Delta-United merger could increase fares

Combined airline would carry 25% of Boston passengers

Delta, the third-largest US airline, is Logan Airport's largest carrier with 16.2 percent of all passengers. (Ric Feld/Associated Press/File 2005)

If Delta Air Lines Inc. merges with another carrier, a deal with United Airlines may be costlier for Boston-area travelers than one with Northwest Airlines.

One year after thwarting a takeover attempt by US Airways Group, Delta's executives said this week they would seek permission from the company's board to enter merger discussions with Northwest and UAL Corp.'s United.

If a merger results, it could trigger a long-anticipated consolidation spree in the airline industry driven by record oil prices, which have boosted fares nationwide in recent months, airline industry analysts said yesterday.

But a Delta-United merger would be the more costly of the two possible outcomes for Boston-area passengers, because it would combine top-tier airlines into a single carrier that would serve more than one-quarter of the 28 million passengers who flew into and out of Logan International Airport last year.

"There's more opportunity for cutting out routes, and when routes are going to be cut out, what happens is there's going to be a tendency to increase prices," said Boston University finance professor Allen Michel.

At Logan, Delta, the nation's third-largest airline, serves about 16.2 percent of passengers, compared with number two United's 9.7 percent, and Northwest's 5.4 percent. Fare increases, under a Delta-United merger, would be most likely "on the long profitable routes" such as Boston to Los Angeles, San Francisco, and Denver, Michel said.

A Delta-United merger may also reduce competition on routes to Washington, though it would have a minimal impact on fares, analysts said, compared with the defunct plan to merge US Airways with Delta, which would have combined the two largest East Coast shuttles.

But in a Delta-Northwest merger, "there's really very little overlap and the pricing pressure will be relatively small for the Boston-based passenger," Michel said. That's because Delta largely flies to points south, including Atlanta and Florida, while Northwest is a West Coast carrier.

A Delta spokeswoman declined to comment on the outcome of a board meeting yesterday in which executives planned to seek approval to enter merger talks.

Edward Freni, the aviation director for the Massachusetts Port Authority, which operates Logan, said the impact on fares would be modest in either merger, because Boston's airport has retained competition among diverse carriers. As a result, individual carriers do not have the market share to raise fares, as they do in, say, Atlanta, Delta's hub, or Dallas, which is dominated by American Airlines.

Travelers everywhere already endured fare hikes last year, both in the spring and again during the Christmas and New Year holidays, due to rising oil prices. Oil prices approaching $100 a barrel also make mergers and consolidations in the airline industry increasingly likely, analysts said, a trend that would boost fares again.

US Airways' merger with America West in late 2005 was expected to result in fare hikes on their routes, because of decreased capacity. However, it was difficult to determine the impact of the merger, because oil price hikes were so damaging to profits that all carriers raised fares to defray their rising operating costs, analysts said.

"Oil prices are putting so much pressure on the bottom line of all these carriers, and they're now looking for more drastic ways to provide economic benefit," said Bob Harrell of Harrell Associates, a New York travel and airline consulting firm.

A Delta merger could affect consumers in other ways. For example, a Delta-Northwest merger could shake up those airlines' hub systems.

In that merger, the combination might close some Midwest hubs - such as Northwest's hubs in Minneapolis or Detroit or Delta's secondary hub in Cincinnati. That would mean fewer options for passengers flying to the Midwest or stopping over in a Midwest hub on the way to the points west, Harrell said.

"It's the little guys like Omaha, Kansas City, Colorado Springs, Albuquerque, and Phoenix that might have a lot of seats" and overlap that would be vulnerable to cuts on a merged Delta and Northwest, he said.

However, Harrell added, it's unclear whether those fares would rise "because there's probably over-capacity flying to those markets" already.

A Delta-Northwest combo would also result in more convenient gate options for fliers, said Massport's Freni. If Delta and United merged, it would be virtually impossible to locate them in a single terminal because both airlines are so large. However, there is room in Terminal A - Delta's terminal - to accommodate Northwest, he said.

Kimberly Blanton can be reached at blanton@globe.com.