Delta-Northwest deal may launch fare hikes
If the big airline combination is approved, frugal fliers could feel the pinch.
NEW YORK (CNNMoney.com) -- Travelers can expect fewer deals and higher fares on some routes if Delta Air Lines and Northwest Airlines complete the merger announced Monday, because it could trigger a wave of consolidation within the airline industry.
"Any type of reduction in competition is not good for consumers," said Rick Seaney, CEO of FareCompare.com, a price-finding Web site.
Airlines generally try to keep flights as full as possible, and the proposed new carrier would try to continue that trend by cutting excess flights to the same locations, according to industry experts.
Fuller planes and fewer available seats allow airlines to cut back on the supply of cheapest seats, charging more on average per seat.
However, the route systems between Delta and Northwest "barely overlap," so the deal might not lead to a huge reduction in competition, said Seaney.
Instead, he said the bigger threat to competition and low pricing are subsequent airline mergers.
A Delta-Northwest merger may force at least one other deal between airlines that may share a lot more markets, said Seaney. "Once one falls, they all feel like they have to fall in behind."
Continental Airlines is reported to have held talks with both United Airlines parent UAL Corp. and American parent AMR Corp. (AMR, Fortune 500) Northwest had held so-called "golden shares" in Continental (CAL, Fortune 500), which allowed it to block a deal involving that carrier, but that veto would disappear if Northwest combines with Delta.
On April 9, the Department of Transportation tenatively approved a suspension of antitrust laws for several members of the SkyTeam alliance - Delta, Northwest, Air France, KLM Royal Dutch Airlines, and two other international partners - with the object of combining trans-Atlantic operations and operating as a single carrier for flights between the U.S. and Europe.
The SkyTeam is a loose partnership that lets carriers share booking services and frequent flier miles.
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 in 2007, 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.
Delta and Northwest have been pushing for some sort of combination since at least 2004, according to the DOT. Such an alliance could actually provide lower fare options and more non-stop flights to Europe, the department 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 (UAUA, Fortune 500) 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 (LCC, Fortune 500) 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.
The combination of Delta and Northwest could actually improve the quality of baggage handling and other services, according to one expert.
It is possible that "they'll take a look at each other's ways of doing business," and learn from each other, said David Beckerman, a director at consulting group BACK Aviation.
Delta and Northwest already share some rapport through the SkyTeam alliance, he added.
SkyTeam members already share frequent flier miles, which shouldn't be affected by a merger. Because a combined Delta-Northwest would be larger, and presumably more stable, than Delta (DAL, Fortune 500) or Northwest (NWA, Fortune 500) alone, large collections of frequent flier miles should be more secure.
As always, travelers who shop for flights earlier and are more flexible will still get a better deal, Seaney said.
The rising cost of refined aviation fuel has been putting a strain on airlines, causing them to raise rates in order to maintain their profit margins.
"It's not about making money now for the next few quarters; it's about staying in the game," Seaney added. "Everybody's really on pins and needles about what's going to happen with fuel costs."