OK, I lied. I have a few more notes on the merger. Today I wanted to mention what I call the Fallacy of the Larger Route Map. One of the key benefits that Delta is mentioning in the merger talk is that there is little overlap in the Delta and Northwest route maps. This would suggest untold growth as the new airline would have a huge footprint in the world.
This is a fallacy. First off, airline mergers don’t fail because of the route map. Routes are important, obviously. But I cannot think of a single merger that succeeded (did any of them succeed?) or failed because of route-related issues. Non-overlapping routes are always mentioned when a merger is announced, but, as the Wall Street Journal points out today, routes and entire hubs are frequently shed following a merger (see AA/Reno Air; US Airways/PSA; United’s purchase of Pan Am’s Latin routes).
Plus, and this is especially true with two airlines in the same alliance, I’m not sure exactly how much new revenue they’re going to be capturing. If you wanted to fly from Minot to Bucharest, a NW/DL combination was your best option before the merger. And it’s the same option now. No new demand is generated. Theoretically you could take some capacity out of the market, but how much? You need the capacity to feed the slew of hubs the combined carrier now has and swears it isn’t shuttering.
No, the Larger Route Map is a canard. Mergers fail because of labor issues, because of operational issues, because of reservation systems, because of cultures. And when it’s two huge airlines these issues aren’t minimized – they’re brought to the forefront. This won’t be a success because they’re capturing Minot-to-Bucharest traffic; this will be a success because (by some miracle) they are able to make NW’s pilots happy, and because they can get the employees to play nice, and because they can keep flights taking off on time, and because they can somehow combine the reservations systems, and because the massive merger undertaking doesn’t cause a collapse during thunderstorm season. And, you see what I’m getting it. Beware the Route Map…