Air of Teamwork: United & Continental Merge

While it may have been overshadowed by the stock fluctuation fiasco last week, American airlines United and Continental announced a $3 billion merger. Forbes covered the partnership, noting that unlike many mergers, this is more about generating revenue than it is about cutting costs:

Whether it’s airlines, banks or canned food, mergers are usually about cost savings. Eliminate duplication, streamline distribution to the customers and lay people off.

The United-Continental merger? Not so much. This deal is more about chasing revenues by dominating lucrative routes. The combined airline would have hubs in the largest domestic cities, plus an expanded overseas network. So from a standpoint of the pricing power that comes with squeezing competitors at top hubs, the deal makes sense.

What the merger won’t do is advance the big cost-cutting initiative that airlines have been embarking on for the past couple of years–reducing capacity. Airlines are already taking seats out of the sky, with or without merger partners. There are always some duplicative costs that can be cut, but this deal is mainly about revenues.

"When you’re trying to get corporate contracts, and you can say you have the most routes to Europe and that you’re the major airline in New York, Chicago, San Francisco and others, that does a lot," says Seth Kaplan, managing partner at trade publication Airline Weekly. Internationally, United’s strength in the Pacific Rim is complemented by Continental’s South America dominance.

Industry consultant Michael Boyd says, "Cut costs all you want, but the lifeblood of an airline is its revenue stream."

The $3 billion, all-stock deal, will create the world’s largest airline, with some $30 billion in annual revenue. Continental Airlines ( CAL – news – people ) shareholders will get 1.05 shares of stock in United parent UAL ( UAUA – news – people ) for each share of Continental, with the merger expected to close by year-end.

The Obama Justice Department figures to scrutinize the deal more closely than Bush officials did the Delta-Northwest merger, but "It’s hard to imagine any hurdles that can’t be overcome," says Kaplan. It’s also unlikely that the companies’ boards would have approved the deal without feeling confident of minimal objections from the labor unions–an outcome that’s likely given the focus on business growth over cost cuts. The consensus: There will be some labor battles, but no open warfare.

Deadlines and Developments are Part of the Business

In this era of Twitter, smartphones and cable news networks, the minute something happens we know about it. A lot has been said/written/tweeted/etc. about print media dying.

While that’s a debate for another day, I will say I experience a monthly euphoria when the latest copy of Vanity Fair (ahem, I mean Forbes) is waiting for me in the mailbox.

I don’t expect to the find the news of the day when I pick up a magazine. No, I am looking for those in-depth stories and images that are much more enjoyable on glossy pages than a retina-burning digital screen.

So, that brings us to my point … the latest issue of BizVoice. Just like other magazines, we work on a production schedule that makes breaking news nearly impossible (once again, not the role of magazines anyway).

While topics in the magazine are planned so they are relevant for when they are released, those pesky deadlines can make things complicated. Case in point:

  • January 26 – I sat down with Eileen O’Neill Odum, NiSource executive vice president and NIPSCO CEO, for a brief interview for the BizVoice “Getting to Know” feature.
  • Our conversation was then turned into a nearly two-page spread for the March/April issue, which was sent to the printer February 12 – two weeks before it’s distributed to readers.
  • February 18 – Odum announced she would resign her position at the end of the month to spend time with her family. 

What are the chances? I guess that’s part of the deadline business. Don’t write off the story though – Odum’s words remain relevant as she discusses the company and Northwest Indiana. Go ahead and get to know her. We wish Eileen all the best as she enjoys some valuable time with family.

I can’t help but wonder if there’s something in the Northwest Indiana water though. Vince Galbiati officially resigned his position as CEO of the Northwest Indiana Forum the day after participating in a BizVoice roundtable discussion.

While we could have decided to leave him out of the story, you’ll find his perceptive comments are included (with a note acknowledging his resignation). You’ll also find several other stories in this issue highlighting Northwest Indiana. And just in case my theory on the water is correct, I’ll keep you posted on any other resignations.

Get Employees Back on Track

A recent article by Forbes asks an intriguing question about what motivates employees more – incentives vs. recognition. You can read the entire article for elaboration on each question (below) that companies should ask themselves:

It takes two to tango. These days, however, many chief executive officers worry they may be dancing alone with their employees standing idle on the sidelines. The recession has pummeled employee engagement, and poor employee morale has left CEOs feeling out of step with their workforce. What can you do to get your workers moving again? How do you capture their hearts and give them back the drive to do their very best?

Two tools are often prescribed to CEOs by their human resources experts: incentive programs and recognition programs. Incentive programs are contests usually limited to a specific group within a company, such as sales, in which employees compete to win some prize. By contrast, recognition programs acknowledge and reinforce the accomplishments of the majority of employees. They are more about long-term goals and values.

When and how these two approaches are best used can get confusing. As a CEO who has dealt with incentives and recognition for more than a decade, I offer five questions for you to ask to help you determine which may work best for you.

  1. Is your company morale in a state of emergency?
  2. Do you know what really motivates your employees?
  3. Do you just need to hit a quarterly target or deadline?
  4. Are you trying to motivate your entire workforce or just your star performers?
  5. Are you and your team committed to making employee engagement both an art and a science?

California Steamin’

The U.S. Chamber blog recently highlighted a piece by Joel Kotkin of NewGeography.com (and contributor to Forbes) in which the writer attempts to come to terms with just who is to blame for the epic fiscal spiral that is California. He makes some interesting observations, some of which will hopefully serve as red flags for the Hoosier State. Here are his five suspects:

1. Arnold Schwarzenegger

…Arnold quickly discovered his feminine side, becoming a kinder, ultra-green terminator…Yet over the past few years there’s been more destruction than creation. Employment in high-tech fields has stagnated…while there have been huge setbacks in the construction, manufacturing, warehousing and agricultural sectors. Driven away by strict regulations, businesses take their jobs outside California even in relatively good times. Indeed, according to a recent Milken Institute report, between 2000 and 2007 California lost nearly 400,000 manufacturing jobs. All that time, industrial employment was growing in major competitive rivals like Texas and Arizona….

2. The Public Sector

Who needs an economy when you have fat pensions and almost unlimited political power? That’s the mentality of California’s 356,000 workers and their unions, who make up the best-organized, best-funded and most powerful interest group in the state. State government continued to expand in size even when anyone with a room-temperature IQ knew California was headed for a massive financial meltdown. Scattered layoffs and the short-term salary givebacks now being considered won’t cure the core problem: an overgenerous retirement system. The unfunded liabilities for these employees’ generous pensions are now estimated at over $200 billion.

3. The Environment

Obama holds up California’s environmental policy as a model for the nation. May God protect the rest of the country. California’s environmental activists once did an enviable job protecting our coasts and mountains, expanding public lands and working to improve water and air resources. But now, like sailors who have taken possession of a distillery, they have gotten drunk on power and now rampage through every part of the economy.

In California today, everyone who makes a buck in the private sector–from developers and manufacturers to energy producers and farmers–cringes in fear of draconian regulations in the name of protecting the environment. The activists don’t much care, since they get their money from trust-funders and their nonprofits. The losers are California’s middle and working classes, the people who drive trucks, who work in factories and warehouses or who have white-collar jobs tied to these industries.

4. The Business Community

This insanity has been enabled by a lack of strong opposition to it. One potential source–California’s business leadership–has become progressively more feeble over the past generation…"The business community is so afraid they are keeping their heads down," observes Ross DeVol, director of regional economics at the Milken Institute. "I feel they if they keep this up much longer, they won’t have heads."

5. Californians

At some point Californians–the ones paying the bills and getting little in return–need to rouse themselves. The problem could be demographic. Over the past few years much of our middle class has fled the state, including a growing number to "dust bowl" states like Oklahoma, Texas and Arkansas from which so many Californians trace their roots…The last hope lies with those of us still enamored with California. We have allowed ourselves to be ruled by a motley alliance of self-righteous zealots, fools and cowards; now we must do something….We should, however, be very cautious about handing more power to the state’s leaders. With our acquiescence, they have led this most blessed state toward utter ruin…

Cato: Beware of Government Employee Burden on Taxpayers

A blog post by the Cato Institute raises an interesting question: What happens when taxpayers can’t afford to pay the salaries and benefits of the expanding government workforce? The obvious answer is, "Taxpayers can always afford it." We’ll just likely end up debating the meaning of the word "afford" as much as President Clinton debated the meaning of the word "is." At any rate, the post from Tad DeHaven (former deputy director of the Indiana OMB, btw) is worthwhile:

Dennis Cauchon of USA Today and Stephane Fitch of Forbes recently penned articles on the excessive nature of state and local government employee benefits and the threat taxpayers face as a result.

First, Cauchon reports that “State and local governments have set aside virtually no money to pay $1 trillion or more in medical benefits for retired civil servants…With bills coming due as Baby Boomers start to retire, states, cities, school districts and other governments may be forced to raise taxes, cut benefits or both — a task made especially difficult in an economic downturn.”

I would add that the task of cutting benefits for government employees is especially difficult because state and local politicians are generally beholden to the government employee unions. Even those policymakers not predisposed to carry water for the unions are hesitant to ruffle the feathers of a sizable voting block, not to mention a vocal one that still has a lot of regular citizens conned into believing government employees are underpaid, selfless, public “servants.”  Trust me, I’ve witnessed this game first hand.

Cauchon also spotlights the big picture problem: “These medical costs are part of a larger burden taxpayers face in providing health care for an aging population. The federal government has a $1.2 trillion unfunded obligation to pay medical costs for retired federal workers and military personnel. Medicare and Social Security push the nation’s unfunded promises above $50 trillion.”  He also notes that the same private sector employees who pay for these benefits via taxes are not so lucky: “Unlike private companies, most governments subsidize health insurance for retired employees.”

Innovation in Education Gone Awry

An oft-used unofficial definition of insanity: doing things the same way over and over and expecting different results. Some say that applies to education improvement efforts.

The following qualifies as "doing it differently" but falls way short of positive innovation. We’re talking about the initiative to pay students who show up for school, behave and do better on their test scores. The lineup of opponents to this ill-conceived strategy is long and vocal.

Stafford Palmieri of the Fordham Institute writes: "Higher standards, better teachers, and more tests are not the solution here. We need to teach our children that pulling an all nighter may be worth the temporary discomfort or that missing an episode of Project Runway is worth it to finish their math homework. That starts with parents. So here’s another great question: How are we going to get parents to start teaching their children to respect education?"

Diane Ravitch offers a Forbes op-ed here that closes with the following: "Interesting, isn’t it, that while students in other countries are paying $1,500 a year for the chance to learn more, many American students will be paid that same amount just to do what they ought to be doing in their own self-interest?

Does the future belong to those who struggle to better themselves, make sacrifices to do so and work hard? Or to those who must be cajoled and bribed to learn anything at all?"

Go Stafford and Diane. Where do you fall on paying kids to do what they’re supposed to be doing away?

IEDC: National Media Lauding Indiana’s Business Climate

In a recent web article from the Indiana Economic Development Corporation (IEDC), it seems many national news media and sources are looking at Indiana as a model for how to take care of business, so to speak:

National news broadcaster CNBC listed the Hoosier state as the “Most Improved State for Business” in its 2008 survey of states. Indiana ranked the best in the Midwest and third in the nation for Business Friendliness in the survey, the best in history for the state and far better than the rest of the industrial Midwest.

Forbes magazine also provided Indiana acclaim by rating the state’s business tax climate as the best in the Midwest and sixth lowest cost of doing business nationally in 2008.

Indiana’s low cost of doing business and tax-friendly environment scored accolades from a Chief Executive magazine survey of the nation’s top CEOs. The magazine’s fourth annual “Best & Worst States” survey polled 605 top executives in early 2008 who listed Indiana as the best place in the Midwest for business, scoring an eighth place national finish and edging out neighboring states by more than 15 places on the survey.

To view all of the rankings, read the piece on IEDC’s web site (PDF).

Hey, Fort Wayne: Chicago Writer Gives You Credit

I admit to some mixed reactions in reading a Midwest Business.com column. It referenced a Forbes article on 10 dying cities in America. Four — Canton, Cleveland, Dayton and Youngstown — in Ohio were joined by Detroit and Flint, Michigan.

I was happy to see no Indiana cities on the list, but disappointed as the Midwest took a beating. If we’re to believe that regional economic impact that everyone keeps talking about, dying cities to our east and north can’t be a good thing.

The mixed thoughts went away as the writer went on to contrast Fort Wayne with the "dying 10." He noted that the city experienced similar challenges in job losses and corporate moves, but that "the political leaders saw what was coming and they got out of a traditional mode of approaching economic development." He detailed some of the expansion and efficiency measures and also cited the fiber-to-the-premises investment by Verizon as critical.

The Chamber’s BizVoice magazine captured these stories last year as former Fort Wayne Mayor Graham Richard was our Government Leader of the Year and Verizon regional chief Gale Given a Chamber volunteer of the year.

Congrats, Fort Wayne. It’s nice to see others recognize the accomplishments.

Economic Rankings on the Way Up

There’s no questioning that the creation of the Indiana Economic Development Corporation (IEDC) has provided a major lift to Indiana’s business attraction and expansion efforts. Now the public-private organization is able to utilize some extra talking points with others taking notice of the state’s improved business climate and performance.

News of the CNBC survey (Indiana making the largest improvement nationwide from 26th to 13th overall with top 10 rankings in business friendliness, transportation and cost of doing business) traveled fast last week. Low business costs (especially compared to Midwest neighbors) were also cited in Forbes and Milken Institute reports. The IEDC has more in its Why Indiana section.
 
The state, and all those who made it possible, deserves credit for the improved performance. Fortunately, we know no one is going to be satisfied until we’re topping the various polls, lists and surveys. Indiana improved in eight of 10 categories in the CNBC tally, but moving from 48th to 37th in economy (I’d place us a little higher than that seeing the struggles elsewhere) certainly leaves room for more.
 
Other states, of course, aren’t standing still. We’ve got to continue to meet the education and workforce challenges, among others, to keep up and maintain the progress. That’s the impetus behind the Chamber’s Letters to Our Leaders and continuing to work with all involved for the benefit of our state’s employers and their employees.

Forbes: Hamilton County Most Family-friendly Place in U.S.

What do you like best about Hamilton County? The Fishers Freedom Festival? The table phones at the Noblesville Pizza King? Josh McRoberts?

Well, that debate could continue for a while. The verdict is in, however, regarding Forbes’ best place in the U.S. to raise a family and it is, in fact, our very own Hamilton County. The rankings were skewed toward areas with above par school districts, but the assessment factored in much more than that.

According to the Forbes article:

Raising a happy family requires more than just a good school system. With that in mind, we ranked the remaining counties using 10 data points: cost of living, graduation rate, standardized scores, home price, property tax rate as a percentage of median home price, percentage of homes occupied by owner, per-capita income, air quality, crime rate and commute time.

A hat tip to Hoosier Access for the initial post on this.