Thursday, 21 April 2011

Highlights of the annual Airneth conference (II): analyzing the Delta-Norwest merger

As I anticipated in my previous post, the annual Airneth conference was a very interesting opportunity to listen to major airline industry experts and learn first-hand how they envisage the future of the airline business. The following is not an exhaustive account of the conference, but only some highlights I picked up that I hope will be of interest to readers of this blog, that I assume share with me their interest and passion for the commercial aviation industry.

Shortly after the usual introductory words, the conference kicked-off with Perry Cantarutti, senior VP at Delta airlines, explaining his experience of the recent merger between Delta (DAL) and Northwest Airlines (NWA).

He highlighted how DAL and NWA could extract significant value out of their very complementary networks and fleets: Delta had a strong network in the South and East of the US as well as a large transatlantic presence, whereas Northwest was strong in the upper-Midwest and the Pacific. Similarly, NWA had a fleet with lots of small (and I would add quite old too!) aircraft, such as DC-9s and also very large ones (B747s), whereas DAL had many mid-sized aircraft (B737s and B767s). So, the merger allowed them to rationalize fleet use and frequencies, for example deploying A320s at SLC to fly routes to the East coast, whereas shorter-range MD-90s are used at MSP to fly shorter sectors.

The resulting airline is now #1 (in average seat miles capacity) domestically in the US and in the US to Europe, Africa and Asia and #2 in the US to Latin America market. Although, when analyzing the competitive situation on transatlantic routes, it might be more accurate to consider capacity by alliances rather than individual airlines, and here DAL-NWA benefit from an increasing cooperation with AF-KLM and Alitalia, to the point that Skyteam now has a share of 27% of transatlantic capacity, just 1% below the largest alliance (Star Alliance).

Skyteam partners have already achieved a significant amount of integration in areas such as joint revenue management on transatlantic routes and we can deduct, from Mr.Cantarutti's words, that we are going to see increasing integration within Skyteam, for example, by looking for more commonalities in aircraft cabins.


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