ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, December 5, 1996 TAG: 9612050029
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: FRANK SWOBODA THE WASHINGTON POST
INDUSTRY GIANTS Delta and Continental are reportedly talking. If they make a deal, USAir could face stepped-up competition.
A merger of Continental and Delta airlines, if it occurs, could touch off a new wave of consolidation in the industry as airlines are forced to become global or low-cost domestic carriers to survive.
It also could present a direct competitive threat to USAir in the Northeast corridor, an analyst said.
Neither Continental nor Delta would confirm reports Wednesday that they are engaged in active merger talks. Atlanta-based Delta is the nation's third-largest airline, and Houston-based Continental the fifth-largest. A merger would create the nation's largest carrier.
It is just one of many possible airline combinations as the industry continues a shakeout among so-called major trunk carriers and the more regional low-cost airlines such as the highly successful Southwest. In addition to Continental, other airlines believed by industry analysts to be potential merger targets are Trans World Airways, Northwest Airlines and possibly USAir.
Carriers such as USAir, Northwest and TWA have some overseas routes, but can't compete at their current size, analysts say.
William Swelbar, president of Airtrans Inc., an industry consulting firm, said a Delta-Continental merger could free up much-needed aircraft for Delta's new low-cost Delta Express operation in the Northeast. ``They'd be taking direct aim at USAir's throat,'' he said.
Swelbar said the merger would allow Delta to essentially abandon its Dallas hub, using Continental's Houston hub to serve the southern tier of the nation. It also would give Delta a chance to use Continental's Newark hub for both its express and transatlantic flights.
While many industry analysts agree that a Delta-Continental merger would be a good fit in terms of their route systems and labor costs, others say airlines are frequently looking into potential mergers, but that talk seldom leads to action.
Last year, when USAir disclosed it was holding talks with American and United Airlines about a possible buyout, the other big airlines began drawing up contingency plans so they wouldn't get left behind, said Philip Baggaley, managing director of corporate ratings for Standard & Poor's. In the end, no deal was cut with USAir, and USAir chairman Stephen Wolf said last month that his carrier is ``not merging with anyone'' and prefers internal growth.
A USAir spokesman reiterated those comments Wednesday.
Still, one of the only constants about the airline industry is that it is constantly in flux. If Delta and Continental merge, other carriers would certainly not want to be left behind.
Traditionally, prices go up when mergers cut back on competition, but consumer watchdogs weren't wringing their hands Wednesday over the possibility that the airline industry could reshape itself.
``The concern of mergers is, `Can it affect competition?''' said Marty Salfen, senior vice president of North America for the Dallas-based International Airline Passengers Association. ``In this particular case, that does not appear to be the case. It's a very good fit.''
In the bigger picture, ``We now have low-fare competition that we didn't have before,'' said Terry Trippler, editor and publisher of the Minneapolis-based newsletter Airfare Report.
The Associated Press contributed to this report.
LENGTH: Medium: 70 lines ILLUSTRATION: PHOTO: AP. Both Delta and Continental use the Newark, N.J.,by CNBairport. With a merger, Delta could use Continental's Newark hub for
both its low-cost express and transatlantic flights. Color.