There are lots of reasons the much-anticipated merger between Northwest and Delta Airlines would be good – very good – for Michigan. But as happens all too often when a good idea comes along, it's met by noisy objections from Washington.

Both Northwest and Delta are "legacy" airlines, survivors of the companies that dominated the industry before the government deregulation in 1978. Many of their sisters – Pan American, Eastern, and TWA, to name a few -- no longer exist, victims of high costs, poor labor relations, bad management and newly aggressive competition.

Both Delta and Northwest recently emerged from a brush with bankruptcy. But both are still relatively high cost companies, pressed on one side with more and more expensive jet fuel. and pressed on the other by new, vigorous and low cost competitors like Jet Blue, Spirit and Southwest. Both economics and competitive pressures are combining to push Northwest and Delta together, and both managements are serious about trying to make it work.

So far, the biggest hang-up has been getting pilots to agree on a combined seniority list. But that shouldn’t prove insurmountable.

Why would a merger be good for all of us? Well, a merger could play to Northwest’s Michigan-based crown jewels: the magnificent airport hub at Detroit Metro and the airline’s profitable and rapidly growing routes to China, Japan and the rest of rapidly booming Asia.
Combining these with Delta’s excellent trans-Atlantic routes would make Detroit the premier gateway to Asia and a tremendously attractive hub for travelers to Europe and South America.
That can't but help the proposed "airport city," a consolidated passenger and freight logistics center that would include Detroit Metropolitan airport on the east, Willow Run on the west and some 27,000 now relatively undeveloped acres in between.

Airport City represents one of the very few possible economic development projects on the drawing board with the potential to produce thousands and thousands of jobs in Southeastern Michigan.

So what’s the problem?

Much of it is political, in the person of U. S. Rep. James Oberstar (D-Minn.) the chairman of the House Transportation and Infrastructure Committee. The Minneapolis Democrat tore into the proposed merger a couple of weeks ago in a piece in Business Week that ended, "We should just say no. Hell no!"

Oberstar is threatening a hearing on what he sees as the evils of the merger, mainly "further consolidation in the airline industry, further reductions in choice for consumers, and probably fewer flights, fewer jobs and higher fares."

Naturally, alert readers will remember that all politics are local -- and realize that Oberstar is concerned about what it would mean to Minneapolis if Northwest’s corporate headquarters jobs vanish as a result of the merger. Moreover, organized labor is grumbling about possible job losses; Northwest is heavily unionized, while Delta is mostly non-union. (The pilots, however, are union at both airlines.)

Oberstar also misreads the economic history of the airline industry. Despite the raft of consolidations that have taken place since the Airline Deregulation Act was passed in 1978, the inflation-adjusted cost of air travel has dropped by half, from eight cents per mile to four. Not only that, but a look at the route structures of Northwest and Delta shows very little overlap, which suggests service reductions from a merger would be slight indeed.

But the real potential problem for the merger is not going to be overtly political, no matter how loud Oberstar fumes. It’s anti-trust law, which puts the matter squarely into the hands of the Department of Transportation and the anti-trust division of the Justice Department. The legal issue is whether the merger in and of itself will tend to suppress competition and, thus, increase prices for customers.

One important part of anti-trust doctrine has to do with something economists call "ease of entry," which addresses whether a merged company gains sufficient power to deter potential competitors from entering its market. That hasn’t been the case so far. Instead, what’s striking about the airline industry is how relatively easy it is for competitors to get into the business – witness the new, low cost and successful airlines like Jet Blue and Spirit.

They are eating the old established carriers' lunch. In economist-speak, the airline industry offers low barriers to entry.

And because those barriers to entry are so low, big and established airlines find it tough to sustain high prices in a given market without attracting new, cheaper competition.

Back in the 1980’s, the airline industry began to discover that the revenues of all airlines are hostage to whatever pricing strategy the lowest priced competitor decides to adopt. If Jet Blue offers cheap fares from Detroit to Chicago, for example, Northwest – or, say, Northwest-Delta – will find it hard to compete successfully on that route without matching that low fare.

Over the years, legacy airlines tried to establish pricing power by setting up "hub and spoke" route systems, all feeding into big hub airports which they could dominate. The strategy worked for a while, but the economic structure of the industry – ease of entry and pricing transparency – doomed the idea. Northwest says that today, low-cost carriers serve all the legacy airline hubs and successfully put downward pressure on airline fares.

Undoubtedly the cut-rate carriers will have a different view. All these arguments will take considerable time (and very high legal bills) to play themselves out before the scrutinizing eyes of the Justice Department. Such scrutiny is important, but at the end of the day the regulators would be wise to approve the Northwest-Delta merger. And folks in Michigan should jump for joy at the prospect.

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Editor’s Note: Former newspaper publisher and University of Michigan Regent Phil Power is a longtime observer of Michigan politics and economics, and a former president of the Michigan chapter of the Nature Conservancy. He is also the founder and president of The Center for Michigan, a centrist think-and-do tank. The opinions expressed here are Power's own and do not represent the official views of The Center. Power welcomes your comments at ppower@thecenterformichigan.net.