Delta-Northwest Merger to Have Mixed Impact on Travelers

After two years of courtship, the carriers announced that they would combine operations, creating the world's largest airline in terms of traffic. The combination, which will retain Delta's name, is expected to reap $1 billion annually in additional revenue and cost savings — a fact not to be ignored in an industry that continues to struggle with skyrocketing fuel prices and low-cost carriers that are going out of business. But even more important may be this pairing's long-term ramifications for the industry and passengers alike.

"This could be the start of merger mania," says Tom Parsons, CEO of travel site BestFares.com. "Expect the rest of the airlines to start talking. We could go very quickly from the big six [legacy carriers] to the big four or three." A marriage between Continental (CAL) and United, he says, is the next logical pairing. The two carriers have reportedly held tentative merger talks. And on Tuesday, both Continental and United indicated in messages to their respective employees that the Delta-Northwest merger had spurred them to review their strategic options.

A Delta-Northwest merger will also have a far-reaching impact on passengers. While the combined company is expected to offer better flight options and service, it's also anticipated to spur even higher fares industrywide. But there's no need to panic quite yet. "Nothing's going to happen instantaneously," says Ed Perkins, contributing editor for SmarterTravel.com, a travel advice site. The carriers will have to gain federal approval first and, given concerns about the proposed combination's threat to market competition and the potential loss of jobs from post-merger downsizing, some members of Congress will likely try to block the deal. In addition, unions representing Northwest's pilots and ground crew have already vowed to put up their own fight. Still, the merger should ultimately be approved by the end of the year, predicts Parsons. As he explains, the airlines have just nine overlapping routes, so there's little weight to an argument that they would reduce competition in individual markets.

Here's what passengers can expect once the deal does go through:

Code-sharing shake-ups
Under code-share alliances, competing airlines agree to share customers in the event a passenger wants to travel somewhere the primary carrier doesn't fly to or when the passenger is bumped from one of its flights. As it currently stands, Delta, Northwest and Continental are all part of the SkyTeam Alliance. But that could soon change as a Delta-Northwest combination would create an airline with such a vast reach that it would pass fewer customers to partner Continental, likely causing Continental to lose revenue, says Parsons. That means new alliances could emerge, which would affect which airlines you'd fly during multileg trips, as well as whether you'd need several separate bookings, he says. The end result: extra hassle making travel plans, or less chance of getting reimbursed should you have problems making a connection between two unallied airlines.

Systematic overcrowding
Step one for a Delta and Northwest merger: Reduce flights on their nine overlapping routes, as well as those in unprofitable areas. Fewer flights mean there will be little wiggle room for travelers to find empty seats on any airline. That will only add stress on a system that's already desperately in need of new airports and updated traffic control system, says David Lytle, editorial director for Frommers.com. One flight cancellation or significantly overbooked flight will have a domino effect.

Merged frequent-flier miles
"Nobody is going to lose their miles, nor will they be significantly devalued," says Winship. Loyalty programs are too important to airlines to alienate customers. Another plus: Consumers can earn more miles under the combined program, simply because the expanded service area makes it easier to stay loyal. The resulting program will likely favor Delta because it's the acquiring airline and will have more say in the end-product, says Winship.

The result could be mixed for consumers, depending on what Delta chooses to incorporate from Northwest's program. Delta's miles for cash program, which allows travelers to use miles to offset their fare cost (one mile equals one cent), is a bonus for fliers on both carriers. But Northwest offers cheaper rewards — 20,000 miles buys a round-trip ticket — if it includes a Saturday-night stay. Delta rewards start at 25,000 (bad for Northwest members if it keeps that limit) but requires no Saturday stay (good for using accrued miles).

Fewer reward seats
However, it will be tougher for consumers to use those beefed-up rewards, warns Winship. "The bottleneck that already exists for people redeeming miles will be exacerbated," he says. Merging means the resulting mega-carrier will have more frequent fliers with potentially bigger balances (assuming they earned miles through both carriers) battling for fewer reward seats in its scaled-down flight market. Travelers will need to book just as seats are released — 330 days in advance of the flight — to have a shot at reward travel.

Better service
Well, eventually there will be better service. Delta had more on-time flights than Northwest in 2007 (76.9% on time, compared with 69.6%), but was also more likely to lose luggage or involuntarily bump ticketholders, according to the U.S. Department of Transportation. "Over the long term, the merger is going to be great for consumers expecting better service," says Trippler.

"In the short term, it's a little rocky," he cautions. The last big airline merger — between U.S. Airways and America West in 2005 — was plagued with everything from union problems to lengthy flight delays as it integrated reservation systems. There are bound to be glitches over the first year or so, no matter how well Delta and Northwest prepare.