What would a Northwest merger mean for region?
(TVLW) If it's true that the struggling U.S. airline industry is poised for consolidation, what does that mean for passengers in Detroit? A merger involving Northwest Airlines Corp. -- Detroit Metro Airport's biggest carrier -- could create easier travel planning for customers. On the other hand, they may end up paying more for tickets, industry watchers say.
(TVLW) If it’s true that the struggling U.S. airline industry is poised for consolidation, what does that mean for passengers in Detroit?
A merger involving Northwest Airlines Corp. — Detroit Metro Airport’s biggest carrier — could create easier travel planning for customers. On the other hand, they may end up paying more for tickets, industry watchers say.
“If you have one airline serving that many more cities, you only have to deal with one airline,” said Terry Trippler, an airline consultant based in Minneapolis. “It makes life easier for you as a flier.”
Talks of a merger between United and Delta airlines in early November unearthed a mountain of speculation about which other airlines would join forces, including Northwest, the biggest airline in Michigan.
Analysts drew up a series of scenarios involving Northwest. They say Delta or Continental are the most likely carriers to make a bid for the airline because a combination would create little operational overlap and produce complementary hubs and overseas routes.
“I expect Delta to make a play for Northwest by the first quarter of next year,” Trippler said.
In a Northwest-Delta merger, Detroit would become a dominant hub over Delta hubs at the Atlanta airport and New York’s John F. Kennedy International Airport. And in a Northwest and US Airways merger, the airlines would dominate in routes to Europe and Asia, Trippler said.
Northwest Chief Executive Doug Steenland said in October he would not comment on possible mergers but added, “Further consolidation is inevitable. One will likely conclude that six network carriers are too many.”
Soaring oil prices and high labor costs are the key drivers behind the latest call for industry consolidation. In recent weeks, oil has reached near $100 a barrel and could exceed that price next year. If airlines are to remain competitive, they can’t deal with $100-a-barrel oil prices on an ongoing basis because of the impact on revenue.
In some cases, high fuel costs have caused airlines to reduce the number of seats they sell and raise fares.
U.S. airlines also have struggled since 9/11, with several ending up in bankruptcy. Northwest emerged from bankruptcy in May after negotiating deep pay cuts with its workers. Other airlines, including United, also have been through bankruptcy in recent years.
Observers sour on the idea of mergers have painted consolidations as schemes under which investors would get rich at the expense of airlines and their customers. Fewer competitors could mean higher costs to consumers.
“It’s about the money; it’s not about improving the system,” said Michael Boyd, an airline consultant with Boyd & Associates in Colorado.
“The question is can we pull down capacity so we can charge people in Muskegon more?”
The process of marrying two carriers is also difficult. Any merger would require combining different computer systems, fleets and management teams.
“If you could magically make it happen without any of the costs or difficulties of doing it, some of it would make sense from a cost and revenue standpoint,” said Michael E. Levine, professor at the New York University School of Law and a former senior airline executive.
“But most airline mergers are so difficult and so costly that they end up doing less good than they cost … They don’t run very well for a couple of years, which drives customers away.”
Levine recalled the merger between US Airways and America West two years ago. Pilots at the merged airline have battled over how to reconcile union seniority lists. Combining computer systems also has led to service disruptions.
Still, a bigger system has clear advantages: Airlines that don’t have overlap now could extend themselves. There is also the potential for revenue enhancement and cost reductions. For corporate clients, it means one airline could take them more places.
Michael Leroy, a professor of labor and industrial relations at the University of Illinois at Urbana-Champaign, said such mergers can’t succeed without a successful integration of labor.
Leroy said a merger would open the door for unions to renegotiate contracts.
Pilots at Northwest Airlines say they’re not altogether opposed to the idea of a merger. They echo Leroy’s thoughts that it could help restore losses sustained during their bankruptcy restructuring.
Air Line Pilots Association Northwest Airlines Chapter chairman Dave Stevens said the union would prefer that the airline remain independent. But in the event of a merger, “we expect to be a full participant and to benefit from participation in contract repair.”
Erica Peresman, a Northwest customer from Birmingham who was caught in a spate of flight cancellations this summer, said she would welcome more options in Detroit.
“I think that anything that would improve our choices of routes and customer service would be great,” Peresman said. “If a merger would do that, that would be fine with me. To me the problem has always been that there’s little competition.”