Sunday, January 15, 2006

Goin' to the Chapel?...I hope so.... 

In an article getting "industry" response to comments made by Transportation Secretary Norman Minetta, USA Today has an article here that has analysts up in arms over a possible merger between Delta Airlines and Northwest Airlines.

I think most of these experts are too narrow in their thinking. While I am no expert on the airline industry, I have given some thought to their problems, and I think the merger would be a great idea. In two columns about the airline industry(here and here), George Will makes some great points about the industry having too many seats and not enough passengers. This should be macroeconomics 101. When I have too much product, the only way I can increase demand is to lower price on said product. In the airlines case, their seats are essentially a commodity that loses value very quickly if it is empty or if the plane is idle. Allowing Delta and Northwest to merge would be a great idea because it would force the new carrier to trim the number of planes and thus seats from the sky. Short of government enforced regulation of prices or government enforced collusion, I don't see how the airlines can raise fares on tickets for any appreciable length of time.

A merger of the two airlines would make sense in two ways as well. First, the airlines have been code sharing for at least five years. I vaguely remember people warning that the code sharing of tickets between airlines would effectively make two carriers one in practice at the end of the day. My family, when we flew out west this past September, were direct beneficiaries of this arrangement because we were flying both airlines at various points in our trip. I have no doubt that code sharing has made one airline in de facto, if not formally. Merging the two carriers would simply eliminate the Kabuki dance they go through everyday already.
Second, merging the two companies would make sense because it would have a truly national reach. With the biases in routes between the two, I think the two companies route maps would compliment each other very well and thus allow for greater use of remaining resources.

I am not an expert analyst, but some common sense and my own observations tell me that merging Delta and Northwest would be a great idea for the companies involved as well as for the industry as a whole.

This is my 100th post! With my lazy behavior and hectic work schedule, I'm rather proud of this accomplishment. *strains his arm patting himself on the back*

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