Delta to Merge with Northwest: Fasten Your Seat Belts

Are airline mergers generally good for the industry and its passengers? Or bad? That depends on whom you ask. And when.

When U.S. Airways wanted to swoop in and purchase bankrupt Delta Air Lines last year, CEO Gerald Grinstein said that such a move would be bad — “anti-competitive” and “threaten[ing] the future stability of our nation’s transportation industry,” to be exact.

Today, Grinstein is gone. Delta is out of bankruptcy. And the major air carrier says its $17.7 billion merger with Northwest Airlines “will create a global U.S. flag carrier strongly positioned to compete with foreign airlines that are continuing to increase service to the United States.” According to Delta’s statement:

• Customers and communities will benefit from expanded global route system and a more competitive, financially secure airline.
• There will be no hub closures; rather improved international access will benefit small communities.
• The merger will help offset record oil prices, creating a stronger global airline.
• The match-up combines the geographical strengths of both carriers; competition will be preserved and enhanced.
• The new airline will be profitable within one year.

Blue skies… Nothing but blue skies.

In reality, airline mergers are a mixed bag.

“Airline mergers have been uneven,” says Henry H. Harteveldt, Forrester vice president and principal analyst. “Most actually work, but it can take years.”

Take the match-up of America West and U.S. Airways. As we wrote in February, 2006, “The merger of US Airways and America West is predicated on keeping processes and applications simple — and cutting $100 million in IT costs.”

The combined airline faced numerous challenges: working out deals with unions in combining its workforce, integrating its IT systems under nearly constant operation, and adopting simplified business processes that would enable the “new” airline to become a “traditional” carrier (fully-developed national route network, amenities like first-class seating) that simultaneously supports the lower prices that U.S. consumers demand.

So how’s that coming along?

The battle over pilot seniority between US Airways and America West could take years to resolve and has forced the company to continue operating, in some ways, as two carriers, according to the New York Times.

The combined airline has combated a host of computer glitches since merging systems, including passenger delays last March due to the switchover to a single reservations system.

As for the new US Airways’ transformation into one company with all the amenities of a traditional legacy airline combined with the prices of a low-cost carrier, I personally haven’t seen that switchover.

I used to fly US Airways often to visit family in Pensacola, Fla. Once upon a time, passengers like me were dependent on Delta and the dreaded Atlanta Hartsfield-Jackson International Airport to make the trip from the Northeast. (Anyone who’s ever had to travel regularly to or from the Southeast is probably familiar with some variation on the joke, “If you die in Pensacola, you have to connect in Atlanta before your get to heaven.” Or hell, depending on your disposition.) I was happy when U.S. Airways entered the market, enjoying my layover on a rocking chair in Charlotte. But I haven’t been able to get a ticket on USAirways for less than $800 since the merger. I don’t suppose JetBlue is adding the hot Boston-Pensacola route anytime soon, so it’s “quality time” at ATL for me for the foreseeable future.

Maybe it does just take time. Maybe the Delta-Northwest merger will go more smoothly. Maybe this merger — creating America’s biggest airline — will actually be better for competitiveness than the batch of bankruptcies that have dominated the industry headlines to date this year. Maybe, if it brings stability

to the industry long term, it’s a good thing, says Gartner managing vice president Robert Goodwin.

Or maybe it’s not definitively good or bad. Maybe, as Goodwin also told me today, it’s just “inevitable.”

In any case, the Delta-Northwest announcement may not be the only merger ahead. “(It) will certainly put pressure on other U.S. legacy carriers to explore similar mergers,” Dr. John Kasarda, professor of management at the Kenan-Flagler Business School at UNC-Chapel Hill, told me today. “Continental is now free to pursue a merger previously precluded by its special relationship with Northwest, and United has been pursuing a merger since it arose from bankruptcy.”

For CIO’s past coverage of Delta, see Delta Aims for Infrastructure Overhaul, Feb. 15, 2003.