News spread fast of Delta’s desire to merge with United Airlines or Northwest Airlines. It has been known for some time that a merger in the airline industry would happen, the only question was, who would it be. Now that it looks imminent that Delta will actually go through with a merger, let’s examine the affects it will have on the industry and the traveller.
The affect on the industry
The immediate result will be a slightly chaotic scramble for all of the airlines to resecure their market and assess the damage done by a merger. From alliance ties to hub locations, all of the airlines will have to figure out the balance that will work post-merger, even if they are not directly involved.
Hubs are one of the bigger points of contention. With consolidation comes operations movement and my prediction is the move away from using Salt Lake City as a hub if Delta chooses United Airlines or Cincinnati if Northwest is their choice. Salt Lake City has been a great hub for Delta but has not completely filled their needs for a west coast drop off point. With United’s firm grasp on both the Los Angeles and San Francisco markets, Delta’s hold becomes much tighter. Their ability to offer multiple transcontinental flights to multiple markets would be near unstoppable, competing heavily just with American and Continental.
If Northwest is the airline chosen, then I could see Salt Lake City being used more heavily and the Cincinnati airport slowly decommissioned as a hub. CVG is a nice airport and handles multiple types of traffic but I am not sure the market it serves is large enough to justify its continued use. Delta would be much better off with a more centrally located airport to serve the middle U.S. while at the same time being able to get more people across the Atlantic. My only reservation with Memphis is its heavy use by FedEx for operations. This could potentially lead to traffic issues, resulting in delays and poor performance.
The other big piece of the merger pie is the aircraft situation. Northwest’s fleet of DC-9s is growing old. Though they are paid off, their condition continues to deteriorate, leading to an uncomfortable experience and sometimes delayed flight. Delta would sell these planes off if they absorbed Northwest. If United ends up being the focus of Delta’s acquisition desires, I could see portions of the United fleet being sold off as well as some of Delta’s MD-88s. In either case, I think Delta will aim to find the perfect balance for new international traffic and connecting flights around the country.
One more aspect to consider is the airline industry as a whole. If a merger is allowed to proceed, there is potential for a third airline to go out of business. That’s right, US Airways may bite the dust if the industry is condensed and a positive experience reached. This would effectively rid the industry of what many consider a “bottom feeder”.
The affect on travellers
There is a lot of speculation that a Delta merger could be detrimental to customers for a number of reasons. The main reason to worry is the fact that there will be less seats available and therefore higher fares. As one airline merges with another they will certainly reduce the size of their fleets (see above), effectively choking the market. Customers will be forced to pay the fares because they will be some of the only options are certain routes. While this will probably be handled by the SEC there is always the possibility that ticket prices will significantly increase.
The other point of contention is frequent flyer programs. As the programs become one, the value of the mileage becomes less because, again, the number of reward seats available on flights will be drastically reduced. The reduction in the number of seats will be caused by an increase in program subscribers and artificially by the airline, who will want to make sure that they are not “giving away” too much, even though tickets purchased with miles are seen as revenue.
Conclusion
So where does that leave us? In my opinion, a merger may be the boost the airline industry needs. Quality and standards are fairly low, both at United and Northwest and by merging with a carrier that is slowly working to get it right, they may produce a better product. It is hard to ignore that the need for more capacity in certain markets is growing quickly while in others it is being forced to diminish. By allowing Delta to merge with one of these carriers we can hope to see both of these criteria occur. Delta can effectively serve the west coast as well as foreign markets it has yet to touch while possibly reducing waste.
Of course there are negatives to this, namely, the reduction in capacity. This may lead to sharp increase in fare prices, pushing more customers to the low cost carriers Southwest and JetBlue.
The industry needs an overhaul, let’s just hope this one is for the better.
