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Possible Delta-Northwest merger looms again

April 14, 2008 4:19:35 PM PDT
The face of airline travel is changing in the U.S. Officials from two major airlines were meeting Monday night in what may soon be a deal to merge. And other airlines may follow. The airline industry has long been boom or bust, but with four recent bankruptcies and now record high fuel costs, the future may indeed be changing for the legacy carriers.

Delta and Northwest have talked about marriage for some time. If their boards say "We do," the new Delta would be the world's biggest airline. But a successful marriage depends in part on whether pilots from the two airlines can agree on seniority, and that's not an easy prospect.

If Delta and Northwest merge, then the pressure will grow on United and Continental to do the same. And United's pilots say they will not be a rubber stamp for merger.

"Unfortunately, we're in an environment now where jet fuel costs are the largest cost item of an airline. It's not labor anymore. So they are going to have to find other ways to cut costs in order to deal with that skyrocketing cost item," said Brian Nelson, airline industry analyst.

But consolidation would still require regulatory approval, and there are powerful members of Congress opposed to the monster merges, fearing that smaller communities will lose service and that less competition means higher ticket prices.

At Midway Airport, far from the board rooms where the merger is on the table, Southwest Airlines introduced what it calls "Illinois 737" painted to look like the Illinois flag. It's meant to celebrate the relationship between Chicago and the airline. Notwithstanding its recent mega-fine for inspection failures, Southwest has been a success story, while the legacy carriers have suffered. Southwest chairmen won't predict whether the mergers will happen or will work, but he says one thing is for sure.

"I don't expect oil to go back to $30 or $40 a barrel in the near future or the intermediate future," said Herb Kelleher, Southwest Airlines Chairman. "I would anticipate fewer legacy carriers, yes."

United announced just Monday afternoon that it is suspending, for at least a year, the beginning of its new nonstop service from San Francisco to Guangzhou, China. When they set up that deal, oil was $72 a barrel. Now it's $110.

The boards from Delta and Northwest came close to consolidation before but couldn't reach agreement on seniority for pilots. The word now is it's possible they may agree even without a resolution of that issue.

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