Delta to buy Northwest
The big news is the agreed-upon acquisition of Northwest Airlines by Delta, a deal that will create the world's largest airline. Even though this is the big headline deal of the month, the curiosity is how little money, relatively, is involved. Delta will make a stock swap with Northwest stockholders worth $3.4 billion. (By contrast, Japan's Takeda Pharmaceutical will spend $8.8bn in cash to acquire Millennium Pharmaceuticals, a relatively unknown US drug firm specializing in oncology drugs.)
The new company will keep Delta's name. The two airlines have very little overlap in their route systems. The new company would own would have over 800 airplanes and 75,000 employees.
Already, talk of further consolidation is "in the air." Continental Airlines and United Airlines are talking, for example, the #2 and #4 US airlines. (US Airways bought America West in 2005).
There is the usual talk of synergy, but the fact is that there are few opportunities for saving money. Airlines are already minimally staffed, so there is little opportunity for reducing aircrews or baggage handlers. There are few duplicate flights, and even then, most flights these days run a close to capacity. Fixed costs like fuel and maintenance are unlikely to be reduced.
The real reason for the deal is pricing power, the power that an oligonomy can have in two directions. First, with fewer than the current eight major carriers, and with the recent demise of smaller low-cost competitors including now bankrupt Frontier, Skybus, Aloha, and ATA, companies will have much more opportunity to raise ticket prices and cut corners on passenger service. Second, with fewer places for pilots to be employed, airlines can continue to beat down pilot salaries and benefits, a major expenditure.
Top US airlines
| Rank |
Airline |
Passenger miles in 2007 (billions) |
| 1 |
American |
138 |
| 2 |
United |
117 |
| 3 |
Delta |
103 |
| 4 |
Continental |
84 |
| 5 |
Northwest |
73 |
| 6 |
Southwest |
72 |
| 7 |
US Airways |
61 |
| 8 |
JetBlue |
28 |
| 9 |
Alaska |
18 |
| 10 |
AirTran |
17 |
Source: Bloomberg News
5:30:58 PM 
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