Editorials Game on? January 28, 2008 Share 1 -- People who think they know a lot about the airline business are saying that we're on the verge of a wave of mergers and acquisitions. Of course, we've been told several times before that we're "on the verge," but recent events suggest that we may finally be about to cross over.Powerful forces seem to be coming together in a way that makes 2008 look like the year of the real deal.It appears that Delta, for example, is not merely interested in finding a merger partner but in exploring two particular partners: Northwest and United. These happen to be the two U.S. carriers with the strongest networks of Asia-Pacific routes and the most access to the restricted markets of China and Japan.We don't believe that's a coincidence.Also, all three carriers have been cleansed by bankruptcy, which turned some of their lenders and creditors into worried investors. Pardus Capital Management, a hedge fund that took equity positions in both United and Delta, has been talking about the need for airline consolidation for several months. We don't believe Pardus has been speaking hypothetically.With global competition intensifying and the U.S. economy on the verge of a stall, and with no end in sight for rising fuel prices, airlines must explore all of their options, which increases the likelihood that some will choose to merge. And it's not just U.S. airlines that are looking at strategic options. Air France, which has already acquired KLM, is looking for a way to acquire and preserve the Alitalia brand, and Lufthansa just acquired a minority stake in JetBlue. As the world's governments begin to relax airline ownership restrictions, there's likely to be more cross-border investment, not less.One grim certainty in this haze is that, in the U.S. at least, real-world airline mergers have always been inferior to the pen-and-paper variety in terms of the consumer benefits, at least in the short term. That could be particularly true these days.It is often claimed, for example, that mergers eliminate excess capacity and improve efficiency. But with domestic load factors in the 80% range and capacity on the decline, there's not a lot of "excess," as that term is commonly understood.Among economists, however, the term "excess capacity" is sometimes used to mean "unprofitable capacity," and there does seem to be a lot of that. Eliminating it means fares will rise.As for efficiency, the airlines may be reaching a point of diminishing returns. For years they have been streamlining themselves with restructurings and endless operational tweaks to cope with rising fuel prices. Given all that has gone before, we suspect that any payoff from a merger is not likely to be huge.Another cause for concern is the sheer size of these deals. Past experience with airline mergers has shown that the bigger they get, the messier they get -- for employees, consumers and communities. It always takes a while for the big benefits to kick in.But as we have said before in this space, it may be time to take the long view. The U.S. travel industry -- indeed, the U.S. economy -- needs better airlines, and U.S. travelers deserve better airline service. We need profitable, world-class carriers and an airline industry that is no longer the butt of TV talk show jokes.If it takes a few mergers to get us from here to there, then we're prepared to swallow hard and accept a few mergers, even though we're reasonably certain that the journey to the other side of this verge won't be pretty.