Industry Update: Delta and Northwest complete merger
U.S. Department of Justice gives okay
Delta Air Lines said it completed its acquisition of Northwest Airlines on Oct. 30, hours after the U.S. Department of Justice (DOJ) said it would not challenge the merger that creates the world’s largest airline operating more than 800 mainline aircraft and generating more than US$35 billion in annual revenue.
In a statement, Delta CEO Richard Anderson said, “The airline industry faces a very difficult economic environment around the world and this merger gives Delta increased flexibility to adapt to the economic challenges ahead.” He added that the carrier “will be at the front of the pack in achieving the benefits of consolidation and is well positioned to navigate the tough waters ahead.”
DOJ said its antitrust division conducted “a thorough, six-month investigation” and concluded that the merger “is likely to produce substantial and credible efficiencies that will benefit U.S. consumers and is not likely to substantially lessen competition.”
The airlines had touted the tie-up as a combination of two carriers with complementary networks that would generate at least US$1 billion in annual cost savings/synergies, a line of reasoning endorsed by DOJ. “The two airlines currently compete with a number of other legacy and low-cost airlines…on the vast majority of nonstop and connecting routes where they compete with each other,” the DOJ statement said.
The decision was far different from the department’s block of the last major merger it reviewed, United Airlines’ proposed acquisition of then-USAir in 2001. It also rejected Northwest’s earlier effort to take control of Continental Airlines. DOJ’s primary contention in 2001 was that “a vigorously competitive airline industry is vital to our economy” and that consumers benefited from a wider variety of flying choices. It appears that the growth of low-cost carriers in the U.S. market, among other factors, has convinced it that the creation of a mega-airline no longer is anticompetitive and hurtful to consumers.
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