Delta and American Airlines could merge

Bob Moon Jan 13, 2012

Kai Ryssdal: There are few things in business as worthless as an empty seat once an airliner takes off. And there are few things in business as vulnerable as a bankrupt company.

Put those two things together, and you’ve got the source of all the speculation this week that American Airlines might be ripe for a takeover. There’ve been suggestions that U.S. Airways might be interested in buying American out of Chapter 11. Today came the possibility that Delta — the world’s second-biggest carrier — might want in as well.

Our senior business correspondent Bob Moon tries to figure out what happens if that happens.

Bob Moon: There’s no question Delta and American would make a powerful combination.

Roger King: The merger would create the world’s largest airline.

Roger King follows the industry for CreditSights. He sees an upside: A carrier that would have excellent coverage in almost every part of the world, and hubs in big cities all over the country. King says that would make life easier for most travelers. But wouldn’t the merger also reduce competition and drive up prices? He argues there’s probably less chance of that happening than in other businesses.

King: The domestic market share of a merger, I think, would be approximately 35 percent. Doesn’t sound very high when you compare it to Pepsi and Coke.

Aviation consultant Michael Boyd says the whole point of the recent consolidations has been to make the industry stronger.

Michael Boyd: The merger, like, between Delta and Northwest did not give anybody any less choice, and it didn’t cause fares to go up. I don’t know if this one would cause fares to go up, either, because look, we don’t have a really competitive industry now anyway.

A Delta-American merger could face bigger hurdles overseas. Industry consultant Bob Mann says American would be absorbed into Delta’s SkyTeam partnership with foreign airlines, effectively killing the Oneworld group that American now leads.

Bob Mann: It would mean that carriers who are largely dependent on those alliances for their operations, for example British Airways and Iberia, would suddenly find themselves without a partner.

Mann suggests Delta might just be trying to raise the stakes — and the price — for some other suitor for American. Consultant Michael Boyd considers a Delta-American merger unlikely, and even if it happens, he doubts it would bring any dramatic changes.

Boyd: I think the real winner would be Sherwin-Williams selling paint to the airline to repaint airplanes.

I’m Bob Moon for Marketplace.

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