Thursday, April 17, 2008

Issues With The Delta-Northwest Merger - Part 1

Improving the fuel efficiency of the merged fleet will not happen
Northwest has 94 DC-9 that are not very fuel efficient. Delta has 133 MD-80 series airplanes that are also not very fuel efficient. These two airplane types, totaling 227, make up 28.6% of the combined fleet.

Source: Northwest - (As of December 2007)
Delta - (As of April 2008)

The MD80 and DC-9 burn about 22.6% more fuel, on an equivalent per available seat kilometer basis, than a B737-700, according to a 2003 study done by the Danish Environmental Protection Agency. This is corroborated by hearsay source such as the Dallas Morning News, which noted that the MD80 burned 879 gallons of fuel (or 26.4%) more than a B737-800 on average, flying the same LGA-DFW route. The Dallas Morning News goes on to further note that to replace all 300 MD-80s that American Airline owns will take more than 10 years, assuming that Boeing can deliver at that fast rate.

Given this, there is near zero probability that the new Delta can achieve fuel cost savings that they are touting on their website:

“The revenue and cost synergies achieved through this merger will help offset rising fuel costs in three ways:
* Increased revenues as a result of increased size and scope, leading to improved corporate contracting thanks to better options for customers.
* More efficient aircraft routing to better match capacity to demand.
* Higher average yields driven by more international customers and routes where fares better cover the cost of fuel.”

Analysis Of Delta’s Fuel Savings Assumption:
On the first point: I don’t even understand their first point. It is a complete sentence but appears to be a jumble of half-baked thoughts being highlighted as corporate vision.

On the second point: More efficient routing does not overcome the fact that they are still flying 227 MD-80s and DC-9s that are using 22% to 26% more fuel per seat miles flown than a more efficient airplane. This is an apples-to-apples comparison.

On the third point: To attract higher paying international travelers, they would have to fly their largest and newest airplanes on long-haul international routes. So, this means that the older and less efficient airplanes will be plying the domestic routes. Another way of saying: Let’s screw the American public.

So, going back partly to their first point of "improved corporate contracting thanks to better options for customers," I think this is thinly veiled corporate-speak for: "Thanks for still wanting to fly with us, even after you realize that we will be charging you a little more and giving you an option of flying between one old airplane (MD80) or the other (DC-9)."

Ed Kim

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