Mapping Out an Airline for a New World
Wednesday, April 16, 2008
Executives of Northwest Airlines and Delta Air Lines yesterday made their case for completing a merger and creating the largest air carrier in the world. Their pitch essentially boils down to this: The new Delta would be a massive and growing global operation designed to survive tough economic times while providing better customer service.
"It's a unique combination," Richard Anderson, Delta's chief executive, said at a news conference yesterday. "It's a combination about addition, not subtraction." Anderson and other executives have pledged not to cut domestic flying more than already planned, to retain all of their hubs and to avoid layoffs.
But a legion of analysts, lawmakers and consumer advocates said those goals may be hard to accomplish with spiking oil prices and a weakening economy. The skeptics said they would expect the merger, if approved by regulators, to lead to fare increases, fewer flights at airports now served by both carriers and cutbacks at their smaller hubs.
"The reality is there will be fewer flights on some routes and layoffs in some cities where there is significant overlap between the carriers," said Michael Miller, chief executive of Green Skies, an aviation consulting agency. "I would expect some cuts at the smaller hubs and mid-size cities."
Delta and Northwest announced Monday night that they were seeking to merge and become the world's largest airline. Delta, the country's third-biggest carrier by traffic, and Northwest, the fifth, would keep Delta's name, its top executive and its headquarters in Atlanta. Executives for both companies said they would keep extensive operations in Northwest's home town, Minneapolis.
But the executives' ambitious plans face hurdles.
Lawmakers on Capitol Hill plan to hold hearings on the merger and what it might mean. They said they were particularly concerned about other carriers merging. Continental and United have talked about combining in the past.
Rep. Jerry F. Costello (D-Ill.), chairman of the House Transportation subcommittee on aviation, told reporters yesterday that "this may be good news for the top executives of both airlines, but I believe it's bad news for consumers and airline employees."
Rep. James L. Oberstar (D-Minn.), chairman of the House Transportation Committee, was more blunt: "The proposal offered yesterday by Delta and Northwest to merge will probably be the worst development in the history of aviation since the aftermath of deregulation."
Some analysts, however, cautioned that predicting the future of air travel is complicated.
They said a successful merger of Delta and Northwest would benefit consumers by creating an airline that was financially stronger and able to buy new planes and upgrade customer service. Frequent fliers now enrolled with either Delta or Northwest would see the choice of destinations vastly expand. Northwest is strong in Asia, while Delta has a large presence in Europe and Latin America.
On the other hand, consumers on some routes -- those between hubs and those to cities without competition from low-cost airlines -- may see fares rise. Delta operates domestic hubs in Atlanta, New York, Cincinnati and Salt Lake City. Northwest has hubs in Detroit, Minneapolis and Memphis. The analysts said the smaller hubs -- Cincinnati and Memphis -- probably would see flight reductions to trim costs and because they are fairly close to the carriers' larger hubs.
A dozen proposed fare increases have fizzled so far this year because at least one carrier has refused to match its rivals, according to the airlines. But if other mergers occur, analysts said, fares would be much easier to raise because the number of competitors would decline.
"With fewer airlines getting antsy about fare increases, the greater the likelihood of it going through," said Robert Mann, an airline analyst in New York.
But with airlines slapping fuel surcharges and fees onto tickets to recoup the cost of soaring oil prices -- crude oil reached a record high of $114.08 yesterday on the New York Mercantile Exchange before settling at $113.79 -- it will be difficult to determine which price increases to attribute to mergers and which to jet fuel costs, the consultants said.
The merger probably would not affect Washington area air travelers much. The two carriers account for about 13 percent of departures from the region's three airports. But if the merger is approved, it might drive more traffic to Delta's shuttle flights to and from New York because business travelers would want to rack up frequent-flier miles on the airline with the most destinations, according to analysts.
Corporate travel officers expressed mixed feelings about the merger. A majority said they thought customer service would get worse after a deal, according to a survey of travel managers that was released yesterday by the National Business Travel Association. More than 200 managers responded to the survey, which also showed that the managers were concerned that a merger would lead to flight decreases into major airports and diminishing service to small communities.
"They are nervous about those things," said Caleb Tiller, a spokesman for the group, adding that the managers also expected that the combined carrier would be financially healthier and have a stronger route system.