US transport chief ponders Delta-Northwest merger By Lucy Hornby Tue Jan 10, 12:12 PM ET
SHANGHAI (Reuters) -U.S. Transportation Secretary [input] [input] [input] Norman Mineta
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' name=c3> Norman Mineta suggested on Tuesday that a merger between U.S. airlines Northwest Airlines (Other OTC:NWACQ - news) and Delta Air Lines (Other OTC:DALRQ - news) could result from the latest round of industry restructuring.
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The U.S. airline industry has been battered by rising fuel costs, weak revenue and low-fare competition, leading some carriers, including Delta and Northwest, into bankruptcy.
"I sometimes wonder whether or not ... Delta and Northwest will come out as a merged carrier," Mineta told an audience of business executives in Shanghai, adding he was just "thinking out loud."
Representatives of Delta and Northwest declined to comment on Mineta's remarks. Both carriers said they were focused strictly on restructuring.
Mineta said he expected carriers UAL Corp. (OTC BB:UALAQ.OB - news), parent of United Airlines Inc., and Aloha Airlines to emerge from bankruptcy protection in February.
Mineta is not the first industry expert to predict consolidation in the ailing airline industry. And analysts have speculated on the possibility of a Delta/Northwest merger.
The two carriers, the third and fourth largest respectively in the United States, filed for bankruptcy on the same day in September.
At the time, analysts noted that the two have little overlap in their domestic routes, a factor that makes a merger prospect enticing. Internationally, Delta has prominence on Atlantic routes, while Northwest has more flights to the Pacific region.
However, the companies' mismatched aircraft fleets could pose innumerable problems for a combination. The two carriers operate a combined fleet of more than 1,200 aircraft. But the only aircraft model the two have in common is the Boeing 757, one analyst said.
The two carriers also would need large amounts of exit financing and creative management to make a merger work, analysts have said. Some said Delta and Northwest may we seek mergers, but not with each other.
At least one carrier is using a merger as a lifeline to stay in business. US Airways, which left bankruptcy last year, merged with America West to form a new carrier named US Airways Group (NYSE:LCC - news).
"We're going to have to see consolidation ... right now we do have too many seats following too few passengers," Mineta said.
Higher costs and lower plane utilization would continue to hobble airlines running 'hub-and-spoke' operations, he said. He noted that lower cost carriers like Southwest Airlines (NYSE:LUV - news) and Jet Blue had utilization rates of 78-82 percent, versus 45-48 percent for the hub-and-spoke carriers.
"Until the remaining legacy carriers do something about extracting themselves from a hub-and-spoke operation, I'm not sure they are going to be very successful."
Mineta, who toured Shanghai's new deepwater container port on Tuesday, cautioned that the United States should not become the "broken link" in moving goods and people.
"American companies are expressing growing dissatisfaction over our ability to deliver products efficiently in and out of the U.S.," Mineta said.
But he said rail companies were investing in trans-continental track at the expense of the "last mile," while land and track issues made it costly for the United States to even contemplate high-speed passenger rail.
(Additional reporting by Kyle Peterson in Chicago and Paritosh Bansal in New York)
Roger & Amanda La France