If Delta merges: fares up, fewer seats
US Airways' takeover bid might not help passengers, but it could improve the industry's bottom line.
Whenever a big airline deal is proposed, the first question that arises usually is: What will it mean for the flying public?
In the case of US Airways' announcement this week that it hopes to acquire bankrupt Delta Air Lines for $8 billion, the simple answer is: higher prices.
That's because the merger would cut capacity by about 10 percent – in other words, passengers would have 10 percent fewer seats to choose from when they fly, which usually drives up prices. That would be good for the overall industry's bottom line.
But the dynamics behind this proposed merger, and the still precarious state of the nation's recovering aviation industry in the post-9/11 world, make the ramifications for the public far less clear. Add to that, it's far from a done deal: It still needs approval from the bankruptcy courts and the Justice Department. As a result, analysts have starkly different assessments of "just what this will mean."
One camp thinks it's the best thing to happen to the industry bottom line since jet fuel prices dropped below $70 a barrel. That's because it will cut capacity. "Anytime you take capacity out of the industry, I would view it favorably," says Helane Becker, an analyst at the Benchmark Company in New York.
But a different school of thought says that with planes already flying 80-to-90 percent full, overcapacity in the industry is no longer a major issue. After all, the traditional, so-called legacy carriers are making money even with oil at $60 a barrel.
"Forget the capacity canard: Everything is already full. There's already a resurgence in the industry," says Michael Boyd, president of the Boyd Group, an aviation consulting company in Evergreen, Colo. "If we take another 10 percent capacity out, that means airlines will carry fewer people and charge them more. Congress will just love that."