The Delta and the Northwest airlines officially announced their merger deal on April 14, 2008. This announcement meant that the Atlanta-based Delta Airlines would absorb the Minneapolis-based Northwest Airlines. They would form and operate under a new company. The announcement came at a time when major airlines in US were facing tough economic moments. The merger decision meant more benefits to the two airlines than the public would imagine. They wanted to avoid making bigger losses, get off bankruptcy, make more profitable flights and boost their economic bases.
At the time of this merger, the fuel prices were sky-rocketing. Many airlines found flying their carriers more expensive than they expected. For instance, in 2008 the jet fuel prices were up by 55%. This compounded to nearly 6% increase in the flight fare. Many airlines such as ATA had filed bankruptcy covers. Furthermore, other airlines were busy considering cancelling their scheduled flights. Some airlines had already stopped their operations while others had their plans to stop underway. For example, Aloha Airlines ceased planned flights just a month before the two airliners announced their merger deal. These factors are real indicators of very hard economic times. This merger was therefore inevitable for the economic survival of the two airline companies.
Delta and Northwest airline companies had an intention of monopolizing the US air travel industry. By coming together, they would have more bargain power. They expected the merger to reduce competition in this industry. In consumer economics, the higher the competition in the market the more options the consumers have. Therefore, this reduction in competition is not for the benefit of the passengers. This reduced competition left their passengers with few options and had to go for their increased flight charges. They wanted to monopolize the air travel business in US. This would in turn boost their net income and eventually help them recover the losses they made prior to the merger. For instance, the two airlines projected combined annual revenue of $ 35 billion. This merger gave Delta and Northwest airlines more advantages than their counterparts operating on their own.
Delta and Northwest aimed at reducing their operational costs through this merger. They planned to eliminate hubs that had overlapping flights from the two companies. Before its fall, the merger successfully combined efforts and magnified flight operations in hubs like Detroit, Memphis and Atlanta. The two airliners had plans to double the number of their daily flights within a year. Indeed, the daily flight at Delta hub rose to 673. This was more than a double considering their previous statistics. On the other hand, this killed some hubs such as Cincinnati that used to shine before. In doing so, some employees had to lose their jobs. Investors also pulled out of the city, and this caused more harm to the economy.
In conclusion, mergers make companies maximize their financial base, increase profitability and reduce losses. However, the merger puts the consumers in tight economic situations as they have little or no option apart from the companies that come together. This shows that mergers are beneficial to the companies especially during hard economic times, but a disadvantage to the consumers. Apart from the consumers, such mergers can impact negatively on the employees of the companies coming together. Some mergers have led to retrenchment of many workers rendering them jobless.
Fleming, S. (2010). Airline Mergers: Issues Raised by the Proposed Merger of United and
Continental Airlines: Congressional Testimony. Washington DC: DIANE Publishing.