Airline combos could mean higher prices, fewer choices

By: AP
By: AP

PHOENIX (AP) -- Getting hitched may be the right move for Delta and Northwest. But for beleaguered air travelers, it could usher in an era of higher fares, fewer flights, more confusion at the airport and even more crowded planes.

The merger could kick off a wave of airline consolidation. And while the effects would not be immediate because the combinations could take months to get regulatory approval, industry observers say get ready anyway for fewer carriers in the sky.

"It's not an industry that works," said Mark Cooper, director of research for the Consumer Federation of America, who lobbied Congress against a bid by US Airways for Delta last year.

"We're now getting to the point where there are so few carriers left, and they still can't make money," he said.

Mergers, combined with a recent spate of airline bankruptcies, mean passengers in many cities can expect fewer flights to choose from, and they'll be packed even fuller than they are now.

Greater demand for remaining seats translates into higher ticket prices.

"There's no doubt in my mind fares are going to go up," said Rick Seaney, chief executive of FareCompare.com, which tracks changes in airline ticket prices. "Consumers are deluding themselves if they think that's not the case."

Peter Schiff, president of brokerage firm Euro Pacific Capital, said the changes could put air travel out of reach for Americans of modest means.

"Although many Americans have come to regard affordable air travel as a birthright, from a global perspective it remains the province of the wealthy," Schiff said.

That could mean more headaches for travelers already reeling from a string of cancellations due to stepped-up scrutiny of safety regulations by the Federal Aviation Administration.

The merger announcement by Northwest Airlines Corp. and Delta Air Lines Inc., which would create the world's largest airline, has already ignited talks among other airlines as they seek to bulk up to combat rising fuel prices in a slowing economy.

Continental Airlines Inc. executives told employees Tuesday that the airline wants to remain independent - but warned "the landscape is changing" and said it would consider its "strategic alternatives."

The executives did not say what they might consider, but Continental has held talks with United Airlines in the past.

United CEO Glenn Tilton issued his own statement to employees Tuesday in which he called industry consolidation "one of the changes necessary" for the industry to get to sustained profits.

"We will participate in consolidation when and if it is the right choice and provides the right benefits for employees, customers and shareholders," Tilton said.

A Continental-United pairing would create an airline even bigger than the Delta-Northwest offspring, which will keep the Delta name if regulators and shareholders give their blessing.

An industry dominated by a few massive carriers would give Wall Street what it's wanted for a long time - fewer planes in the sky. That could allow airlines to cast off redundant or unprofitable routes, use less fuel and keep fares high.

But the Northwest-Delta deal could also be a rare nugget of good news for some passengers.

The combined carrier could give consumers in small cities access to larger airline networks, which means more travel choices, said Michael Boyd, an airline consultant.

"Most mergers are all about less," Boyd said. "This one could be something very innovative that could end up with consumers not losing service, not having higher fares, but having much better access to the rest of the world."

Joining Northwest's strong Pacific network with Delta's strong Atlantic routes would mean travelers could cover more of the globe on a single carrier rather than switching to an airline's partners, airline consultant Robert Mann said.

"That combination really opens up the east-west travel," Mann said. "It would be a big plus."

Both airlines also use versions of a reservation system developed by defunct carrier TWA, Mann said. That could ease integration issues and reduce headaches for fliers.

Mann notes that both Northwest and Delta have close relationships with European carrier Air France-KLM - Northwest through a joint venture on Atlantic routes, and Delta through the SkyTeam marketing alliance. Both also have agreements with Continental.

Delta and Northwest said they don't plan to cut more U.S. flights beyond what they've done separately. That decision tempered reaction to their long-awaited combination announcement. Both companies' shares closed lower.

The airline industry's problems have come into sharp focus: Frontier Airlines, ATA Airlines, Skybus Airlines and Aloha Airlines have all filed for bankruptcy in recent weeks. Champion Air plans to shut down and MAXjet Airways went bankrupt in December. All have cited high fuel costs and falling demand.

Passengers flying out of smaller airports should expect to be stung the most by industry consolidation. Airlines that combine will reshuffle their schedules and likely favor hub cities that are more of a destination than a stopover.

Ray Neidl, an airline analyst at Calyon Securities in New York, said Northwest's hub in Memphis could be most at risk because it's relatively close to Delta's home base in Atlanta. Delta's hub in Cincinnati might also lose out because it is relatively near Northwest's hub in Detroit.

Bob McAdoo, a former airline chief financial officer and analyst with Avondale Partners, said he expects consolidation to end fire sales advertising discount tickets.

"With less capacity, there's going to be fewer deep discounted seats where airlines are trying to attract customers to fill their surplus seats," McAdoo said.

Still, airports that are also served by low-cost carriers like Southwest Airlines probably will continue to keep prices low, McAdoo said.

"The low-cost carrier is the guy who sets the prices," he said.

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AP Business Writers Dave Carpenter in Chicago and John Wilen and Adam Schreck in New York contributed to this report.

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On the Net:

Delta: http://www.delta.com

Northwest: http://www.nwa.com

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