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feb 15 2008

What airlines mergers mean for you

As you may have heard, plans are in the works for Delta Air Lines and Northwest Airlines to merge, making it the nation's largest airline in passenger volume. The merged airline will likely be called Delta.

In reaction, United Airlines and Continental Airlines are planning to tie-up, too. The new company will likely bear United's name and be run mostly by Continental's managers.

How will these airline mergers probably affect you?

For the first year after the mergers happen, fares will jump, especially on routes that serve smaller cities.

But over time, low-cost carriers like Southwest will swoop in and serve these markets, bringing fares back to their current levels.

Here's a more-detailed analysis:

Fares will go up, on average, at least for a year after the mergers happen. If you have travel plans in mind, book those tickets now.

Connections will be easier to make, as airlines coordinate their flight times and routes. A Delta-Northwest merger would blend Delta's trans-Atlantic and Latin routes with Northwest's Pacific coverage. Similarly, United has a strong network of flights to Asia, while Continental is strong in routes to Europe and Latin America.

Many planes on popular routes will be even more crowded. But flight delays shouldn't increase, except for the first few days of the mergers.

Many towns and small cities will either lose routes or face higher ticket prices, at least for a year after the mergers. As a rule, on routes where Delta and Northwest each fly a plane, there will now only be one plane flying. Obviously, the reality for any particular route is more complicated, but that's the general idea. For example, in Cincinatti, Delta and Northwest may scale back, especially on nonstop flights to Minneapolis, Memphis, and Detroit.

Larger cities will also see fewer planes on routes to smaller destinations, again, at least for a year after the mergers. For a list of likely changes for Atlanta, Cincinnati, Cleveland, Denver, Detroit, Houston, Minneapolis/St.Paul, Newark, San Francisco, and Washington, D.C., check out USNews.com's handy chart.

Frequent-flier mile options will change. Many experts expect that budget-conscious, leisure travelers will find that it will be even harder to redeem frequent flier mile awards. The four airlines belong to larger alliances that let you, as a member of one carrier's program, redeem your miles for travel on another airline. Currently, Northwest, Delta, and Continental belong to the same SkyTeam alliance. But if Delta and Northwest merge, Continental seems likely to leave the alliance. One caveat, business travelers who fly hundreds of thousands of miles a year may receive more perks and find it easier to redeem award miles.

There may be more nonstops to Europe. Air France-KLM Group, Europe's biggest carrier, plans to invest in a combined Delta Air Lines Inc. and Northwest Airlines, says Bloomberg News. More code-sharing and seamless flights will happen. If a Republican wins the presidency in November, there might even be approval for a transatlantic merger between Delta-Northwest and Air France/KLM.

In a year from now, Southwest Airlines may expand. The discount carrier has a record of jumping into routes and airports that are abandoned during airline mergers. One target city may be Memphis, currently dominated by red-tailed Northwest aircraft. As a merged Delta-Northwest closes down a lot of its service in Memphis, Southwest may move in to offer cheap fares. As Joe Brancatelli has pointed out, countless mergers in the past 30 years have not caused fares to stay high for the long term.

Why are the airlines merging now? Two main reasons. No one wants to lend them cash because they have such a bad history of getting into bankruptcy and there's not a lot of free capital floating about right now. The airlines want to pool their capital funds together so that they can finance the purchases of new planes, especially during a recession. The race is on to cut these deals because a Republican administration is more likely to approve their deals without hassles than a Democratic administration (which airlines suspect may be coming next year). Soaring oil costs have made the airlines nervous, too.

One more caveat: The government will also have to approve any merger, of course. For an analysis of the antitrust issues, visit Evan Sparks' blog.

OTHER BUDGET TRAVEL NEWS ON THE WEB

The latest Michelin rankings include several restaurants in Europe that offer meals for under $40. [London's Guardian]

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Note:This story was accurate when it was published. Please be sure to confirm all rates and details directly with the companies in question before planning your trip.

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