Tuesday, April 15, 2008

Northwest and Delta merge; are they the first of many?

It's official: after weeks of wrangling and the complete failure of the two carriers' respective pilots' unions to reach an agreement over how to merge their seniority lists, Delta Air Lines and Northwest Airlines have announced an agreement to merge. Assuming that the deal passes regulatory muster (and it probably will), "the New Delta" will be the world's largest airline.

To be clear, it isn't that the Delta and Northwest pilots finally got things figured out; that's as jumbled a mess as ever. It's just that the merger was never dependent on their agreement in the first place--with the exception that Delta's CEO had stated that it was. That he has now gone back on that promise is a reflection of the changing landscape. That Delta's last CEO lobbied U.S. lawmakers about the perils of airline mergers as part of his strategy to fend off an unwanted 2007 bid by U.S Airways has similarly been discarded with the times.

Since last year, fuel prices have risen precipitously. Those prices are far from the only threat facing legacy airlines like Northwest and Delta--the recent and still unresolved squabble over seniority lists, for instance, highlights the ever-present challenges of a labor model originated more than forty years ago during the days of regulation--but they are serious. Within the last thirty days, in fact, four different airlines (five, if you count regional carrier Champion Air) have filed for bankruptcy protection. Aloha, ATA, and SkyBus are effectively out of business; Frontier continues to operate, but with enormous competition at its Denver hub from powerhouse United as well as popular newcomer Southwest, it's unclear what the future holds for the struggling carrier.

But it's not clear what the Delta-Northwest merger will accomplish. Perhaps to deflect criticism of anti-competitive behavior, "the New Delta" doesn't plan to cut jobs or reduce capacity, which are the two tactics that traditionally yield savings in an airline merger. A potential merger between United Airlines and Continental similarly would result in little reduction for the same reasons. And seniority lists are so difficult to integrate--U.S. Airways and America West are still trying to figure them out, four years after their merger--that even customers may continue to fly with two airlines operating under one name.

So, what does this merger hold for us? It's hard to say. For now, all that we can do is wait, wonder, and hope that the looming consolidations don't reduce service standards below their already unenviable levels.

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