Posted at 9:39 AM on January 11, 2008
by Bob Collins
Over the last decade, we've heard so many dire predictions of the future of the Northwest Airlines brand that we admit surprise that we're a bit misty-eyed at the prospect of the end of the red tail in these parts.
As MPR's Marty Moylan reports, the Delta Airlines board of directors today is deciding whether to pursue a merger with either United or Northwest.
"The airline has stated and restated its commitment to its hub and headquarters here in Minnesota. Obviously, whenever you have mergers or acquisitions, there are so many different variables, it certainly is enough to make anybody nervous. But we do think we are in pretty good shape in terms of having some leverage to encourage them to keep that hub and headquarters here."
That's from Metropolitan Airports Commission spokesman Pat Hogan. But airlines are remarkably unemotional about long ties to a region, and he acknowledges nothing is guaranteed. It's nothing personal; it's just business.
What's the rush? High fuel prices, for one. But the Wall Street Journal (subscription) says a significant motivation is the belief that Democrats will soon occupy the White House and be less likely to approve a merger.
Still, some industry watchers are skeptical that a deal is coming. Take Ray Neidl of Calyon Securities, for example.
"I think they're just trying to generate [public relations]," he told the Atlanta Constitution. If the companies were considering serious negotiations, "it wouldn't be published."
And Douglas McIntyre of the Web site 24/7 Wall Street, suggests mergers in an industry people late probably won't solve many problems.
The assumption that putting two big airlines together will save money is undoubtedly true. Compared to overall costs, those savings are probably very, very modest. Running Northwest costs about $12 billion a year. So much of that goes into fleet costs, fuel, and labor that there is not much to cut. Employees can be pushed out over time, but the unions are sensitive about it.
The largest single problem with merger two carriers is that consumers already hate airlines. The quality of service keeps dropping. They don't serve free peanuts anymore. The planes are dirty.
The head of US Air recently admitted that its merger with America West had been a train wreck of the first order. Reservation systems don't work. The employees of each company dislike one another. To put a point on it, the new company has all the hallmarks of an operator that is driving customers to rival airlines.
A merger between Delta and another large airline is not going to solve any problems. The modest savings of the combination will likely be offset by customer defections due to the poor service that comes from integrating two big carriers.