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Asia is prize for Delta-NWA merger
By CRAIG SIMONS
The Atlanta Journal-Constitution
Published on: 05/04/08
Beijing — Take a look at this city's newest airport terminal and it will help you understand why Delta Air Lines wants to merge with Northwest Airlines.
When it opened in February, the $3.6 billion structure roughly doubled the number of passengers who can fly in and out of China's capital. By some accounts, sleek and spacious Terminal 3 at Beijing Capital International Airport is the world's largest building of its kind, with hallways of gates and shops and its hulking size highlights China's massive population and rapid economic growth.
Analysts expect it will become one of the world's five busiest air terminals in coming years. Officials already are drawing up plans for a second international airport in Beijing and another 96 airports throughout China in the next 12 years.
Multiply that kind of growth - and demand for air travel - across dozens of Asian cities and you get a sense of what's at stake in the region.
"Northwest's strong Asia routes were the most critical factor for Delta because they know that's where the growth is," said Michael Boyd, president of The Boyd Group, a Colorado-based consulting firm to the aviation industry. "It was probably half the value of the whole deal."
Michael Miller, CEO of Green Skies Inc., a consulting firm in Florida, said that Northwest's Asia routes were "the single largest reason why Delta wanted to merge with Northwest."
While the number of air passengers worldwide is growing at roughly 5 percent annually, in Asia growth has been "about 6 percent and will continue to outpace the world average for the next 10 or 20 years," said Nicholas Ionides, a Singapore-based journalist with aviation industry magazine Flight International.
Boeing, the aircraft manufacturer, estimated in a market analysis last year that demand for trans-Pacific flights would grow at an average annual rate of 6.2 percent until 2026, the highest rate of any major international route.
Within 20 years, "nearly 40 percent of air travel will be to, from or within Asia Pacific," the company stated in a presentation to shareholders.
Northwest, the fifth-largest carrier in the United States, has the most extensive Asia route network of any U.S. carrier and is well positioned to tap that growth.
Northwest began flying to Asia after World War II, and for decades was known as Northwest Orient.
It currently operates 220 weekly flights from Asian cities including Bangkok, Manila and Singapore. Only it and United Airlines have the rights to fly from Tokyo to other cities in Asia.
Minneapolis-based Northwest also owns coveted rights to fly daily to China's three largest cities - Beijing, Shanghai and Guangzhou.
Delta, in contrast, offers only 18 weekly flights to three Asian destinations — Tokyo, Shanghai and Incheon, South Korea.
But it operates the third-largest flight network in the U.S. and has deep links with Europe and Latin America, making the merged airlines strong globally, experts said.
If the merger is approved by federal regulators, the new carrier - which would be the world's largest airline - would benefit because Asian passengers flying to the U.S. could connect to more domestic destinations while Americans flying to Asia would have "10 times more choices," Miller said.
"Northwest has had an incomplete flow in the domestic service connecting to Asia and Delta fills in every single hole that they had," he said.
The new airline would also benefit from travel between Asia and Latin America.
Roughly 80 percent of people flying from Central and South American nations to Asia connect through the U.S.
Because trade between the regions is "growing in leaps and bounds" the market is very important, said Bob Cortelyou, Delta's senior vice president for network planning.
Carriers also value international routes because they tend to be more profitable than domestic flights.
In the U.S., older "legacy" airlines including Delta and Northwest have lost domestic market share to discount carriers and have been forced to cut prices as customers use the Internet to find cheap fares.
As profitability has fallen, executives have reduced their domestic routes while expanding their international business. International routes tend to be more profitable because passengers are willing to pay premiums for long-haul business-class and first-class seating.
With Asia's economies surging, demand for luxury travel is likely to build.
Last month, Singapore Airlines announced that it would begin daily business-class-only flights between Asia and the U.S., a development that Miller said "shows how valuable business travel internationally is."
Financial pressures and the proposed Delta-Northwest merger have prodded United Airlines and US Airways into merger talks.
Delta and Northwest now have to convince the Justice Department that the merger will not hurt American consumers by leading to higher prices or limiting choice.
If the merger is approved, Delta's future would be tied closely to Asia's economic rise.
On a recent weekday afternoon, thousands of people crowded through Beijing's Terminal 3 to catch flights to destinations from Boston to Dubai and Vienna.
The new terminal will enable the entire airport to handle about 76 million passengers a year, according to government projections. In comparison, Hartsfield-Jackson Atlanta International Airport handled 89.3 million passengers in 2007.
A local travel agent, Li Peng, surveyed the bustling scene. "Of course this would be a good long-term market for Delta," she said. "They wouldn't build such a large airport if they didn't have passengers."
By CRAIG SIMONS
The Atlanta Journal-Constitution
Published on: 05/04/08
Beijing — Take a look at this city's newest airport terminal and it will help you understand why Delta Air Lines wants to merge with Northwest Airlines.
When it opened in February, the $3.6 billion structure roughly doubled the number of passengers who can fly in and out of China's capital. By some accounts, sleek and spacious Terminal 3 at Beijing Capital International Airport is the world's largest building of its kind, with hallways of gates and shops and its hulking size highlights China's massive population and rapid economic growth.
Analysts expect it will become one of the world's five busiest air terminals in coming years. Officials already are drawing up plans for a second international airport in Beijing and another 96 airports throughout China in the next 12 years.
Multiply that kind of growth - and demand for air travel - across dozens of Asian cities and you get a sense of what's at stake in the region.
"Northwest's strong Asia routes were the most critical factor for Delta because they know that's where the growth is," said Michael Boyd, president of The Boyd Group, a Colorado-based consulting firm to the aviation industry. "It was probably half the value of the whole deal."
Michael Miller, CEO of Green Skies Inc., a consulting firm in Florida, said that Northwest's Asia routes were "the single largest reason why Delta wanted to merge with Northwest."
While the number of air passengers worldwide is growing at roughly 5 percent annually, in Asia growth has been "about 6 percent and will continue to outpace the world average for the next 10 or 20 years," said Nicholas Ionides, a Singapore-based journalist with aviation industry magazine Flight International.
Boeing, the aircraft manufacturer, estimated in a market analysis last year that demand for trans-Pacific flights would grow at an average annual rate of 6.2 percent until 2026, the highest rate of any major international route.
Within 20 years, "nearly 40 percent of air travel will be to, from or within Asia Pacific," the company stated in a presentation to shareholders.
Northwest, the fifth-largest carrier in the United States, has the most extensive Asia route network of any U.S. carrier and is well positioned to tap that growth.
Northwest began flying to Asia after World War II, and for decades was known as Northwest Orient.
It currently operates 220 weekly flights from Asian cities including Bangkok, Manila and Singapore. Only it and United Airlines have the rights to fly from Tokyo to other cities in Asia.
Minneapolis-based Northwest also owns coveted rights to fly daily to China's three largest cities - Beijing, Shanghai and Guangzhou.
Delta, in contrast, offers only 18 weekly flights to three Asian destinations — Tokyo, Shanghai and Incheon, South Korea.
But it operates the third-largest flight network in the U.S. and has deep links with Europe and Latin America, making the merged airlines strong globally, experts said.
If the merger is approved by federal regulators, the new carrier - which would be the world's largest airline - would benefit because Asian passengers flying to the U.S. could connect to more domestic destinations while Americans flying to Asia would have "10 times more choices," Miller said.
"Northwest has had an incomplete flow in the domestic service connecting to Asia and Delta fills in every single hole that they had," he said.
The new airline would also benefit from travel between Asia and Latin America.
Roughly 80 percent of people flying from Central and South American nations to Asia connect through the U.S.
Because trade between the regions is "growing in leaps and bounds" the market is very important, said Bob Cortelyou, Delta's senior vice president for network planning.
Carriers also value international routes because they tend to be more profitable than domestic flights.
In the U.S., older "legacy" airlines including Delta and Northwest have lost domestic market share to discount carriers and have been forced to cut prices as customers use the Internet to find cheap fares.
As profitability has fallen, executives have reduced their domestic routes while expanding their international business. International routes tend to be more profitable because passengers are willing to pay premiums for long-haul business-class and first-class seating.
With Asia's economies surging, demand for luxury travel is likely to build.
Last month, Singapore Airlines announced that it would begin daily business-class-only flights between Asia and the U.S., a development that Miller said "shows how valuable business travel internationally is."
Financial pressures and the proposed Delta-Northwest merger have prodded United Airlines and US Airways into merger talks.
Delta and Northwest now have to convince the Justice Department that the merger will not hurt American consumers by leading to higher prices or limiting choice.
If the merger is approved, Delta's future would be tied closely to Asia's economic rise.
On a recent weekday afternoon, thousands of people crowded through Beijing's Terminal 3 to catch flights to destinations from Boston to Dubai and Vienna.
The new terminal will enable the entire airport to handle about 76 million passengers a year, according to government projections. In comparison, Hartsfield-Jackson Atlanta International Airport handled 89.3 million passengers in 2007.
A local travel agent, Li Peng, surveyed the bustling scene. "Of course this would be a good long-term market for Delta," she said. "They wouldn't build such a large airport if they didn't have passengers."
