Merger Could Make Delta a Global 'Powerhouse'

LONDON — Delta Air Lines' merger with Northwest Airlines puts the airline in a position to become a global aviation "powerhouse" able to reap substantial additional revenue, analysts say.

The airlines have said they plan to act as a single carrier for U.S.-Europe services, a move that would give customers more fare and route options.

And at a news conference in New York on Tuesday, Northwest CEO Doug Steenland noted that Delta's U.S. strength would let the merged carriers take full advantage of Northwest's extensive routes to Asia, which it now cannot do.

"The new Delta would be THE global powerhouse, serving every major market in the world in conjunction with its SkyTeam partners," Michael Derchin, an analyst with FTN Midwest Research Securities Corp. in New York, said in an e-mail. "The merger definitely places Delta in a better position to ward off growing competition from European and U.S. airlines."

He said the new enhanced network could generate more than $1 billion in incremental revenues.

Derchin also noted that just last week, U.S. regulators gave tentative approval for Delta and Northwest — along with Air France, KLM, Alitalia, and Czech Airlines — to combine their trans-Atlantic routes in the SkyTeam alliance.

In October, Delta signed a joint venture agreement with Air France, which merged with Dutch carrier KLM in 2004. Northwest and KLM forged an alliance in the 1990s.

"Since the U.S. government does not permit foreign ownership and control of U.S. airlines, a joint venture with antitrust immunity is the closest thing to a merger allowed under current regulatory restrictions," Derchin said. "It is the best way to maximize returns over the Atlantic between partners."

Ernest Arvai, president of the Arvai Group, a consulting firm to the airline industry based in Windham, N.H., said that the key to the success of any airline is the ability to fill seats.

"And the Delta-Northwest combination will certainly feed traffic from each of the networks to the other's flights, both trans-Atlantic and trans-Pacific," he said.

Arvai said that in the European market, the Delta-Northwest combination's strong relationship with Air France and KLM also would enable the feeding of traffic in the opposite direction from their networks.

"Effectively Delta-Northwest is the Air France-KLM equivalent on this side of the Atlantic — two very large carriers with large feed networks combining for efficiencies," he said.

Robert Mann, an aviation consultant from Port Washington, N.Y., noted that alliances already have facilitated Delta's entry into London's Heathrow Airport, the world's busiest for international travel.

Delta and Air France recently launched three trans-Atlantic routes from Heathrow that take advantage of a new "Open Skies" aviation pact ending restriction on trans-Atlantic routes.

Under Open Skies, Heathrow has been opened up to all U.S. carriers. Previously only British Airways and Virgin Atlantic in Britain and United Airlines and American Airlines in the United States had access.

But Arvai said the real impact of Open Skies might not come until low-cost carriers make their own trans-Atlantic moves.

"It will be most interesting to see what happens when carriers such as Ryanair, Southwest, or JetBlue make a trans-Atlantic leap," Arvai said.

One aviation consultant, Mike Boyd of the Boyd Group in Evergreen Colo., cautioned that Open Skies night not generate a lot of new competition.

"Basically, Open Skies is probably way over-hyped in regard to what it will accomplish," he said. "And Delta and Northwest together or separately already have huge feed systems to buttress their trans-Atlantic service."

And Arvai noted that while the four-way alliance creates the strongest trans-Atlantic network in the industry, "we are not in normal circumstances. Both Delta and Northwest are in financial difficulty and losing money."

Also, he said, "Both have aging fleets that are not particularly fuel-efficient."