Volume 67, Issue 8

Delta-Northwest-Continental Plan
by Noah Davis

From the very beginning, the airline industry has never been able to deliver the sweet profits to its investors.  Recently, United Airlines and U.S. Airways have filed for Chapter 11 bankruptcy protection.  In addition, most brokers will not encourage their clientele to buy the battered stocks.  So who will be the man with the plan to save the remaining healthy airliners from taking the same measures their competitors already have?  In a recent Wall Street Journal article dated January 20, 2003, “Delta, Northwest, Continental Plan is Facing Restrictions set by DOT [Department of Transportation],” there appears to be a plan to save the airline industry.

Although the government intends to fight the code-sharing plan, President George W. Bush approved an alliance among the top air carriers, Delta Airlines, Northwest Airlines and Continental Airlines which would allow these companies to sell seats on each others flights.  Envision going to the airport with a Continental ticket and having the ticket counter redirect you to a Delta flight bound for the same destination.  Why is this new-fangled approach superior to any other scheme the airlines have already come up with?  The key dilemma for every major airline is its outlay of airport fees on top of planes being flown with little or no passengers in them.  By combining these flights the airlines will be capable of eliminating empty flights and partition their airport taxes among the three carriers.

Because this proposed alliance would control 35% of the domestic flight market, some critics of the proposal say that there is “serious competitive concerns.” Not only could this stifle competition and create monopolies but there is even a possibility that the airlines would have to give up underutilized gates at airline hubs.  The Justice Department, although approving of the alliance with only a few relaxed conditions, does fear that the competition would scare other competitors from entering the market in which these three carriers already exist.  “The DOT intends aggressively to enforce its statutory authority to challenge the transaction and require such conditions as it deems necessary to preserve competition," a statement said.  As a result, the DOT could produce higher ticket rates and fewer flights to these code-sharing destinations.

How will this alliance benefit the passengers?  We all know frequent flier miles are the biggest phenomenon since sliced bread.  Now, one’s Delta Airlines credit card can earn miles for Continental flights as well as Northwest flights, and vice-versa.

In general, these three carriers rank #3, #4 and #5 in total revenue rankings. For those of us out-of-towners who have to leave New York at times during the year, this triple entente will serve as a greater convenience for our travel options.

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