The Delta/Northwest Merger

Wed, 16 Apr 2008 16:18:17 +0000

The surprising thing about the Delta/Northwest merger announcement is the statements about not closing any hubs. As this New York Times article points out, the merger will be strongly opposed by the pilots of at least one of the carriers (Northwest). The issue is seniority, which determines which pilots get to fly which routes on which planes. I am hard pressed to think of why this would really be an issue if there weren't expected to be big reductions in the amount of flights in the newly combined airline. (If all planes continued to fly to roughly the same cities, then very few flight assignments would have to change in substantive ways.)

So if reductions are coming, where will they be? As the article points out, the likely hubs to see diminished activity are Cincinnati in favor of Detroit and Memphis in favor of Atlanta. Congress and the Justice Department are likely to consider this problematic. They shouldn't. Those are genuine opportunities for operating improvements, and they will open up gates at the two airports for other carriers.

I am a huge fan of Southwest Airlines, from the design of the business model down to the details of its implementation. (The specific reasons why were the subject of one of my first blog posts.) Imagine how much better off the good people of Cincinnati and Memphis will be when they are out from under the thumb of these two carriers that go in and out of bankruptcy. (Look at Southwest's route map to see the possibilities.)

Go ask the people of New England, who now have many good opportunities to fly Southwest out of Manchester, Providence, and Hartford instead of having to get themselves to Boston, about how much better it is to have Southwest in your area. Go ask the people of Philadelphia, who now have more options and more traffic with Southwest at their airport.

The Delta/Northwest merger is simply one of the ways that firms with the old business model will shrink in response to intense competition from Southwest (and others, like Jet Blue) that have a better business model for domestic air travel. As Stan points out, it seems to be a feature of the way airlines conduct themselves these days that despite enormous pressure, they don't raise prices as an outside observer might expect them to. Even so, if the regulators wanted to make sure the merger adds value for the consumer, despite the possibility of higher prices, they could stipulate some relinquishing of gates at some of the hubs.