A Point

Mergers are for suckers

The merger in particular question is the QANTAS - BA merger. Why the hell anyone, apart from Dixo-Joy and other 'advising' parties thinks this is a good idea is a mystery. BA is in desperate straits, negotiating with a far more suitable partner in Spain's Iberia Airways and a hulking great airline unable to turn a buck because it operates in a highly-competitive and mature aviation market. One that is deregulated to within an inch of its life and now dominated by RyanAir and easyJet-style low-cost carriers.

BA also has had its trans-Atlantic lunch comprehensively cut by Branson's Virgin Atlantic and its long-haul Asian routes are better served by lower-cost-base 'premium' carriers like Singapore, Cathay and now Emirates. Oh, they're in debt to their eyeballs, have billions in unfunded pensions and a fleet that resembles Noah's Ark. It is bereft of the cachet of flag carrier as Virgin, again, have managed to white-ant them out of that position. Anyone who has flown BA would also know how unutterably dull the experience is, but that's purely a personal thing.

Qantas, on the other hand, despite a disastrous year of morale-sapping bungles and mishaps, is in rude health. Dixon has cut costs to the bone because, well, frankly, he's a jerk, and bullied his staff into submission by threatening to take jobs overseas while taking home $12m and flying first class everywhere. His reign will be marked by a) his Henny Penny sky-is-falling routine before announcing a mammoth profit and b) his wild attempts to make millions of dollars through the failed leveraged buy-out last year. Oh and c) - the fact the airline is in decline with regards to standards, but that's always for the next bunny, Joyce, to deal with.

The airline still pretty much owns the trans-Pacific West Coast USA routes and also has a strangehold on the domestic, medium and long-haul routes via Jetstar and the main brand. The only fly in Qantas' trans-Pacific ointment is the Virgin Blue-backed V Australia (no longer owned in any part by Branson, sadly) which was to have launched by now but won't get in the air until around March when Boeing get around to delivering a few cheap-to-run 777s. The main victim of V Australia will be the risible United Airlines, who ironically are fed by Virgin Blue for the domestic routes. Oh and Airbus and Boeing haven't the faintest idea how to deliver a plane on time.

What's in it for Qantas shareholders? Nothing. Nothing at all. Actually, worse than nothing - BA will drag down Qantas shares as the new entity shoulders the debt and mismanagement of the bigger, fatter, slower-moving brother. No doubt there is some scary frequent flyer liabilities hidden in the BA business as well as significant cost problems in its home market. The only thing good that could come out of it is a platform from which to launch Jetstar Europe. But that's about it. The amount of money a Jetstar would have to make in that market would be astronomical to even cover the liability that is today's British Airways.

BA shareholders won't win either for all the same reasons. Yeah, they might make a penny or two in the short term but BA will drag the entity down and destroy two airlines instead of one. I can't see either government wanting to help too much if that happened. There will be significant resistance from Qantas shareholders, too. The most obvious suitors for Qantas are Air NZ (won't happen), Singapore Airlines (mmm...maybe....) and Cathay Pacific (uncertain...). Anything but BA, an airline mired in a market far away from the realities and opportunities of South East Asia and carrying an incompetent, inflexible structure that can't adapt to the new realities of aviation in the twenty-first century. Qantas aren't perfect either, but at least they're not doing as bad a job as BA.

All they have to do now is stop their planes from looking like they're going to fall out of the sky at any minute, restore customer service and staff morale and things look very bright for a BA-less Qantas.

The competitive concerns are null and void because there's a legal cartel in effect between Qantas and BA because they code-share on the bulk of seats and charge the same.