As the prospect of merger talks between Delta Air Lines and United Airlines appears to grow, Denver may need to prepare to compete for the spoils of such a deal.
“These things inevitably end up being a competition between communities,” said Metro Denver Economic Development Corp. executive vice president Tom Clark. “We would be definitely involved in that analysis and any proposals that would need to be done to capture as large a portion of that consolidation as we can get.”
Clark said Denver International Airport may also need to do an analysis of how it could accommodate a merged United-Delta operation, for example.
The Wall Street Journal reported online Thursday that Delta directors will consider today whether to allow the airline’s chief executive to begin formal merger discussions with United parent UAL Corp. and Northwest Airlines Corp., planning to eventually choose between the two.
Shares of all three airlines rose sharply Thursday, with United shares closing up 23.7 percent, Northwest up 32 percent and Delta shares up 18.2 percent.
Delta’s board may decline the request, send Delta executives back to do more work or approve talks with one carrier, and if talks start they may not yield a deal, according to the Journal.
In November, hedge fund Pardus Capital Management urged Delta to merge with United. Delta said it had formed a special board committee to review and analyze strategic options, including potential consolidation transactions.
On Thursday, Delta spokesman Anthony Black said, “We aren’t commenting on rumors or speculation on mergers and acquisitions.”
United spokeswoman Jean Medina reiterated the airline’s position on “the need for consolidation generally in the industry” and also declined to comment on “rumors and speculation.”
Clark and other observers speculated Denver would not lose much to other cities if United, the largest carrier at DIA, merged with Delta.
A combined Delta and United may consider dropping either Delta’s Salt Lake City or United’s Denver hub, but Denver as the larger hub has the advantage, said George Hamlin, managing director of Airline Capital Associates in Virginia.
UBS airline analyst Kevin Crissey in a report this week said a Delta-Northwest deal is most likely, “which would likely put investor pressure on Continental to act, perhaps by merging with United.”
Some have argued airline consolidation is necessary as carriers suffer from high fuel costs and heavy competition. They predict major carriers will try to strike a deal soon to get federal clearance before the Bush administration leaves office, and say a major combination would spur more airline mergers.
Some have also speculated that Denver-based Frontier Airlines could be a potential acquisition target by an airline such as JetBlue or Southwest, though such deals also present significant complications.
But many also point out the challenges of airline mergers, such as the uncertainty of regulatory approval and problems with integration.
A United-Delta merger “would be a nightmare,” said Evergreen aviation consultant Mike Boyd.
“The fleets don’t mix. Several hubs would have to close,” he said. “The unions don’t work together.”
Boyd speculated Delta may pursue a closer alliance or joint ownership with Northwest.
“That much said, there’s a lot of money to be had in these deals,” Boyd said. “At the end of the day of a full-blown merger, employees and communities lose” because airlines aim to cut flight capacity and raise fares.
“I don’t think Denver would be hurt by it, but consumers would have fewer choices going east and west, and that would probably mean Denver consumers would pay more,” Boyd said.
Kelly Yamanouchi: 303-954-1488 or kyamanouchi@denverpost.com
Powerful troika
No matter how you slice it, a Delta Air Lines merger with United or Northwest would create a big airline. The three combined to carry 25.5 percent of U.S. passengers through October 2007, the Transportation Department said Thursday:
61.5 million Delta passengers
58 million United passengers
45.4 million Northwest passengers
