Adjunct Professor of Global Marketing for the Thunderbird School of Global Management Rick Baer talks about the potential impacts of a merger between US Airways and American Airlines from a marketing perspective.
Ted Simons: There's been a lot of speculation about a potential merger between Tempe-based us airways and American Airlines. Here to share his views about the impact of such a merger is Rick Baer, adjunct professor of global marketing for the thunderbird school of global management. Thank you for joining us tonight.
Rick Baer: I'm really excited to be here.
Ted Simons: That's good to hear. Are we excited, how excited are we of the possibility of this merger? Is it possible?
Rick Baer: I think it's possible. For sure. However, I think it depends on whether you are in the business world or whether you are a traveler. In the past, when there's been mergers of big airlines, frequent flyers have suffered and there's been snafus when reservation systems don't quite click. And so from a traveler's perspective, fares go up and that's not a great thing.
Ted Simons: So business travelers, frequent travelers, these sorts of folks are impacted by something like this.
Rick Baer: Oh, absolutely. And in March, United and Continental merged their two systems and there are big complaints from, especially the highest level of frequent flyers.
Ted Simons: As far as the companies are concerned, though, what kind of branding challenges are afoot here? Before such a merger, after such a merger.
Rick Baer: That's a great question. The history of the airline business, though, there's been lots of takeovers. Think back American airlines purchased TWA and TWA sort of disappeared. US airways and America West, and America west brand name disappeared, although I have a tiny story to tell. I was taking a flight on us airways and we landed in charlotte, and the folks at the desk says, we are very sorry but your current plane is not available. We have to bring in an old America West plane. So from a branding perspective, from my marketing heartbeat didn't do well. Perhaps those people were old us airways employees and not America West employees. So there sometimes is an issue. You get used to flying the hometown airline. America west becomes U.S. air and then becomes American. It costs a lot of money to paint an airplane. Maybe millions of dollars.
Ted Simons: Why would, if this merger were to happen, why would the American name stick and the US Airways not?
Rick Baer: I think without having the data in front of me, us marketing folks like to have data to prove this. I would think both Doug Parker and Mr. Horton, head of American, must have done some serious research to find out which brand has got better brand awareness, which brand has got a better feeling from consumers about, do I trust this airline? Do I think they are going to treat my baggage well? Do I think I'm going to get there on time? And my sense of it would be that the American name must have proven much stronger.
Ted Simons: As far as headquarters are concerned, again, the reports are that if such a merger would happen, headquarters would leave Tempe and go to Dallas-Fort Worth. Likely?
Rick Baer: Yes, most likely. I think that's one of the things that America West-US Airways that is dangled in front of American airlines. We would move the headquarters to Dallas. I think it's not good for Phoenix.
Ted Simons: Why would they move, make the move?
Rick Baer: Yeah, I think it's one of the enticements to make this merger happen. Although if I was an American airlines executive I would be a little nervous. Whenever there's a merger between companies, the company that takes over, the US Airways folks, they probably look to reduce staff and head count and maybe some of the American airlines folks would go away
Ted Simons: What are the variables that are considered when you look at where, when two companies meet, we are going to go here as opposed to there?
Rick Baer: I would think probably on the top would be cost of labor. I would think that people would want to look at the number of variables like landing rights perhaps, maybe if you are going to increase the amount of traffic through Dallas, maybe it's cheaper to land in Dallas than it is in phoenix. I wish I had the facts but I don't know. But those are the sort of things you look at. Labor costs, operational costs, maybe even fuel costs might be lower. I am not sure.
Ted Simons: Interesting. All right. So the impact now of a headquarters move out of the Phoenix area to Dallas-Fort Worth, the impact on us in terms of our image, our viabilities as a corporate headquarters location? What happens here?
Rick Baer: I think we take a hit. I really do. Having a big well-known global company like US Airways here, leaving town, obviously, less revenue, less income tax, all those employees that might be moving. Less participation by companies in charities because a lot of the leadership and the people who are at the headquarters, they are very active in the community. As an image, though, I think it also hurts. We like to have as many companies headquartered here. We are very proud of our city and if someone picks up and leaves, I think we do take a hit.
Ted Simons: I was going to ask about the branding and the image aspect of this all. Obviously, Arizona wants to get headquarters here, wants to attract companies and corporations here. When, obviously, no one is going to say no just because US Airways has left, but it becomes a bit of a scar.
Rick Baer: People want to know why. What was the driving factor? Was it the unavailability of getting high-quality employees? Was it something else? Was it the cost of living? Was it climate? Who knows why some corporations make a decision to move to Cincinnati or move to Chicago. Boeing moved from Washington to Chicago and that was a big shock. Same thing with Phillip Morris when they moved from North Carolina to Atlanta, it was a big shock for those cities who were used to having a champion, if you will.
Ted Simons: Especially a home-grown champion. It's one thing, something if you move here and move away but America West was born here. So what do we look for in terms of knowing that something like this could possibly happen?
Rick Baer: Well, two things. I think you are going to see a lot of activity, a lot of poaching of customers from the competition. It's sort of like when you have a shark circling some wounded fish. American Airlines is in bankruptcy. US Airways is having some negotiations with American Airlines. Boy, if I was United, Continental, if I was Delta, I would be poaching their top tier frequent flyers by making them superb offers, I would be coming into the marketplace and lowering my prices in order to try to poach away customers, thinking that these companies have taken their eye off the ball. They're working on a merger, they are struggling through bankruptcy and negotiations, and so I think the competitors see the blood in the water and they're going to dive in. Southwest, I wouldn't be surprised if they increase their advertising to convince local consumers, flyers, to change.
Ted Simons: With that in mind, what we are doing right now, even talking about the possibility of such a merger, the reports that are out there, the rumors, the hearsay, whatever you want to call it, that in and of itself drives this market.
Rick Baer: Absolutely. You are right. It also creates some sort of uncertainty in your employees. Right? That's something from a branding perspective you never want. Your brand, the face of your brand, especially in the airline business, is right in front of you with the flight attendants, with the folks at the desk, and if they are nervous about whether they are going to keep their job or not, especially since they have been doing a really good job recently, US Airways has been getting better and better and better in customer service rankings and lost baggage rankings and they have been making some real, real progress. This is still a moment uncertainty.
Ted Simons: Don't want to be a dying fish in the water. Too much blood. It's good to have you here. Thanks for joining us.
Rick Baer: Thank you very much for having me.
Ted Simons: You bet.
Ted Simons: Wednesday on "Arizona Horizon," we'll take a look at the outcome of today's special election to fill Gabrielle Gifford's' congressional seat. And meet the ASU dean who has been named a 2012 united nations champion of the earth. That's Wednesday on "Arizona horizon," 5:30 and 10:00 right here on 8hd. That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great evening.
Rick Baer:Adjunct Professor of Global Marketing, Thunderbird School of Global Management;
