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DELTA LIQUIDATION POSSIBLE WILD CARD FOR NORTH TEXAS

by Scott Bennett

Thu, Apr 6, 2006, 09:45 PM

Nearly 95 percent of Delta Airlines pilots voted this week to strike if an arbitration panel allows Delta to dump its contract. That is about the same percentage of experts who believe even a 24-hour strike would put the nation’s number two air carrier out of business (we are talking liquidation here). However, the number of experts who think the strike will actually occur is somewhere near zero. Maybe it is more accurate that most put the chances of a pilot walk-out at around 10 percent, but these same experts put the odds at zero they day before the vote.

The reason so few think the strike will occur is because there is so much certainty it would be what the company calls “a murder/suicide.” The arbitration panel is nevertheless expected to grant permission and the company and pilots have spent more time exchanging press releases than talking. Delta says it will seek a restraining order and might ask the President to intervene. The fact is that Washington would like to see a major airline liquidate. The widely held view is there are too many seats chasing too few butts, and Delta’s demise would subtract a lot of seats.

Given this game of chicken is getting close to “blink” time, it is reasonable to ask what happens if no one blinks. Delta provides 1700 flights per day and last year carried nearly 120 million passengers. Delta’s headquarters hub is at the nation’s second busiest airport, Atlanta’s Hartsfield, where it accounts for 60 percent-plus of total passenger boardings. The discount carrier AirTran is No. 2 with about 10 percent. American Airlines has something like 2 percent and the nation’s largest domestic carrier Southwest Airlines isn’t there at all.

What would happen is a land rush for Delta routes and terminal space. Now these are Delta assets and would be sold along with its planes, etc. But experts are confident there would be no shortage of buyers. The question for the Dallas and Fort Worth area is whether Southwest Airlines (SWA) and American Airlines (AA) would be buyers.

It is hard to see how either could not be an aggressive bidder although the Southwest behemoth might be the more aggressive. Presently, Southwest serves five Florida markets and just announced it would begin to serve Dulles near D.C. Some experts think capturing a major presence in Atlanta would allow SWA to become the dominant carrier in the Southeast. In fact, the plum might be so juicy Southwest would seriously consider moving its headquarters there whatever the outcome of its fight to repeal the Wright Amendment.

Southwest is not in Atlanta because Hartsfield is the type of airport it has traditionally shunned: big, slow, expensive and served by a major carrier that would do anything to defend its home. But, SWA has moved to big, slow, expensive airports including Philadelphia, Denver and now (just announced) Dulles. Indeed, it appears DFW is the only such airport that SWA is unwilling to serve and that is tied to its desire to lift Wright and fly from a Love Field that does fit its traditional model.

AA is also likely to try to expand its presence in Atlanta and grab some of Delta’s overseas routes. With so much traffic available, AA might try to buy a big chunk. Without the Wright Amendment, AA would even have to compare DFW to Hartsfield as a home. A hub with no local competition like Love Field might be attractive. American would have a lot to weigh and the odds are long, but corporations -- even airlines -- do relocate.

It is likely that if either airline does decide to move flights to Atlanta, it will come at the expense of service in North Texas. Both AA and SWA would likely take planes from existing service to serve new routes from Atlanta. Airlines don’t have planes sitting around. Both AA and SWA would compare the profitability of routes elsewhere with the potential profitability of routes from Atlanta, and then swap the less profitable for the more profitable. For AA this would mean weighing the impact of a lifted Wright Amendment. Chances are that a lot of the Atlanta flights would look better than DFW flights. The same would hold true for many SWA flights. Which would look better, a flight from Love to Lubbock or from Atlanta to Orlando?

The ultimate outcome is hard to see since the dominoes have not yet started to fall. But you can be certain strategists at both American Airlines and Southwest Airlines are running their computers overtime and calculating their scenarios. Dallas and Fort Worth should be running their computers overtime too when calculating the consequences of lifting the Wright Amendment.

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