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Delta-Northwest deal nears

Posted by guest  February 20, 2008 08:51 AM

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If Delta Air Lines Inc. buys Northwest Airlines - a deal that could be announced any day now -- the merger would create the largest airline in the world and at Logan International Airport. Yet little is likely to change for travelers at Boston's intensely competitive airport.

"Of all the major cities in which the two carriers are involved, Boston would have the least impact," said George Hoffer, a Virginia Commonwealth University economics professor who has studied the airline industry.

Logan officials and airline experts predict the combined airline wouldn't reduce - or add - service at Boston's airport. They say route cuts are unlikely because there aren't any major metro airports that serve this region other than Logan and there's no overlap between the 30 nonstop destinations Delta serves and the four Northwest flies from Boston.

Additionally, Delta already scaled back its investment in Boston a little over a year ago. But the combined carrier also is unlikely to add service because the money-making routes from Boston have already been taken.

Posted by Nicole C. Wong, Globe Staff

"If neither Delta nor Northwest could make money today by shifting a plane into Logan today as separate companies, that route won't suddenly become a profitable opportunity tomorrow after they merge," said Hubert Horan, an independent airline consultant in Phoenix who was the Northwest manager responsible for shutting down the carrier's unprofitable hub at Logan in the mid-1990s.

Competition at Logan is among the fiercest in the country. Delta was the second-largest carrier last year with 16.2 percent of passengers - slightly more than US Airways' 16 percent market share and slightly less than American Airlines' airport-leading 16.7 percent. Northwest is Logan's seventh-largest carrier.

The combined airline would have 21.7 percent of the market at Logan. But that wouldn't insulate it from airfare wars - particularly because JetBlue Airways Corp., AirTran Airways, and other low-cost carriers at Logan have helped keep a lid on ticket prices.

And Logan would still be a very competitive market, with no airline carrying a majority of passengers. Conversely, other airports in the country have one airline dominating 50 to 85 percent of the market, according to Edward C. Freni, aviation director for the Massachusetts Port Authority, which runs Logan.

The bulk of Delta's cutbacks at Logan may already be completed. As part of its bankruptcy restructuring, Delta in 2006 ceded control to Massport of more than one-third of Terminal A, its high-tech new home that cost $500 million to build.

"Delta already adjusted its commitment to Boston, so what pain there might have been has already been accounted for," said Eric Smith, a Pittsburgh lawyer representing airports across the country as cochair of the aviation group at Schnader Harrison Segal & Lewis.

And Logan is going to push ahead with renovation plans for Northwest's section of Terminal E, despite the possibility that the combined carrier might relocate its four gates to be near Delta's 12 gates in Terminal A.

The $8 million upgrade - which includes adding more concessions and another security lane - should start in a couple months and will be partly financed by Northwest if it decides to stay in Terminal E.

If the merger goes through, "chances are they aren't going to want to spend that capital, but we'll march on," Freni said. "We'll probably have to modify it a little."

Because Massport is modernizing that space for Northwest, it does not have a contingency plan to immediately move another airline into that area.

Delta declined to comment. Northwest did not return requests for comment.

A merger between the two carriers would likely bring changes outside of Boston - and in the industry. If they merge, the big six legacy carriers could be reduced to four in one fell swoop because analysts expect United Airlines would quickly say it is merging with Continental Airlines to remain competitive against the new industry giant.

And the combined carrier would likely cut back on the number of flights and the number of airport hubs, which would increase the hassles business travelers encounter as they try to reach four or five destinations in one week.

Some experts predict the demise of Cincinnati as a regional hub since it is along the same longitude as two other Delta-Northwest hubs - Atlanta and Detroit. Others forecast the downfall of either Delta's Salt Lake City hub or Northwest's Minneapolis or Detroit hubs.

"There's going to be a loss of service," said Kevin Mitchell, chairman of the Business Travel Coalition. "This matters whether a business traveler is in Boston or Philadelphia or San Francisco. Road warriors spend a whole week traveling throughout the system."

About 30 percent of passengers who traveled last year flew for business, according to the coalition. And about 30 percent of business travelers generate about 65 percent of airlines' revenue by buying the super-expensive, last-minute seats in business or first class. So it's in an airline's best interest to keep these passengers pleased.

But Mitchell thinks the chaos that typically accompanies airline mergers - from labor disputes to computer system glitches - may make high-speed trains, video conferencing, and other airplane alternatives even more attractive to frequent flyers.

"We've seen those trends for the last several years as security concerns mounted and customer service declined," Mitchell said. "They'll drive their cars now up to five or six hours, whereas before they would only drive three. This is going to drive more and more of the very lucrative business travelers out of the system."

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