Delta & Northwest: Two wrongs don’t make a right.
If Delta merges with Northwest or United, how will it affect the current flailing commercial airline industry? Upon first hearing whispers of a possible merger, our instincts say “bad news.” We’re not alone.In recent articles, Jeff Bailey of the New York Times (Managers Foresee Fewer Airlines and Higher Airfares, January 22) and Joe Brancatelli of Portfolio.com (Merger Madness, January 22) are echoing those feelings of impending doom.
Bailey reports that “three-quarters of corporate travel managers said…they expect airline mergers to result in higher fares and more than half expect the quality of service to suffer.”
Airlines need higher fares to keep profits up as oil prices climb ever higher. So, to raise fares, they must make seats harder to obtain, thus more valuable. One way to do this is via a merger. With a newly expanded route network, these combo-airline would need to reduce the number of flights to certain markets, and possibly even eliminate hubs (Bailey mentioned Northwest’s Memphis Airport or Delta’s Cincinnati hub).
Plus, if a Delta merger goes through, it will likely spark Continental to seek a merger partner, leaving the market with a mere four big, or legacy, airlines as opposed to six (Delta, Northwest, United, Continental, American and US Airways). Not a good thing for those wanting to negotiate discounts.
Brancatelli quotes a Reuters dispatch saying “The legacy companies view mergers ‘as a way to stabilize the industry by allowing carriers to cut costs, reduce capacity, and raise fares.’” But he questions those views by saying that mergers of legacy carriers over the past thirty years have typically been unsuccessful, if not disastrous (certainly not stabile); that they have reduced capacities, while the consumer market keeps right on growing; and that “while prices for business travelers skyrocket after every merger, overall fares since 1979 have fallen consistently.”
So, will the merger (or mergers) happen? More importantly, if it does, will our predictions of negative ramifications come to fruition? And will air travelers seek other options?
We’re thinking yes. Which means fractional jet ownership providers may be the only folks outside the big airlines hoping this merger goes forward.
