Delta/Northwest – a new beginning for freight as well as passengers?

Implications: The merging of Delta Airlines and Northwest Airlines, along with other future mergers, will have implications for the transportation of freight as well as passengers. For the past fifteen years US legacy combination carriers have not been major players in the air freight industry, consolidation may change that. On the passenger side, the long-awaited consolidation in the US legacy combination carrier business could be the watershed event that would make “full-service” full-service again.

Analysis:  Delta Airlines CEO Richard Anderson announced that the carrier’s pilots have agreed to extend their current bargaining agreement through 2012 and that Northwest Airlines’ management has agreed to a combination of the two carriers that will create the world’s largest combination carrier, and one with truly worldwide service. Of particular interest in this announcement are four things: First, initially both airlines will retain all of their existing passenger hubs. Second, Delta surrendered only 7% of its stock to the pilots and employees, and one board seat to the pilots. Third, there is no current Air France investment in this transaction. And fourth, the merger will strengthen the current and existing codeshare alliance between Air France, KLM, Delta, and Northwest on the North Atlantic and beyond.  

What does this mean for air freight transport? Hopefully, Delta will permit Northwest to re-equip its 747-200 freighter operation with more cost-effective, fuel-efficient 747-400BCFs or -400BDSFs. The combination of Delta’s 777s, along with Northwest’s A330s plus the eighteen 787s Northwest has on order, should permit a re-equipping of the merged carrier’s freighter division with converted 747-400s from Northwest’s 16-unit passenger fleet. Further, with KLM and Air France being major freight carriers, a greater emphasis on the development of freight services for Delta itself is in the cards in the years ahead. Delta’s current lower-deck service on international flights is modest, with limited expertise in marketing, sales, and services, and thus forwarder support. It is hoped that Delta management will take advantage of Northwest and its codesharing partners at KLM and Air France to enhance both lower-deck and main-deck freight opportunities in the new worldwide Delta system. 

We at Air Cargo Management Group see the legacy combination carrier consolidation effort as a positive move toward strengthening future lower-deck cargo services, particularly in the international market, for US passenger carriers. It is hoped that the combined companies will invest in competitive ground service organizations and increase the contribution of freight from 3%-5% of total revenue today to more than 10%, which is more typical of European combination carrier operations. Many full-service Asian carriers earn well over 20% of their revenue from freight, but that is not a realistic option for US carriers, as only  Northwest/Delta will operate main-deck lift.  

The long-awaited consolidation in the US legacy combination carrier business could be the watershed event that would make “full-service” full-service again, by reducing excess capacity, which would allow the institution of compensatory pricing on the full-service side. With the collapse of Aloha, ATA, Skybus, Frontier, and perhaps Mesa and ExpressJet, on the regional side, some semblance of balance of supply and demand may return to the market, especially during the current US recession. One thing that is certain to this analyst is that passenger and cargo rates are going up, and hopefully improved services will be funded in part by these rate increases. For the past fifteen years US legacy combination carriers have not been major players in the air freight industry. Perhaps investments in competitive IT, airport, and other infrastructure services will bring a sea change in their view of the importance of cargo revenue to their future success, particularly in international aircraft operations.