Buckle Up

Delta and Northwest have come a long way since skirting with Chapter 11 last year. Earlier this week, the two airlines announced a proposed merger. that's designed, in part, to hedge against rising fuel prices and the economic downturn. The marriage will create the world's largest carrier in terms of traffic, with 800 aircraft serving 400 cities in 67 countries. Staff will number 75,000 and combined annual revenue is estimated at $31.7 billion.

So is it all blue skies ahead, or should the industry—and passengers—be buckling up for turbulence? NEWSWEEK spoke to Bijan Vasigh, managing director of Aviation Consulting Group and professor of economics and finance at Florida's Embry-Riddle Aeronautical University about what the merger may mean for the summer travel season. Excerpts:

NEWSWEEK: Delta and Northwest have both been struggling, so teaming up with one another sounds a bit like a three-legged race. Can they make it without stumbling?
Bijan Vasigh: The major objective is to enhance revenue and reduce costs by streamlining, but the jury is still out on how much they can achieve. These two are not the most efficient airlines in the U.S., so merging will create lots of new problems, like how to bring all the pilots together. No doubt they would have less competition and be able to cut costs, but will it still be a panacea down the road?  I have a little bit of a negative opinion on that.

Is this a done deal, or will it be terminally delayed?
Since it creates a monopoly-power issue, the merger has to be approved by the Department of Justice to make sure it doesn't violate antitrust regulations. It's not a done deal until the government gives permission, which could take several months—though the Bush administration is friendly to this type of issue.

Won't this new mega-airline just threaten the smaller ones? Might we see them forging mergers, too?
Mergers like this could be a way to save the airline industry. If this one goes through, we should see other airlines doing the same in order to be competitive—for example, United and Continental may try, and if that goes through it will steer other consolidations in the U.S.

Is this farewell to cheap tickets?
Yes. The major issue for any type of merger is that lower competition brings higher prices—that's a basic economic issue. They will have a tendency to run less flights, fill up the aircraft with more passengers and charge higher prices. [But] in some respects, passengers could benefit because the new airline will have a bigger reach; they can fly from the U.S. to any part of the world with no problem, so that's a positive.

But might they cut back on some of those routes?
The good thing about this consolidation is that they have many complementary routes; Delta is very strong over the Atlantic and to Europe, while Northwest is strong in the West and the Pacific. But where they are serving the same routes, [those flights] will undoubtedly be trimmed.

With more flights and more passengers to handle, could it also mean more delays? And will my baggage make it?
I don't think it will create more delays. Maybe some services could becomes less customer-friendly. But troubles with baggage? Hopefully not.

I hear Delta pilots are generally happy with the deal, but Northwest's aren't. Why?
It depends on how they agree on seniority issues and things like pay and work conditions. If you work for an airline [that pays] a lower salary and merges with one with higher wages, you would be happy. But if it had less you wouldn't be happy.

Will in-flight service change? Can travelers expect even fewer amenities?
One of the best ways to have more passengers is to provide attractive in-flight amenities--for example, JetBlue is popular for its 23 channels of live television. If there's no competition, cabin amenities can be a way of saving of money. But in a merger, those cabin amenities may go—smaller legroom, less aisle services, and that's a major issue for passengers. But free peanuts and cola … I think they're safe.