Delta-Northwest: Unlikely to Fly

Even if the historic merger goes through, the newly combined company will face huge difficulties getting off the ground

by Matt Vella

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Since proposing a titanic merger earlier this month, executives at Delta Air Lines (DAL) and Northwest Airlines (NWA) have been busily laying out the rationale for a deal that would create the world's largest air carrier. With a combined first-quarter loss totaling $10.5 billion acting as a somber reminder of the difficulties facing the would-be company—and the airline industry as a whole—the deal's champions have argued a tie-up would strengthen the new firm's distribution of worldwide routes, help insulate it from a volatile fuel market, and even save billions of dollars by flying the same number of passengers on fewer flights.

The merits of the proposal seem to have made an impression on Congress, which must weigh the deal and whose members were mostly receptive during testimony last week, as well as on analysts, many of whom expect the merger to proceed. But questions remain about the daunting challenges facing the new company. Given widespread industry tumult and a checkered airline merger history, what can a combined Delta-Northwest really achieve? BusinessWeek.com canvassed market analysts, branding experts, and innovation consultants to assess the potential headaches—and opportunities—the new company will face the day after its historic merger closes (assuming it's approved).

"A Terrible Brand"

At the top of the list of woes: the price of jet fuel. According to the Air Transport Assn., through Apr. 22, prices surged 61% in comparison to 2007. Costs have risen 300% since 2002, wreaking havoc on the airlines' bottom lines. Northwest alone expects to spend $1.4 billion more this year than last year on fuel. Making the point succinctly during testimony last week, Delta's chief executive, Richard Anderson, said, "Oil is a game-changer." The extent to which the game will change remains to be seen.

Another of Delta-Northwest's major challenges will be to deal with the new company's tarnished image. In a J.D. Power & Associates survey of U.S. airline-customer satisfaction released last June, Northwest was the lowest ranked while Delta was squarely in the middle, behind carriers including JetBlue Airways (JBLU), Southwest Airlines (LUV), and Continental Airlines (CAL). That's why the new company would jettison the Northwest brand, leaving only the name Delta. Edward Lawler, director of the Center for Effective Organizations at the University of Southern California, who has studied and written about the airline industry, says the move is a wise one: "Northwest has long had a terrible brand."

Even as the Delta name lives on, the company will have an opportunity to reshuffle the brand's many graphic elements, including its logo, airport signage, tagline, and aircraft. According to Rob Giampietro, one of the founders of the New York design studio Giampietro+Smith, refreshing and blending key elements of both airlines' identities could add "a dash of creative energy" to the brand. "Brandwise," he says, "while it may not be the best time in the lives of either company, there is still a lot of brand equity and recognition."

Creating a New Culture

Perhaps more than exterior branding, the new firm will need to breathe new life into two stagnant corporate cultures. "If executives are just thinking about rationalization, cost reduction, efficiencies, and so on, they're not going to win," says John Kao, founder of the San Francisco innovation consultancy Kao & Co.