Delta is still in play, writes Mark Tatge of Forbes.com. Despite US Airways' failed takeover attempt, Tatge writes "you heard it here first: Delta will be bought or merged with another airline once it emerges from bankruptcy, fueling the fires of industry consolidation. Why? Delta simply can't make it on its own, despite assertions by Delta's CEO Gerald Grinstein that the carrier is better off a standalone." His rationale? "Even with the lower cost structure that bankruptcy will afford the airline, the carrier's route structure is much too parochial," Tatge suggests as one reason.
Though Delta has significantly expanded its international route network over the past year, the carrier owns few exclusive rights on hard-to-get routes or slots -– such as flights to China or landing slots at London Heathrow or Tokyo Narita. "The name of the game in the airline industry is scale, getting clout nationally and internationally. Without scale, there won't be enough passenger growth to support five or six large airlines," Tatge writes. He adds that "right now, everyone is playing a costly market share game. That's not good for profits. It could take three to five years for this scenario to play itself. There will be only a few survivors. All will have national and international route systems." And, apparently, he doesn't think a stand-alone Delta will be one of them.
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Delta Will Merge Eventually Posted on Thursday 1 February 2007
Mark Tatge at Forbes Magazine has a thought-provoking article this morning on Delta’s future. Mark argues that while the US Airways bid was not successful, Delta will still need to merge in order to compete.
Mark makes the point that Delta’s current structure is a hold-over from the days of airline regulation and that Delta has been able to maintain its oligopoly strength based on its hold of the Southeast.
He goes on to point out that the domestic airline industry is mature and only growing at the rate of GDP. Growth, he argues, is in international travel. In this environment consolidation is the only answer.
I think many would agree with the premise that consolidation is a natural evolution of a maturing industry like US air travel. Just as the telecoms have consolidated rapidly over the last 5 years, so to might the airline industry. The political challenges to consolidation appear to be greater for airlines, so I wouldn’t expect it to happen as quickly. That said, whenever a mega-merger does go through, it is sure to trigger other deals.
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