Why Do Airlines Merge?

The big news this week in aviation circles is the proposed merger between Delta Airlines and Northwest Airlines. If government regulators at the U.S. Justice Department approve this deal, it will make the Delta-Northwest combination the world's biggest carrier.

Since you want to be part of this exciting industry and make it your career, it would be helpful for you to understand a little about why airlines merge. Mergers are intended to achieve several goals. They can widen route networks, attract more high-profit corporate travel contracts and also strengthen pricing power through their stronger market positioning. Plus mergers can bring important cost savings -- from optimizing the combined aircraft fleets to streamlining (saving money) on reservations systems, technical systems and administrative functions.

In the  case of the Delta-Northwest merger, Delta's chief executive officer said that the combined carrier would be aable to reduce its costs by $1 billion a year, plus push more of its capacity to high-profit international markets -- and offer a huge network, with service to more than 400 cities in 67 countries. If the deal does get approved by government regulators, full consolidation of the two companies is not expected to be complete until 2012.

What's next: United Airlines and Continental? Or United and US Airways?

Comments

[Austin Chu]

There are many positive aspects to a merge. How bout the negative sides? I work for a company that manages and tracks frequent flier programs and we blogged about it on savvywallet.com a few days ago. I'm predicting that the quality of the miles will decrease. I'm afraid that my miles will only be able to buy me a lifetime subscription to US Weekly, than the trip to Chile, I've always dreamed about.