Airline Fanatic

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[Via FlyerTalk]

The New York Times is running a piece today about merger talk between the number 2 and number 3 airlines: United and Delta.  The latest news was spawned by Pardus Capital Management, which owns about a 2.6 percent stake in Delta.  According to Pardus, the combined airline would create about $585 million in savings, not to mention creating the world’s biggest airline.

The stimulus for this letter to Delta management seems to be the record rapid rise in fuel prices.  Any money the majors may have been making over the past few years will be completely wiped out it seems by these huge price increases.  Pardus obviously assumes that such a massive combined airline would then be able to reduce capacity to a degree that prices would rise considerably, and revenue along with them.  This is a pretty good assumption, as one less major carrier would reduce the competition on many routes over night, and it would take low cost carriers a while to adapt.

The letter also analyzes potential other merger prospects, but still identifies a Delta-United union (which would be a pure stock transaction) as the best fit.  A combination with Northwest would provide the best cost savings at over $1.5 billion annually, but would not result in a significantly larger network.  I wrote a post a while ago on a Northwest-Delta merger and came to the same conclusion: don’t do it.  Pardus also took a look at Continental and found that costs would actually rise $171 million a year.

We’ve known that Delta has been looking for acquisitions for some time now, but a letter from a larger shareholder such as Pardus may push them a little harder.  That combined with the current price environment may mean we could see movement sometime soon on this.  As always, the politics of labor unions and the airline industry will play a factor here, so we will have to wait and see.

There hasn’t been much merger talk in the airline industry since US Airways attempted a hostile takeover of Delta while they were still in bankruptcy. That has fallen by the wayside now though, and this time discussion is ramping up around the once down and out carrier Delta and its possible merger ideas with Northwest (or should I say Northworst?). Business Week is the latest to comment on this, providing a pretty good argument in favor of consolidation. I also feel consolidation between some of the major carriers would be great for the industry as a whole, though it would be bad for passengers.

Having said I’m in favor of airline consolidation, why does the headline say Delta shouldn’t think about going through with this? For many reasons, first and foremost being the fact that combining two mediocre airlines does not automatically mean they will come out on the other end being a great airline. This is the same kind of ill fated logic that brought America West and US Air together several years ago, only to have the combined carriers place last on the Department of Transportation’s complaint list. As someone who has had the unfortunate pleasure of flying on Northwest, I can safely say their customer service and passenger experience ranks among the worst in the entire industry, something Delta would only inherit in a merger.

Speaking of passenger experience, Northwest throws up another giant STOP sign with their aging fleet of over 100 DC-9s. The average age of this group of planes is an astonishing 35 years old. Needless to say the passenger comfort, cabin noise, and environmental standards of these things aren’t what they are today. Any suitor for Northwest would be forced to put up a lot of cash for planes that actually detract from passenger’s overall experience. Not that Delta is the poster child for new planes and clean interiors, but why make your fleet older than you have to?

One of the biggest incentives for a Delta-Northwest merger would be reduction in capacity in the domestic market, which in turn means healthier revenue numbers as prices go up. This drop in capacity wouldn’t happen to any great extent in this merger however, as Delta’s and Northwest’s route structure are largely mutually exclusive. Delta has major hubs in Atlanta and Cincinnati, while Northwest works out of Minneapolis, Detroit and Memphis. Reductions in point to point departures only leave more room for the low cost carriers to take more market share from legacy carriers. Internationally, Delta would gain an extensive network in Asia, which would complement its own network in Europe and make it a truly global airline. Delta has already won approval to start Atlanta-Shanghai service however, and is continuing to rapidly expand its own international offerings. Delta is already in a headlong rush to add its own international service, and so will probably catch up with stagnating Northwest before too long.

Delta should definitely be interested in industry consolidation, but only if doing so would provide any benefit to the bottom line. In my opinion swallowing up Northwest would produce bigger headaches than efficiencies. Instead Delta should take a look at an airline that isn’t as ancient and customer unfriendly as Northwest, such as ATA or Midwest.

Delta Airlinesannounced today that they are going to expand their transatlantic partnership with Air France next spring with new flights across the pond.  Passengers will now be able to fly nonstop between Atlanta and London Heathrow, JFK and Heathrow, JFK and Paris-Orly, and JFK to Lyons, France.  The routes start operating and the end of March, and fares seems pretty standard.

You can see the official press release here.

This is one of many announcements we will see in the transatlantic department now that the Open Skies agreement has been signed.

Delta Airlines is adding two daily non stops between Tucson, AZ and LAX.  The flights will be operated by ExpressJet as Delta Connections flights and will use the amazingly cramped ERJ 50 passenger jets.  Delta already operates flights to Atlanta and Salt Lake City out of Tucson, but is adding service to LAX as part of its broad build up of service at the airport.

Delta must be counting on a lot of connecting traffic on flights through LAX, because people traveling exclusively between  LA and Tucson have a much better choice in the form of Southwest Airlines.  Southwest flies their ubiquitous 737s which come with a lot more room, and also has much greater frequency, flying the city pair six times daily.

All in all this announcement shouldn’t bring about a great upheaval in Tucson, unless you are stuck with lots of  miles and are heading to LA.