Monday, February 11, 2008

The Era of Mergers

Although the exact structure of the new company isn't quite clear, most analysts expect Delta to purchase Northwest Airlines, and they said that a deal could be announced within a matter of weeks.

Some might puzzle over the speed, given the glacial pace at which these things tend to move. A few factors make a quick merger easier for Delta and Northwest than might usually be the case:
  • There's relatively little opposition from unions. Both the Northwest pilots' union and the flight attendants' union have signaled that they would accept a merger if employees were given a stake in the combined company.

  • Air France-KLM, which has a history of close operations with Northwest, has indicated a willingness to contribute cash to help bolster the deal, also in exchange for a stake in the new company.
Of course, for frequent flyers like me, the concept of a Delta-Northwest merger is interesting but of no importance unto itself because both airlines are already allies in SkyTeam. Memberships in either airline's lounge already grant access to the other's, and the mileage systems for both carriers are basically identical.

More significant is the news that United and Continental are themselves in the "very initial stages" of merger talks: while Continental is a SkyTeam airline, United is a member of the Star Alliance, and any union between those two airlines would inevitably change the alliance structure that many of us have come to intimately understand and accept as a foundation of our travel plans.

Of course, there's a lot of potential gain in a Continental-United merger -- if it's done right. Continental has the highest customer service rating among the legacy carriers. It's the only one to still serve meals in coach class. And its overseas BusinessFirst service? Phenomenal. Extend those benefits across both route networks and it's a win-win.

My concern is that it won't go the right way. And since between the two of them, Continental and United account for almost all of my flying (about 175,000 miles per year), I have a lot to lose if the merger brings out the worst of both carriers. We all do.

Let's hope that doesn't happen. First, we'll have to wait and see what happens with Delta and Northwest.*

* A Delta-Northwest merger would have to come before a Continental-United merger could proceed -- first, because Continental doesn't actually want to merge with anyone, but more importantly because Northwest owns a "golden share" in Continental that allows the airline to block any change in ownership. If NWA itself is acquired, though, Continental can buy the golden share for $100.

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