Delta and Northwest Announce Merger

George Hobica, April 14, 2008
Fares from Washington DC:

    Well, it's finally happened. We now have the world's largest airline, that is, until Continental, US Air and United merge with each other or with smaller partners, or American buys up JetBlue, Alaska, Frontier, and Midwest. The new airline will be called Delta (a far less geographically-restrictive branding than "Northwest," although I always think of Mississippi when I think of "Delta".)

    What does this mean for airfares? A couple of weeks ago I would have said not much. But with the demise of several low cost airlines recently, I think we will see far fewer domestic fare wars. Gone are the days when Northwest can lower fares out of Delta's hubs and Delta retaliate by lowering fares out of Northwest's. Maybe, just maybe, we'll see some competition on international routes thanks to Open Skies agreements, but that remains to be seen.

    Yes, we will still have Southwest, and JetBlue, and maybe Airtran, to keep the mega-mergers on their toes. But once the other legacy carriers merge with each other, I don't expect to see any new low cost carriers emerging anytime soon, at least not in this credit environment. Even so, the airline business has never been rational when it comes to pricing (not since the days of airline regulation some would argue), so it's really impossible to say that we'll never see a fare war again.

    Besides which, airfares, even if they go up 50%, will still be absurdly low adjusted for inflation. Thirty years ago, when I was a graduate student in England, I flew trans-Atlantic on British Airways during semester breaks for $198 round-trip. We still sometimes see fares that low across the Atlantic, at least in the dead of winter. Adjusted for inflation, it's like paying $29 each way. Probably less. No wonder flight attendants are on food stamps.

    The only good news out of all this is that if you have 20,000 miles in Northwest's frequent flyer program and 10,000 in Delta's, you now have 30,000 in Delta's. And if you own stock in airlines, you'll probably see some benefit.

    Of course, the Northwest/Delta deal could still fall through, and some analysts think that the days of the hub and spoke legacy carriers are numbered anyway, mergers or no, because their cost structures are too expensive compared to those of newer low cost carriers such as Southwest, JetBlue, Allegiant, and Airtran.

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