It’s unclear exactly which airline will take struggling Delta Air Lines Inc. to the altar in what many analysts predict will be an inevitable corporate marriage. But no matter whether Delta gets hitched to US Airways Group Inc. or rival suitor Northwest Airlines Corp., consumers will be the ones who get hurt when it comes to fares and customer service.
US Airways this week raised its hostile offer for Delta by 20 percent to $10.3, putting pressure on creditors who largely control the fate of the airline, which is trying to emerge from bankruptcy proceedings this year. Northwest also is in discussions with Delta about a possible hook-up, according to persistent reports.
Air travelers can expect domestic fares to rise fastest on smaller, less-traveled routes and then rise gradually on busier, more competitive legs, analysts say. Business travelers probably will be the biggest losers as corporate purchasing agents lose their bargaining power with fewer airlines to bargain with.
Customer service will surely suffer as morale drops and problems with integrating two workforces emerge. Unrest among Delta’s workforce, especially if US Airways succeeds in its hostile bid, could last years and negatively impact many customers’ flying experiences, industry watchers predict.
“The consumer won’t be winning,” says Ed Perkins, consumer advocate and contributing editor to SmarterTravel.com, about any Delta combination. “The only sure winners are the Wall Street bankers and the airline executives who will end up getting their golden parachutes.”
No matter what a merger means to consumers, continued consolidation in the airline industry is inevitable, says Darryl Jenkins, longtime industry analyst. “One way or another (Delta) will merge with some airline in the next year or so. So many of these CEOs want to do that. The question is ‘Who do I do it with?'”
The purpose of consolidation, he adds, is to change the industry structure, but consolidation means fewer seats and therefore fewer discount fares. “Even the low-cost guys have to sell their highest-fare seats to make money," Jenkins says. "With the $79 tickets no one makes money. We call them junk fares.”
Prices likely would rise further if US Airways wins its bid for Delta rather than Northwest, says Ray Neidl, analyst for Calyon Securities. Delta and US Airways have more overlapping flights than Delta and Northwest, meaning more seats would likely be eliminated. "And that tends to push up prices,” Neidl says.
At this point Neidl gives the Delta-US Airways deal a 50-50 chance. While the financials look good for a takeover, federal regulators may derail such an effort because it would clearly diminish competition, he says.
As for your frequent flier miles, expect continued tightening of the screws if a Delta merger materializes, according to analysts — even though it's already next to impossible for most fliers to redeem their points when they need them.
It’s not all doom and gloom. Perkins says that while consumers can expect list prices for fares to rise, carriers are likely to continue offering discounted fares as incentives to purchase tickets. But that means customers will have to wait until a few months before they depart to get the best deals, so be prepared to play a of Russian roulette if you are aiming to save money.
And airline analyst Terry Trippler does not expect a major spike in prices and is hopeful some fares may actually decrease. He points out that many fares offered by US Airways have begun to come down recently — a sign, he says, of what consumers might expect if the company merges with Delta. “The management team running US Airways wants to call themselves the world’s largest low-lost carrier,” says Trippler, of MyVacationPassport.com, a travel club.
If the two carrier merge, “I expect we will eventually see airfares moderate — depending on fuel not going to $100 a barrel," Trippler says. "In the long run we will see a stabilization of our air transport system.”
As for customer service, Delta has done reasonably well in rankings against the other big "legacy" airlines.
Delta ranks a close second in service behind Continental among the legacy carriers, according to a recent survey of customer satisfaction by J.D. Power and Associates and Aviation Week. The srudy considered check in, in-flight services, cost and fees. Both US Airways and Northwest ranked below the industry average.
Service at Delta almost certainly will suffer in a merger, at least for the near term, as the new management tries to combine operations and human capital. US Airways is still trying to integrate its workforce with America West following a merger of the two carriers in late 2005.
“That creates an additional layer of instability,” says Nathan Greeno, a workplace consultant who has worked with Delta, referring to mergers in general.
Fear and low morale among the workforce is inevitable with any merger, he explains. Even in a friendly merger it takes at least six months to integrate the workforce and improve morale among the rank and file. In a hostile takeover, like the one that US Airways is attempting, employee upheaval could last for several years.
The task promises to be even harder for workers at Delta, a company with a strong corporate culture that traces its Southern roots to a crop-dusting outfit established in the 1920s.
Indeed, Delta employees, spurred on by management, have been engaged in a campaign in recent weeks to keep Delta out of the hands of US Airways management group. The slogan, emblazoned on buttons now worn by many employees: “Keep Delta My Delta!”
But few analysts expect Delta to continue flying solo over the long term.