Editorial: A Big Wave Of Consolidation Ready To Break

This month's merger moves are harbingers of the next several months, as an improvement in available credit is preceding recovery and volcanic ash further beset cash flows already depleted by massive drops in demand.

This is the part of the economic cycle when consolidation happens: when new capital finds and combines strong but devalued brands. With demand down but slowly recovering, the sharks are in the water.

The United-Continental merger and the efforts to acquire Dollar Thrifty have arguably been a long time coming. Other business travel industry combinations are likely to materialize soon.

Airlines and car rental companies have proven in the past few years that better control of inventory can yield pricing power. Better fleet management by car rental companies and reductions in capacity by all major U.S. legacy carriers also helped them face the drastic cuts in travel prompted by recession. Many airline insiders believe there is a need for further cuts in capacity that only more consolidation can bring.

Consolidation can help buyers by extending networks and services and lowering costs, but in constricting competition it also logically leads to price hikes. The real value of consolidation lies in the quality of the management. Cost savings can be had, but without good leadership consolidation can lead to a massive scale of failure.