Buckle Up

Delta and Northwest have come a long way since skirting with Chapter 11 last year. Earlier this week, the two airlines announced a proposed merger. that's designed, in part, to hedge against rising fuel prices and the economic downturn. The marriage will create the world's largest carrier in terms of traffic, with 800 aircraft serving 400 cities in 67 countries. Staff will number 75,000 and combined annual revenue is estimated at $31.7 billion.

So is it all blue skies ahead, or should the industry—and passengers—be buckling up for turbulence? NEWSWEEK spoke to Bijan Vasigh, managing director of Aviation Consulting Group and professor of economics and finance at Florida's Embry-Riddle Aeronautical University about what the merger may mean for the summer travel season. Excerpts:

NEWSWEEK: Delta and Northwest have both been struggling, so teaming up with one another sounds a bit like a three-legged race. Can they make it without stumbling?
Bijan Vasigh: The major objective is to enhance revenue and reduce costs by streamlining, but the jury is still out on how much they can achieve. These two are not the most efficient airlines in the U.S., so merging will create lots of new problems, like how to bring all the pilots together. No doubt they would have less competition and be able to cut costs, but will it still be a panacea down the road?  I have a little bit of a negative opinion on that.

Is this a done deal, or will it be terminally delayed?
Since it creates a monopoly-power issue, the merger has to be approved by the Department of Justice to make sure it doesn't violate antitrust regulations. It's not a done deal until the government gives permission, which could take several months—though the Bush administration is friendly to this type of issue.

Won't this new mega-airline just threaten the smaller ones? Might we see them forging mergers, too?
Mergers like this could be a way to save the airline industry. If this one goes through, we should see other airlines doing the same in order to be competitive—for example, United and Continental may try, and if that goes through it will steer other consolidations in the U.S.

Is this farewell to cheap tickets?
Yes. The major issue for any type of merger is that lower competition brings higher prices—that's a basic economic issue. They will have a tendency to run less flights, fill up the aircraft with more passengers and charge higher prices. [But] in some respects, passengers could benefit because the new airline will have a bigger reach; they can fly from the U.S. to any part of the world with no problem, so that's a positive.