Let the merging begin.
After much talk, more rumors and at least a year of will-they-or-won’t-they speculation, it appears the proposed merger between Delta and Northwest Airlines is a go. It’s still just that — a proposal (and subject to a slew of challenges) — but now that the plan has been officially announced, it’s rekindled the debate about what airline mergers mean for the flying public.
Naturally, the folks behind the Delta-Northwest plan are touting it as the best thing since free booze in first class. They’ve even produced a new Web site — newglobalairline.com — that hails the proposed mega-carrier as “America’s premier global airline” and a win-win situation for all concerned. The merger, said Richard Anderson, Delta CEO, “will open a world of opportunities for employees and customers.”
He may be right, but for the wrong reasons.
Bigger is better — but for whom?
The deal itself is a doozy, an all-stock transaction that will have Delta acquiring Northwest for approximately $3.1 billion. With more than 800 planes, the new carrier will offer 6,400 daily flights and serve more than 390 destinations in 67 countries, making it the largest carrier in the world.
And the “world,” i.e., international travel, is clearly the merger’s prime directive. With higher fares (and fewer low-cost carriers to compete with), margins on overseas flights are better, and the new Open Skies agreement will clearly favor the biggest, best-funded airlines.
Domestically, company officials claim that the merger is “based on addition, not subtraction” because they don’t intend to close any of their existing hubs. That may be so, although it’s also true that both airlines were already planning to cut their domestic capacity by five percent apiece this year. How that constitutes “addition” is a bit of a puzzler.
Of course, all of the above is predicated on the merger going through, which is by no means a given. There are still issues to resolve — Northwest pilots, among others, have vowed to fight the deal — and the plan will have to pass muster with the Justice Department vis-à-vis its effect on competition. Factor in the input from labor groups, consumer advocates and members of Congress and it’s unlikely that any deal will be consummated before fall.
Unfortunately, travelers will start feeling the effects long before then.
Deal or no deal, summer will be a bummer
Consider: The summer travel season is still two months away, yet it’s already shaping up as another nightmare in the making. In March, load factors on the Big Six legacy carriers averaged 84 percent, with Delta posting a record for the month of 84.5 percent. Northwest was even higher at 88 percent on its mainline (i.e., non-regional) routes.
Meanwhile, ongoing capacity cuts and skyrocketing fuel prices — up nearly 70 percent in the last year — mean more fuel surcharges and higher fares. With oil hitting a record price of $114 per barrel this week, more fare hikes are all but certain.
Now factor in the recent concerns about airline safety, the stepped-up inspection audits by FAA and the thousands of airline employees who are angry or worried about their jobs. With more FAA audits in the works and rumblings of other mergers in the air — Continental and United are currently considering “strategic alternatives” — don’t be surprised if this summer is one long series of sudden cancellations and mysterious delays.
And merger-mania will only make it worse, suggests Joe Brancatelli, publisher of Joe Sent Me, a Web site for business travelers: “It’s going to be more disruptive than ever because airline management will be busy trying to convince the world that everything is OK — instead of running their airlines.”
Angry passengers and unforeseen ‘opportunities’
Joe, it should be noted, makes no bones about his loathing for the legacy airlines. In fact, he’d just as soon they all went away tomorrow, supplanted by JetBlue, Southwest and the other discount carriers that offer friendly service and simplified fares. Not one for subtlety, he says, “I can’t wait for [the legacy carriers] to go from the Big Six to the Big Three to the Big One and then out of our lives forever.”
He makes an interesting point. If this summer gets as ugly as expected, the airlines causing the biggest disruptions will likely bear the brunt of fliers’ frustration. Some travelers will forgo flying entirely; others will be more likely to give the discount carriers — who already carry almost a third of the flying public — a try. Somehow, I don’t think that’s what Richard Anderson was referring to when he said the merger would “open a world of opportunities.”
Eventually, of course, the merger dust will settle, there will be fewer (and more crowded) planes in the sky, and we’ll all pay more to fly. I can’t say I’m looking forward to that prospect, but ultimately, that’s the key to both a viable industry and a more pleasant flying experience.
Now all we have to do is survive the process.