Merger talk rules the day, from reported talks at Delta to the possible affect on alliances
Merger talk is a hot topic again today in aviation news, with several prominent news outlets picking up the subject. The latest update on the subject comes from The Wall Street Journal (subscription required), which says Delta "has opened merger negotiations with both UAL's United Airlines and Northwest Airlines, and hopes to negotiate a merger agreement with one of the airlines over the next two weeks, according to people familiar with the situation. … Delta executives, who completed a round of preliminary discussions with United and Northwest before seeking board permission for formal talks, plan to move swiftly and present the preferred partner to Delta directors when they next meet in early February. A deal could be announced as early as mid-February, according to those people."
Scott McCartney, The Middle Seat columnist for The Wall Street Journal (subscription required), writes "when big airlines merge, it changes life for travelers, leading to higher ticket prices, poorer service and maybe even a switch in the credit card you carry." He says that 'for the fractured airline industry, where nine big airlines fight coast-to-coast, removing large competitors and bulking up flight schedules could be a way to better survive high oil prices and recession instead of the bankruptcies and turmoil of past downturns." That's led to talk of mergers –- including recent speculation about Delta –- but so far no big mergers have materialized since US Airways and America West combined in 2005.
McCartney says fliers often bear the brunt of merger difficulties, facing disgruntled workers, reduced service, operational snafus and the likelihood of higher fares. Mergers also bring more frequent fliers and elite-level fliers under a single program, something many predict will make it harder to redeem miles or to use the perks of elite status. On the other side, however, McCartney says that "also opens up new destinations where travelers can get free tickets, and lets elite-level fliers use their benefits like early boarding and better seating on more flights." Frequent-flier guru Randy Petersen says: "Supply and demand evens out a little bit when programs get bigger." Consolidation could also help congestion, though conditions could worsen at certain hubs and opportunistic rivals would likely eventually replace much of the capacity cut by any merging rivals.
But if any of the current round of merger talk actually does move past speculation, the next hurdle could come from federal regulators. For example, Reuters says Delta "would face an unprecedented airline antitrust review if it decides to propose a merger with either Northwest Airlines or United Airlines parent UAL. Industry consultants, lawyers, and former government officials agree either merger would present the Justice Department with its toughest airline test. And with a crucial election year underway, Congress would certainly weigh in."
Another significant roadblock could come from labor. In a separate story, Reuters suggests "U.S. airlines may have to pay a hefty price to the industry's powerful labor unions in order to secure backing for merger deals, but any concessions may ultimately quash the benefits of linking up in the first place. With talk of consolidation sweeping through the U.S. airline industry, pilot and flight attendant unions see an opportunity to flex their muscle and regain some of the hundreds of millions of dollars of wages and benefits lost during the industry's five-year slump, which ended in 2006. But if airline executives give in to union demands to roll back concessions and protect jobs, they may erode the cost savings and capacity cuts that are supposed to justify a deal."