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Delta/Northwest Merger Makes Agents Wary

June 9, 2008 By: George Dooley Travel Agent

Mega deal could be tip of iceberg

As the 2008 elections will transform the American political landscape, the pending merger of Delta Air Lines and Northwest Airlines will transform the landscape of the airline industry.

The merger, now being reviewed by Congress and subject to approvals by the Departments of Justice (DOJ) and Transportation (DOT), would create the world’s largest airline. It will impact airline travel in the U.S., as well as globally—and it could spark a wave of countermoves by competitors.

Reports of a linkup between United Airlines and US Airways have credibility, and Continental is reported to be looking for a place in the mega-airline universe. American Airlines, a power in its own right, is sure to be exploring all of its options. So will smaller carriers such as JetBlue.

Adding to the mix are the major international carriers such as British Airways, which plans to launch OpenSkies, its new transatlantic carrier in June. In the Asia/Pacific region, where Northwest is a player, the merger could change the competitive balance as well.

Agent Impact
Do travel agents have a dog in the hunt? Emphatically, yes. If approved, the Delta/Northwest merger and any additional mergers or alliance shifts will redefine the air product agents sell. This includes availability of service to communities, pricing, service quality, security and safety that affect the lives of millions of travelers—not to mention the tens of billions in commissionless annual sales that travel agents pump into the airlines’ coffers each year.

The American Society of Travel Agents (ASTA) has already warned against the Delta/Northwest merger and the granting of antitrust immunity for airline alliances. ASTA has asked the DOT to defer decisions on antitrust immunity to the SkyTeam alliance, for example.

This major international joint venture includes Delta and Northwest, as well as Aeroflot, Aeroméxico, Air France, Alitalia, China Southern Airlines, Continental, CSA Czech, KLM and Korean Air.

They seek—and ASTA questions—a broad grant of antitrust immunity from the DOT to coordinate transatlantic operations with each other. The other global alliance is oneworld, which is made up of 10 members: AA, BA, Cathay Pacific, Finnair, Iberia, JAL, LAN, Malev, Qantas and Royal Jordanian.

ASTA also urged the DOT to hold off until a joint U.S. and EU study on transatlantic alliances is completed. As it now stands, the DOT “would allow these multiple large airlines—including for the first time ever, two U.S. domestic carriers—to collectively fix prices, determine capacity, set customer service standards and negotiate with travel agencies and other travel intermediaries with complete impunity," ASTA said.

ASTA asserts that these types of airline marketing and operational practices should be the subject of fierce competition between the two alliances, rather than what ASTA calls “immunized collusion.”

Merger “Ill-Advised”?
ASTA is not alone in having doubts. Representing the 400,000 members of the International Airline Passengers Association (IAPA) and Business Travel Coalition (BTC), Chairman Kevin Mitchell recently told Congress the Delta/Northwest merger was “ill-advised and of dubious value to the traveling public or to travel agents.”

Mitchell even went so far as to suggest that the National Labor Relations Act should be amended to “expressly permit travel agents to engage in collective bargaining with airlines and with antitrust immunity.” While improbable, the suggestion underscores the depth of the BTC and IAPA’s concerns.

The two groups offered Congress a host of remedies for countering the market power of the mega carriers. From their perspectives, approval would dramatically “increase carrier incentives and means to transfer costs to travel agencies and reduce their compensation—a move that would directly raise the cost of travel for business travelers.”

Is there a bottom line for agents? Both online and off-line travel agents will have to watch airline pricing and service quality—from frequent-flyer programs to flight delays and safety. Cost cutting will impact revenues and contracts as the mergers put pressure on distribution costs, and much will depend on how effectively airline managers handle the mergers, including fuel costs.

In reality, there is a lot at stake. It’s not just the success or failure of still another airline merger but the viability of the air transportation system and the collective judgment of Congress and federal regulatory agencies. Consumers, travel agencies and the travel industry are justifiably wary.

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