Delta Buys Comair, Secures Regional Dominance

<B> Delta Buys Comair, Secures Regional Dominance</B>

By David Jonas

Delta last week took a substantial stride forward in the regional market when it acquired long-time Delta Connection partner Comair. The $1.8 billion acquisition--the third major deal this year between Delta and a regional carrier--catapulted the airline into the dominant regional jet operator in the country. While the move should have little initial impact for buyers--Delta and Comair shared codes extensively--the long-term results could mean tougher negotiations on routes through Cincinnati where Delta now controls 85 percent of the market.

Leo Mullin, Delta's president and CEO, said the move will help "integrate all elements of Delta's weaponry," and serve many smaller and medium-size markets. Comair brings to the Delta table a fleet of more than 80 regional jets, with another 50 on order, and plans to phase out all remaining turboprop aircraft in two to three years. "The crucial ingredient in this transaction is the opportunity for growth," Mullin said. "Markets served by regional jets are by far the fastest growing in the country."

Rolfe Shellenberger, senior analyst at Runzheimer International, said the acquisition was a "wise" move for Delta. "With a successful commuter like Comair, there is the fact that they would want to compete with you at some point," he said. "Ownership is a major factor of control in markets served and Delta needs to control Comair or the commuter would have looked elsewhere."

The same rationale, Shellenberger explained, applied when American began buying up its affiliates. AA last month officially consumed Reno Air on the West Coast, and American Eagle earlier this year acquired Business Express in the Northeast. Despite its American ownership, Business Express said it will continue an existing Delta partnership "for the foreseeable future."

For its part, the other "Big Three" carrier, United, said it has no plans to follow its counterparts in acquiring any regional affiliates. Currently, there are six smaller airlines serving as United Express carriers.

While Delta will be responsible for the $110 million debt incurred by Comair, Mullin said Delta is "very pleased to be owners of Comair," but noted that it is "not the only format to be pursued in the regional jet ball game."

Indeed, Delta earlier this year acquired Atlantic Southeast Airlines to boost feed in and out of Atlanta, and struck a deal with Atlantic Coast Airlines to create another East Coast Delta Connection element.

ASA operates 120 daily departures from Delta's Atlanta mega-hub. It currently flies 29 50-seat CRJ regional jets, with about one more per month rolling in. Doug Blissit, Delta's vice president of network analysis, said, "The ASA acquisition was critical for where we want to deploy regional jets in our network." He added that the main goal is to build frequency in Atlanta and then extend growth to Dallas/Ft. Worth where ASA already has 82 daily departures. American's regional subsidiary, American Eagle, of course uses DFW as a primary hub.

Atlantic Coast, meanwhile, now splits its allegiance. The carrier, which already serves as a United Express affiliate, next spring will begin offering a new fleet of regional jets exclusively operating as a Delta Connection carrier. A total of 45 jets will begin arriving in March, and according to Blissit, help meet demand in the Northeast where Delta's jet presence "is not as substantial as it could be."

Also included in the Delta Connection family are Sky West, operating mainly from Salt Lake City, Business Express and St. Louis-based Trans States.

The Comair acquisition developed rapidly as the two carriers discussed an existing arrangement set to expire this month. Mullin said that for Delta to "draw on Comair's expertise" in the regional jet market, it is far better off owning the regional carrier rather than continuing a purely contractual relationship.

Passengers should not be affected, or even notice the acquisition, and frequent flyer accounts will not be impacted.