Delta-Northwest deal could mean fewer cheap seats

NEW YORK (CNNMoney.com) -- It may be time to wave goodbye to some of those discount fares. If Delta Air Lines and Northwest Airlines complete a merger to form the largest U.S. airline, travelers can expect fewer deals and higher fares on some remote routes.

A combination has been rumored for weeks and reports Tuesday indicated that a deal was close.

Airlines generally try to keep flights as full as possible, and the proposed new carrier would continue that trend. "If all the planes are full," said Rick Seaney, founder of fare search site FareCompare, "they can increase prices and have them stick."

With fewer available seats, airlines cut back on the supply of cheapest seats first.

Small and mid-size markets will likely be the first to feel the squeeze, said airline consultant Michael Boyd. For example, Delta (DAL, Fortune 500) or Northwest (NWA, Fortune 500) handle most of the flights for Roanoke, Va. - those fares would likely rise as travelers' options are reduced, Boyd said.

But prices aren't likely to change much at major hubs like New York or Los Angeles, since they're already served by a large number of airlines, creating plenty of competition.

The potential for higher fares is one reason a Delta-Northwest deal would get a lot of scrutiny from antitrust regulators and Congress. At a Senate hearing a year ago, many senators expressed concern that any airline merger would produce other deals that could leave about 80% of the nation's air traffic handled by only three new mega-carriers.

Continental Airlines (CAL, Fortune 500) is reported to have held talks with both United Airlines parent UAL Corp. (UAUA, Fortune 500) and American parent AMR Corp. (AMR, Fortune 500)

Northwest had held so-called "golden shares" in Continental, which allow it to block a deal there, but that veto would disappear if Northwest combines with Delta.

Seaney said he's concerned that if there is a rash of mergers "all hell breaks loose" as far as service and fares, since "competition is still the biggest driver of price."

Still, routes with competition from low-fare airlines such as Southwest Airlines (LUV, Fortune 500) and JetBlue Airways (JBLU) may keep fares from increasing too much, he said.

Of course, fares aren't the only issue. Will a merger lead to worse delays and other service problems?

The answer may largely depend on how happy various union groups are with the combination, and how complex merging the two carriers' operations turns out to be.

In early summer of 2007, soon after it emerged from bankruptcy, Northwest was hit by a rash of flight cancellations as it was left without sufficient crews to fly its jets.

United Airlines dealt with similar crew shortages and flight cancellations back in 2000 as it tried to win pilots' approval for its proposal at that time to combine with US Airways, a deal that was eventually dropped.

And after it filed for bankruptcy protection in September 2004 and started seeking concessions from unions, US Airways was hit by an increase in lost luggage, culminating in what one executive there called an "operational meltdown" during the Christmas holiday. The problem led to numerous planes leaving its Philadelphia hub without any luggage at all.

Fortunately, your frequent flier miles shouldn't be affected by a merger. Both Delta and Northwest are members of SkyTeam, an international airline alliance. SkyTeam members already share frequent flier miles. Since a combined Delta-Northwest would be larger, and presumably more stable, than Delta or Northwest alone, large collections of frequent flier miles should be more secure.

And as always, travelers who shop for flights earlier and are more flexible, will still get a better deal, Seaney said.