The big question facing the U.S. airline industry now is whether domestic carriers can survive the skyrocketing cost of fuel. It is clear that exorbitant oil prices will be the central obstacle to financial stability for at least the next two years.
Yet in an opinion piece
(BTNonline, June 16), Kevin Mitchell, chairman of the Business Travel Coalition, recently dismissed the extreme impact escalating fuel prices are having on U.S. carriers and disregarded the benefits of the merger of Delta Air Lines and Northwest Airlines.
The effect of prices averaging nearly $130 a barrel that only a year ago averaged about $80 a barrel cannot be overstated. The purpose of this merger is simple: To create the first truly global airline.
The longer-haul global carriers are hit hard by current conditions, but not as hard as domestic carriers. Part of the reason for this is higher fares resulting from more mileage and the lack of low-cost competition in these markets.
The need is clear. There are global corporations, but no global airlines yet. It is also clear that the winner of this prize will have a more stable revenue source than any other airline. With the higher fares paid by business travelers traversing the globe, that airline will have the ability to better withstand the buffeting of the oil shock storms. The fact is that the combination of Delta and Northwest moves America closer toward a global airline.
These two airlines each are emerging from bankruptcy with strong balance sheets and solid cost controls already in place. Both have significant, yet distinct, international presences—Northwest to Asia, Delta across the Atlantic to Europe and Africa as well as down to Latin America—and both plan to expand international service. Furthermore, by merging and increasing their scale, the combined airline will have more effective fuel conservation strategies: With an expanded fleet, they can better match equipment to air routes and passenger capacities. Plus, the merger will generate over $1 billion in revenue enhancements that will immediately help the combined airline combat high fuel prices.
Corporate contracts that were beyond the reach of either are now available to them. The world has one more international carrier than it had prior. There is now more competition in the world than before.
Mr. Mitchell's analysis of domestic competition is simply wrong. There are, in fact, only 12 routes where Delta and Northwest overlap, with both offering domestic nonstop flights. Following the proposed merger, eight of those citypairs will continue to have competition from at least one other airline. There would be only four routes where the combined company would be the only nonstop carrier. Fewer than 600 passengers a day will be affected. This hardly merits Mr. Mitchell's claim that capacities will be "ripped out."
After the Delta-Northwest merger, the airline industry in America will still be highly competitive, with no single carrier having more than 20 percent of domestic passengers.
We must face the facts: More than 40 percent of airfares go to pay fuel expenses. It used to be 15 percent. Yet airfares have failed to keep pace with fuel prices, making airlines "eat" higher fuel costs. Fuel prices continue to escalate, forcing airlines to ground less efficient airplanes and make capacity cuts of approximately 9 percent this year. Since the beginning of 2008, seven small U.S. airlines have gone out of business and another is operating in bankruptcy.
The Delta/Northwest merger will help weather these current challenges, and the combined airline will be better able to serve the needs of consumers for the long term. Editor's Note: Darryl Jenkins worked as a consultant to a third party to the Delta-NWA merger.