Out of the Box

So They Merged: Now What?

By Menachem Lubinsky on April 18 2008

Two of the nation’s largest airlines, Northwest and Delta, merged in mid-April, creating the country’s largest airline. In a merger of this size, there are many implications for the marketing of the new entity, which is Delta. As is so often the case in corporate mergers, the stronger company gets to retain the name, unless there is a combined name which in effect creates a third name.

The first challenge for Delta marketers is to convince the various publics (i.e. passengers, pilots, Wall Street) that the merger is really good for them. In fact, they have to convince the public that the newly merged airline will be much better for them. So Delta’s press release immediately addressed some of these concerns head-on. Will the merger in effect reduce service? Of course not, said the Delta release. "Small communities throughout the United States will enjoy enhanced access to more destinations worldwide."

Why the merger altogether? A year ago, both airlines were just coming out of bankruptcy. Consumer confidence has been in decline, particularly after the recent spade of inspections that resulted in the cancellation of thousands of flights. And the biggest problem for airlines is skyrocketing oil prices. The public will have to be persuaded that these problems will somehow be solved with the consolidation of flights and the use of more fuel efficient equipment.

So what’s left? The pilots and Wall Street. For the pilots, who opposed the merger due to their concern over job security and pension, there was a promise that a new deal would be signed with the Union which took care of their concerns. And for Wall Street, the new company was offering Northwest shareholders 1.25 Delta shares for each Northwest share they own. This exchange ratio represents a premium to Northwest shareholders of 16.8 percent based on April 14 closing prices.

Richard Anderson, Delta CEO, stated: “We said we would only enter into a consolidation transaction if it was right for all of our constituencies; Delta and Northwest are a perfect fit.” Then it was left to the marketing people to convince each constituency how good they will have it under the newly created airline.

There was one feature of the Delta release which PR professionals love. The ability to sound positive, within legal limits. Here’s how the release put it: “This press release includes ‘forward-looking statements’ within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as ‘expect,’ ‘estimate,’ ‘project,’ ‘budget,’ ‘forecast,’ ‘anticipate,’ ‘intend,’ ‘plan,’ ‘may,’ ‘will,’ ‘could,’ ‘should,’ ‘believes,’ ‘predicts,’ ‘potential,’ ‘continue,’ and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, Delta’s and Northwest’s expectations with respect to the synergies, costs and charges and capitalization, anticipated financial impacts of the merger transaction and related transactions; approval of the merger transaction and related transactions by shareholders; the satisfaction of the closing conditions to the merger transaction and related transactions; and the timing of the completion of the merger transaction and related transactions.”

In reality, mergers are not always a smooth ride (to coin a new phrase for airlines). Even the best laid plans can run awry, particularly if external conditions intervene. Despite using all of the positive words to prove that the future will be bright, the down economy we are now experiencing can wreak havoc on those plans. Travel may just become one of the victims of the recession. Business travel, a key profit center for the airlines, may suffer as a result of belt tightening. But PR people can almost ignore any possibilities of doom, so long as they stay within the rosy forecasts by the merging parties.

Marketers are often faced with the dilemma of selling positive industry projections, even if they themselves are somewhat skeptical. You may have seen government spokesmen squirm when predicting that the recession will be “short-lived” according to some “well-known analysts,” who may simply backtrack later by saying that they really didn’t expect the GE earnings to plummet, for example.

Merged companies obviously plead for patience, often referring to a new relationship as the “honeymoon” period. The public can be forgiving that such a period of adjustment is absolutely essential and therefore lower expectations. But at some point, the honeymoon will be over and marketers will have to cope with raised expectations. The flying public will expect a more efficient airline from the newly merged airlines. Delta will have to be accountable to all of its publics and prove that its vision was correct. Northwest will vanish into the night and will no longer be accountable to anyone. Its marketing people, at least those that survive the merger and consolidation, will take on the Delta mantra.

Mergers, like weddings, can be a time of hope and projections for a bright future. Marketers recognize that their main objective at that time is to take advantage of the positive and forward looking occasion. But then the reality of life for the married couple or merged entities arrives, which puts the marketers in an entirely new frame of reference. For the new Delta, only time will tell, and even the savviest of marketers know that.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.