Do Airline Mergers Mean Higher Prices?


Delta and Northwest Route Overlap

Legacy airlines like Delta and Northwest rely on extensive code-sharing networks to get travelers to the most popular cities in the U.S. on a single airline ticket. In other words, part of your flight may be operated by a partner airline. This allows an airline to extend its reach.

Since competition is the main driver of prices, I decided to review the current U.S. domestic flight schedules to see just how much non-code share overlap occurs between Delta and Northwest. My thought: uncover those cities that are potential losers in the competition arena.

But first, a few overall stats (these numbers represent U.S. domestic flights on a typical week in May 2008):

Delta Air Lines offers about 2.3 million seats a week.

Northwest Airlines offers about 1.4 million seats a week.

The newly merged airline would become the largest U.S. domestic airline with 3.7 million seats offers each week, surpassing the current domestic king, Southwest Airlines.

I was surprised by the small number of "overlapping cities" on Delta and Northwest routes — only 10 city-pairs had overlap and only seven of those had significant overlap. They are:

Atlanta – Memphis

Atlanta – Minneapolis

Atlanta – Detroit

Cincinnati – Detroit

Cincinnati – Minneapolis

Salt Lake City – Minneapolis

Los Angeles – Honolulu

Other than Los Angeles and Honolulu, these are hub cities of both airlines. Hub cities provide the main connection point for smaller cities to access the rest of an airline's network and typically are cities with significant non-stop business travel, the lucrative routes.

To give you some perspective: flights to and from the top 50-air travel cities in the U.S. represent slightly more than 1,200 city pairs, so seven city pairs with competition issues is really a very small number.

Some Travel Agony Ahead

The merger of Northwest and Delta doesn't, at first blush, appear to have much negative effect on general competitive ticket pricing, though the current trend of airfare hikes across all airlines — mostly related to fuel — will likely continue.

Cincinnati and Salt Lake City (Delta hubs) are already two of the most expensive travel cities in the United States, while Atlanta continues to have heated competition from AirTran Airways, so I don't look for much change there.

Northwest hub cities (Minneapolis, Detroit and Memphis) have all ranked pretty well in terms of cheaper airfare for passengers and that will probably continue.

The problem is likely to be in the implementation of the merger, which in theory will cut operational costs by removing redundancy: I'm talking about labor, and a variety of business systems including reservations, call centers, baggage and airport operations. Travelers are more likely to experience heartburn in these areas, since the devil — as we know — is generally always in the details.

The Other Shoe Drops

The real problem for airfare pricing? We'll see that with a second merger, as competition is likely to be more drastically consolidated. There is talk about a possible merger of Continental and United Airlines.

For one thing, legacy airlines have ceded their growth-strategies of the past decade to the lower cost domestic airlines that have hungrily gobbled up the excess. This trend is likely to continue as legacy airlines merge.

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