No Merger Between Delta and Northwest Thank Goodness

Airline to become the new Delta.
Airline to become the new Delta.

More Airline Industry News Hits the Top News

Monday, April 14, Delta and Northwest announced that they have plans to merge creating the world's largest carrier. This is a 17.7 billion dollar deal, which will make the new "Delta" a mega-airline, with $35 billion in revenue, and 75,000 employees. It would now have close to 800 planes servicing more than 390 destinations in 67 counties across the world.

The headquarters will remain in Atlanta, but major hubs will be found across the globe, including Asia and Europe. The change will not create any hub closures or be the cause of any immediate lay offs for front-line employees.

The merger itself will have to meet with federal regulatory approval before it becomes a reality, but is seen to be quite promising, due to the pending economic conditions. The company officials hope to finalize the deal before the end of the year.

This merger will create a company with international dominance.
This merger will create a company with international dominance.

Why the Merger?

The merger is simply a logical answer to the problems caused by economic instability. The reason stems from the age old adage, "united we stand, divided we fall." Both of these companies have just emerged from Chapter 11 bankruptcy just last year.

"We believe that consolidation in the airline industry is inevitable, and we want to control our future," Delta Chief Executive Richard Anderson said in a memo to employees. "Combining our companies creates an airline with the size, scale and global presence to weather economic downturns and compete long-term in the global marketplace."

Four other discount carriers have declared bankruptcy or shut down in the last four weeks alone. Fuel has reached a high of $110 a barrel causing the cost of flying to increase drastically. The combination of these two carries into one will give them an added competitive edge in the international market place, making it a dominating force to contend with. Delta has always held a strong position in South and Central America, while Northwest has strength in Asia and Japan, together they will be felt in strength throughout the world,

United and Continental are next to merge?
United and Continental are next to merge?

What will this merger mean to other airlines?

Depending on the success of this innovative deal, other airlines may be quick to follow suit with similar mergers. An ever larger possibility is a merger between United and Continental airlines. These rumored changes may prompt regulators to keep a closer watch on what is actually happening in the industry. The U. S. Department of Justice antitrust regulators will be scrutinizing the deal closely, while some politicians may even oppose the possibility, foreseeing a potential harm to consumers and airline employees alike. These types of mergers could bring capacity cuts to the flights and higher fares for customers as the competition will be less, in terms of the amount of bidders in the ring.

As of now big companies like AirTran see it as a potential to become more competitive in the market and not less. AirTran Airways made a statement that they feel it is a positive move in the industry

Who will possibly lose by this merger?

As of now the biggest opposition to the deal is coming from the pilots themselves. Up for discussion are many issues some of which are, their existing pension plans, job seniority, and equity they have in company stock shares. Both Northwest and Delta pilots and their supporting unions are not seen to favor the merger, but have been working on resolving these issues for the last several months.

A Delta representative made a statement that the new airline would "provide employees with greater job security, an equity stake in the combined airline, and a more stable platform for future growth in the face of significant economic pressures from rising fuel costs and intense competition."

As for the consumer....

I wonder how this will ultimately affect the prices of our airline tickets, and the ability to find a competitive market place? What do you think?

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Comments 12 comments

Eileen Hughes profile image

Eileen Hughes 8 years ago from Northam Western Australia

So many new airlines, but how long will they last. History proves they encourage competition and reduce prices. Then they all put prices up again when some are eliminated.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Eileen,

The combination of these two airlines into one will actually reduce the current amount of airline choices. I imagine then from your comments you would conclude that this merger would increase fares?


Eric M profile image

Eric M 8 years ago from Bend, Oregon

I think that the short term result will be mainly felt in the profitibility of the airlines as they acheive greater economies of scale. I don't see flight costs decreasing substantially as this is too much a function of corporate greed behind ever increasing oil prices. I do not see the merging companies "passing the costs along to consumers" as is so often the rallying cry. If they do it will be a short term strategy to appease the masses and legislators that supported such a deal and then they will increase. For an example of this, look at the huge oil company mergers - where are those savings to consumers now after their economies have been acheived? Who is really benefitting? One has only to look at the record profits of the world's largest energy producers to understand the real benefit of super-mergers. The only things that work long-term are ethics, competition and legislation. Ethics are rare in big business - and I'd rather see less legislation in our world. Competition is the best way to achieve the maximum benefit for consumers.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Eric,

I think you are right on with your observations.  I too feel that there may be an immediate drop in rates but in the long run, with the competative factor gone, the big airlines will monopolize the industry and set prices at whatever they choose.  As you have pointed out, this is seen already with other industries.  Thank you for your opinions.  Have a great day!


Rob Jundt profile image

Rob Jundt 8 years ago from Midwest USA

This is another prime example of big fish little fish. I understand somewhat the necessity to merge and improve short term profitability. In the long run however, I fear such consolidations will put the hammer down on the consumer in the form of higher prices.

History has taught us that in times of economic unrest or downturn, the strongest end up prevailing; usually at the expense of the little guy and the consumer.

I've seen it in action over the last 18 months or so in the housing industry. Larger suppliers gain better pricing structures from their manufacturers to secure short term business. The bottom line is that jobs will get lost and people will feel the ramifications. I remain positive that the cycle will aright itself.

Let's Hope! Another informative hub my friend!

I hope for the best.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Rob,

Thanks for sharing your opinions and observations. I think that you are probably right on with your thought process. I too hope that right will prevail, we shall see. Thank you for your kind words.


compu-smart profile image

compu-smart 8 years ago from London UK

Im not sure if merging companys has more pros than cons! especially in this case! but if they can make flights cheaper can only be a good thing!


Bocadike 8 years ago

Another great hub! Thanks! This would have done well on Google under Airline Crisis.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Compu-smart,

I agree with you on your points. The bottom line for me too is cheaper flights. Thanks for your comments.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Bocadike,

Thanks for the tip, I will tag it as such. Thank you.


Scott Chester 8 years ago

Delta and the other large carriers need to get off their large rear ends and figure out the reason why they can't make any money is because they don't have an effective plan in place. I finally figured this out when I was one of 11 people on board a 737 from SLC to JFK a few months ago. We got off the plane to transfer to another. The flight we transferred to was on the same plane we just deboarded from and we didn't leave for four hours. Now, I realize that you can't have flights at all hours of the day, and they can't all be fully stocked, but this was in early morning when I believe the demand for flights is fairly high. Southwest would never leave a plane sitting on the ground for that long. They could also examine this stupid standby policy and realize that the incremental revenue from one customer getting on the plane is infinitely greater than the incremental cost of that customer.


In The Doghouse profile image

In The Doghouse 8 years ago from California Author

Scott,

I agree with you about business management. These airlines seem to waste a lot of time and money don't they! Thanks.

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