Lots of Airline Merging Could be on the Horizon

One thing seems likely for the U.S. airline industry and its customers this year: Delta and Northwest will be key players.

Both plan this year to emerge from Chapter 11 bankruptcy as independent airlines. If they succeed, consumers can expect to see pretty much the same thing they saw in 2006. Airlines likely will continue to show restraint in adding capacity. That, coupled with steadily growing travel demand, could continue the upward pressure on fares.

But there's no guarantee that Delta and Northwest will emerge as stand-alone airlines. US Airways, which in November submitted an $8 billion proposal to merge with Delta, has a different plan that could set off a new round of airline consolidation. If US Airways succeeds, that merger and the imitators it spawns could have a profound impact on travelers for years to come.

So far, no bidder has emerged for Northwest. But if US Airways or another party acquires Delta, other carriers are likely to rush to find merger partners. And Northwest would be the next-best prize.

Carriers in Chapter 11 are particularly appealing because the law allows carriers such as Delta and Northwest to shed costs on a grand scale before emerging from bankruptcy protection.

Should a consolidation wave take hold, there are plenty of possible couplings in addition to US Airways-Delta: United-Delta, American-Northwest, Continental-Northwest or United-Continental.

Low-cost carriers could get involved, too.

Southwest already has a marketing partnership with ATA that could become something more substantial.

AirTran is seeking to acquire Midwest Airlines. And Frontier just launched a small marketing partnership with AirTran that could evolve.

Much is at stake for consumers.

Consolidation opponents fear higher fares as merged carriers cut their combined flying capacity. But others suggest that any steps by merged carriers to cut back on services and to drive prices up will be seen by low-cost carriers as an opportunity to grow even faster. That could bring discount carrier service to millions of U.S. travelers for whom it is not now an option.

Even in that case, don't look for a huge drop in travel prices. Discount king Southwest led the industry in five general fare increases last year to offset rising costs. Southwest's labor, fuel and other costs, like those of all other airlines, are expected to rise even higher this year.



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