Delta/Northwest - most meaningful merger ever
And so, seemingly, it begins - the so-called “final” consolidation of the airline industry in the United States of America.
Delta Air Lines and Northwest Airlines plan to wed, creating a $17.7 billion airline with routes reaching deep in to the Pacific, and far into Europe. The move, if successful, is all but certain to trigger a combination among at least two of the remaining “legacy” hub & spoke carriers in this country. Continental Airlines and United Airlines are the most likely partners. Whether American Airlines will choose to take over smaller US Airways remains to be seen.
If approved, a Delta/Northwest combo will significantly alter the competitive skyscape not just in the United States, but globally. Indeed, a prepared statement is already labeling the proposed combination, “America's premier global airline”.
Hype aside, Delta and Northwest have a point. Delta is a major European player. Northwest is a potent Pacific and Asian competitor. Doug Steenland, Northwest CEO, contends: “The new carrier will offer superior route diversity across the U.S., Latin America, Europe, and Asia.” That, he further maintains, will help the carrier “overcome the industry's boom-and-bust cycles”.
What won't go bust, insist DL/NW, are the airlines' existing hubs. It will be instructive to see how the merged airline will be able to run successful hubs so close together. Atlanta (ATL), a Delta hub, is close to Northwest's Memphis (MEM) hub. Cincinnati (CVG), another Delta hub, is not all that far from Northwest's operation at Detroit Metro (DTW). Delta operates other hubs at Salt Lake City (SLC) and New York Kennedy (JFK), while Northwest has overseas operations at Tokyo Narita (NRT) and - in conjunction with KLM - Amsterdam Schiphol (AMS).
It's Atlanta/Memphis and Cincinnati/Detroit which may have trouble co-existing if history is any indicator. American Airlines once operated hubs in Nashville (BNA), Raleigh/Durham (RDU) and Miami (MIA). Now, only the Miami hub remains.
US Air (now US Airways) had hubs in Philadelphia (PHL), and Baltimore/Washington (BWI). BWI got the boot.
DL/NW also contend there will be: “improved international access [for] small communities.” If the deal goes through, however, some small communities currently served by both Delta and Northwest commuter partners will be served by just one. Whether those smaller cities still retain all their routes to the combined airline's existing hubs is also an issue.
Not an issue, apparently, is the buy-in by Delta pilots - at least the leadership. In a letter to fellow pilots, Lee Moak, Chairman of Delta'sAir Line Pilots Association Master Executive Council (MEC), says he supports the merger. “After careful analysis and deliberation of the facts,” says Moak, “the Delta MEC concurred with Delta's senior executives and financial professionals that a merger between Delta and Northwest was financially superior to a standalone Delta.”
Moak is urging fellow pilots to ratify the deal. Will the federal government?
Approval by the Department of Transportation (DOT) and Department of Justice are critical. If they give the green light - assuming the pilots do too - then the merger is almost certainly a go. Conventional wisdom holds that one of the reasons Delta and Northwest are moving as fast as they are is to get government approval in the bag before the departure from Washington of the Bush administration, an administration that is widely regarded as amenable to the wishes of corporate America.
The final, and perhaps most important, issue is how a Delta/Northwest merger will affect consumers. The two carriers say it will. Critics aren't so sure.
In a commentary for the Business Travel Coalition, close industry observer Hubert Horan contends: “Legacy [airline] megamergers won't increase the level of service operated, won't improve the quality of customer service, [and] could easily increase costs and reduce efficiency.”
Horan holds arguments that mergers are one way to respond to the soaring cost of Jet A fuel are “simply a PR smokescreen for megacarriers hoping to radically reduce international competition”.
One thing seems sure: should the merger become manifest, it will be historic. For better or worse, airline competition won't be the same. Buckle your seatbelts, grab a window seat and order your favorite beverage. It's going to be a fascinating ride.
© Cheapflights Ltd Jerry Chandler