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Airline Mergers and Coffee

Feb 23, 2012 • Businesses, Demand, Supply, and Markets, Economic History, Labor, Regulation, Uncategorized • 210 Views    No Comments

What to do when one airline uses a potent Starbucks bean, the other a weak Fresh Brew blend and they merge? After 14 months, Continental and United finally decided.

Described in Bloomberg Businessweek, our story starts with a 14 member beverage committee and 12 different beans. After sampling each one, they selected a light roast from Fresh Brew that company executives and more than 1,000 flight attendants also liked. On July 1, passengers were served the new coffee.

Then the problems began. Continental’s fliers objected to the watery blend, United’s loyalists wanted weaker coffee, and United’s onboard coffee equipment leaked extra water into the pot when the new pillow packs were brewing. Told about “howls of protest,” the beverage committee re-assembled and started all over again.  This time they chose a medium roast. If you fly United on March 1, you will be one of the first to sample it.

And this was just the coffee!

Combining 2 airlines is a monumental task. Everything from technology to uniforms are debated. Having merged 6 years ago, US Airways and America West have not completed the details. As for the Delta/Northwest combination, which began in  2008, they still are not done.

Illustrating everything from mergers to industry leaders to departures, this interactive graphic wonderfully displays changes in the airline industry since 1990.

The Economic Lesson

Brewing 62 million cups of coffee a year because of the merger, the new United has achieved more cost efficiency when it buys beans. Because “legacy” carriers like United and Continental are burdened by higher costs, they have had to merge to compete against Southwest and other discount airlines.

An Economic Question: After the airline industry was deregulated in 1978 how did competition change flying? This article provides some facts.

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