From the Strib: Northwest Airlines agrees to be acquired by Delta
1) Will the new Delta be any less dominant at any hub than either airline was before?
2) Will there be more service or lower prices?
3) Will fuel prices be lower?
4) Will labor costs be lower?
A merger really only makes sense (for the acquiring company) if it increases benefits (revenue) or lowers costs. I.e. are there synergies or economies of scale/scope to be had, and do those benefits outweigh the transaction cost of the acquisition and integration of two organizations. Given that airlines have not been cumulative profitable over their history … as Warren Buffett has said
(quoted in New York Times) “If we knew then what we know now, we’d have shot the Wright Brothers down.? (“A Profitable 18 Hours That’s All Business,? Tuesday March 11, 2008, C-6) ”
it is doubtful a merger really does much of anything, especially since airline alliances and inter-ticketing are as seamless as regular air travel (not seamless, just “as seamless”)
This article looks at the issue more formally, suggesting profits are centered on zero and are getting more and more volatile, and that the cause is part the large capital orders of airplanes, which have a long lag, are ordered in good times and arrive in bad times, exacerbating the excess capacity problem.
From a local pride issue, the Twin Cities loses another headquarters. However NWA has been steadily slipping in the airline league tables (along with MSP airport in the airport league tables), so this was probably an inevitable loss. But since MSP remains a hub, one expects a similar level of non-stop service and similar level of semi-monopoly prices. If MSP were to lose hub status, a low cost carrier could move in and allow competition to drive down prices, which would not be too bad.