MERGERS AND HIGH FUEL COSTS MAY MEAN FEWER CHEAP FLIGHTS

With Delta and Northwest seeking approval on a merger and rumors swirling about Continental seeking a merger partner in both United and American, competition in the airline industry in the United States is declining. Add high fuel costs and you have a recipe for higher fares.

From BusinessWeek via MSNBC:

n the three decades since the airline industry was deregulated, the flying public has received a free ride, or at least close to it. Thanks to debilitating price wars among airlines seeking an edge over competitors, U.S. airfares have plunged more than 50 percent in real terms since 1978 — giving rise to $49 flights and turning a form of travel that once was the province of the wealthy into the great proletariat pastime.

But when the CEOs of Delta Air Lines and Northwest Airlines sealed their merger accord with a handshake on April 15, the moment probably marked the end of the era of cheap travel. In this new age, major airlines could achieve the critical mass needed to raise fares enough to start recouping some of the $29 billion in losses they've suffered since 2001.

DELTA/NORTHWEST MERGER WILL HAVE TO CLEAR SEVERAL HURDLES

Delta and Northwest may intend to merge, but before that can happen, they will have to deal with union concerns and overcome antitrust regulatory hurdles.

From AP via Yahoo:

If Delta and Northwest are going to complete their deal to create the world's largest airline, they'll first have unions to cajole, politicians to placate, and antitrust regulators to convince.

Two of Northwest's largest unions immediately declared their opposition.

Most importantly, the airlines will need antitrust approval from federal regulators. In 2001, an attempted merger of United Airlines and US Airways fell apart amid antitrust concerns. Executives at Delta and Northwest said they are aiming to close their deal by the end of this year, which would be before the end of the merger-friendly Bush administration.

The takeover announced Monday calls for the combined airline to be named Delta, remain based in Atlanta, and be run by Delta CEO Richard Anderson. If the share-swap becomes final, Delta shareholders will get a bigger company, while Northwest shareholders would get a 16.8 percent premium over Monday's closing stock prices. Based on those prices, the deal values Northwest at more than $3.6 billion.

UNITED AND DELTA IN MERGER TALKS?

From USA Today:

UAL Corp.'s United Airlines and Delta Air Lines Inc. have been discussing a combination between the nation's second- and third-largest carriers that would keep the United name and the corporate headquarters in Chicago, The Associated Press has learned.

But Delta issued a statement denying "published reports that it had engaged in merger talk with United." CEO Richard Anderson was quoted as saying, "There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions."

United called the report of recent talks "wholly inaccurate."

However, on Oct. 12, 2006, then- Delta CEO Gerald Grinstein said during a stop in New York that he had previously received "feelers" from United about a possible merger.

The Wall Street Journal's online edition, citing unidentified people, said Andersen has informally talked about consolidation possibilities with counterparts at other airlines, including senior executives at United and Northwest Airlines.

Earlier Wednesday, Delta said in a statement that its board has established a special committee to work with management to review and analyze strategic options for the airline. Top executives have said recently they are trying to determine whether consolidation makes sense for Delta.

There is a sense of urgency in the most recent talks, which have been going on for some time and continued as recently as a week or so ago, an official with knowledge of the talks said Wednesday. The official spoke on condition of anonymity because the person was not authorized to speak publicly. The official stood by the assertions about the talks after learning of the statements by Delta and United.

"They want to get something done before a new administration gets in and so they get the clock ticking on" federal regulatory approval, the official said.

AIRLINE CONSOLIDATION POSSIBLE

With US Airways Group hostile $8.67 billion takeover bid for Delta Air Lines yesterday, the long-predicted consolidation in the airline industry may have started. Rumors are swirling, with some saying United might make a bid for Continental, and American is rumored to be interested in Northwest. Talk of such consolidation pushed airline stocks higher Wednesday with American and Continental hitting their highest share prices since September 11, 2001.

WSJ.com