Airline Merger Could Alter Competitive Field

February 23, 2008
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GRAND RAPIDS — The world of aviation still awaits word on whether a merger between Delta and Northwest will be hammered out, but there’s debate as to whether such a merger would positively or negatively impact Gerald R. Ford International Airport. 

The merger would create the world’s largest airline in terms of air traffic. The two companies did not vote on the merger last week because their pilot unions had not come to an agreement on how seniority will be handled.

If the merger does occur, it could have an adverse effect on both Ford International and the travelers who use it, said aviation lawyer Cliff Maine, a partner in the Grand Rapids office of Barnes & Thornburg. Maine is an expert in the field of aviation and has been a licensed pilot since the age of 16. An interesting dynamic in the proposed merger is that Northwest has been the 800-pound gorilla at Ford International, offering the most flights. The airport has long been seeking a low-cost carrier, but Northwest’s modus operandi in its markets has always been to lower its fares to beat out the lower-cost carriers and keep them at bay.

“If they merge, the 800-pound gorilla would turn into a 1,000-pound gorilla,” Maine said. “The low-cost carriers would have to compete against a bigger anchor airline that has more flights and can match their rates. The low-cost carriers would be less likely to come in, and you’d end up with reduced competition and fewer options for passengers. That, of course, is the goal of the airlines, but it’s not something that would be best for passengers.”

Maine doesn’t know whether the merged airline would actually reduce flights in and out of Ford International, but the whole idea is to limit capacity and competition so that they can charge more on a per ticket basis, he said.

“History tells us that the vast majority of airline mergers haven’t worked, as witnessed by all the bankruptcies and everything else, so they don’t have a good track record,” he pointed out.

Both Delta and Northwest fly different kinds of aircraft. An airline such as Southwest, on the other hand, flies only one type of airplane so any of its pilots can fly any of its planes. With Delta’s and Northwest’s mixture of aircraft and equipment, it’s possible there would be less flexibility in moving a flight crew from one type of aircraft to another, Maine explained.  

Another interesting dynamic in the potential merger is that Northwest is generally a unionized airline and Delta is not, Maine noted. That’s a complicating factor. The two airlines would have to decide whether the combined company will be primarily unionized or non-unionized. There’s no guarantee a merger will happen or who would acquire whom, Maine stressed, but he thinks if Delta is the acquirer, the merged company would more likely be a non-union shop. 

“That actually might be one of the goals of Delta and Northwest in this merger — to try to get more flexibility for their work rules and be more profitable that way,” Main observed.

Both airlines recently came out of bankruptcy. Are they strong enough yet to endure a merger? Time will tell. If the merger does go through, and the new company isn’t as successful as hoped and subsequent cuts are made, that could open the door for a low-cost carrier here, Maine conceded.

“But I’m a big fan of the law of probabilities, and I think the merger probably would make it more difficult for a low-cost carrier to come in because people are starting to drive to Lansing or Chicago to catch the low-cost carriers.”

Airport Spokesman Bruce Schedlbauer has a completely different take on how the proposed merger might affect Ford International. Schedlbauer said both Northwest and Delta are strong in this market. The two airlines, independent of one another, clearly have a commitment to West Michigan. They consider this a valuable market and do well here, he said. 

“They have both told us several times in the past that Gerald R. Ford continues to be a very important part of their systems. They’re well positioned here,” Schedlbauer remarked. “If you combine the two entities into a single carrier, I think it’s quite reasonable to assume that the new entity would have a very similar level of interest in and commitment to this market.”

Even if the Delta-Northwest merger is the first of several airline mergers to come, whatever those new airlines look like, there will still be demands for service out of West Michigan.

“The service may look different,” he noted. “There may be some of the same hubs served and may be some differences in nonstop destinations, but if the demand remains as expected, then without question, there will be someone to serve it. We don’t really see a wholesale reduction or diminishing of service here.”

One or more mergers would result in a different competitive landscape for air service in this region, and airport officials think that could look more attractive to a potential new entrant airline than does the existing competitive landscape here, Schedlbauer added.

Schedlbauer pointed out that a number of low-cost carriers have taken on a 1,000-pound gorilla in some markets. Up until this point, the significant presence of Northwest here and the way it responds to low-cost carriers has been one of the primary drawbacks cited by potential new entrants into this market, he acknowledged. There’s currently no low-cost carrier in this market. 

“That said, a combined entity may end up serving this market in such a way that a potential new entrant could find a new destination to serve,” he suggested. “Just the mix of fares, the mix of service and the mix of flight frequencies may end up looking more attractive to a Southwest or an AirTran or some other low-cost carrier, though there’s no guarantee of that. But that’s the potential silver lining we see.”

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