TRX: DL-NWA Will Impact Buyers' Power To Negotiate Favorable Corporate Deals

The announced merger between Delta Air Lines and Northwest Airlines will reduce negotiating leverage for corporate travel buyers, according to analysis conducted by TRX Travel Analytics for clients.

While much uncertainty remains as to the fallout from the deal, many expect additional mergers to further complicate corporate travel management and deteriorate buying power.

TRX Travel Analytics conducted analysis for corporate clients to show how a Delta-Northwest merger would impact buyers' power to negotiate favorable corporate deals, assuming the carriers maintain current schedules but shift them to one code. Though many x-factors remain, according to TRX Travel Analytics vice president and general manager Dan Pirnat, including what deals will follow the Delta-Northwest tie-up and which carriers will lap up any capacity shed by acquisition activity, TRX has yet to find a scenario in which the merger will strengthen corporations' negotiating power.

"This will reduce negotiating leverage," said Pirnat. "We also know that those corporations with weak, unenforceable travel policies will be particularly susceptible, because they're an easy target for airlines to grab margin."

Tom Barrett, Trane global strategic sourcing director, said he's evaluating the merger's impact on his business, noting, "every organization is going to be differently impacted."

When asked if TRX Travel Analytics had found instances in which the merger would heighten corporate travel buyer negotiating leverage, Pirnat said, "Unfortunately, no, but that's a realistic possibility once we see who will step up to take routes that are shed. However, we're months away from knowing that."

Pirnat said most clients using the analysis are trying "to identity specific markets—not just hub to hub—but other markets where they have agreements that will be severely impacted by the combination here. Obviously, if you're flying from Detroit to Atlanta, you might want to be concerned that fares will go in an upward direction—that's a no-brainer—but markets that are connecting through the hubs where Northwest and Delta are the primary competitors today are the real issue. A lot of our time and effort has been spent counseling clients on how to address that and develop strategies to overcome the reduction in leverage, and how to prepare management for the additional increases in travel spending."

A survey fielded by the Business Travel Coalition this month shows a lack of corporate travel buyer support for the Delta-Northwest merger specifically, and domestic airline industry consolidation in general. About 52 percent of the 135 travel buyer respondents to the BTC survey said they were either "somewhat unsupportive" or "very unsupportive" of the Delta-Northwest match-up, with only 33 percent of the travel buyers showing any level of support for the deal. More generally, 56 percent of respondents are unsupportive of airline consolidation.

"Corporate travel managers are in a wait-and-see mode," Pirnat said of the Delta-Northwest deal's impact on travel operations. "This is the first domino to fall: Northwest and Delta got the ball rolling, United is by all appearances going to tie up with somebody, and then you have to wonder what's going to happen with oil and the value of the dollar."

"Having a healthy, profitable, safe airline industry is very important," according to Trane's Barrett. "The mergers and acquisition climate is ripe, though we've still not solved some of the fundamental underlying issues of efficiency of our air transit system."