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42–877 PDF 2008

S. HRG. 110–413 

AN EXAMINATION OF THE DELTA–NORTHWEST 

MERGER 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ANTITRUST, 

COMPETITION POLICY AND CONSUMER RIGHTS 

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

APRIL 24, 2008 

Serial No. J–110–87 

Printed for the use of the Committee on the Judiciary 

( 

(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

STEPHANIE A. MIDDLETON, Republican Staff Director 

NICHOLAS A. ROSSI, Republican Chief Counsel 

SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS

HERB KOHL, Wisconsin, Chairman 

PATRICK J. LEAHY, Vermont 

JOSEPH R. BIDEN, JR., Delaware 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

BENJAMIN L. CARDIN, Maryland 

ORRIN G. HATCH, Utah 

ARLEN SPECTER, Pennsylvania 

CHARLES E. GRASSLEY, Iowa 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

JEFFREY MILLER, Chief Counsel 

WILLIAM CASTLE, Republican Chief Counsel 

(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 2 

Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin ............................ 1 

prepared statement .......................................................................................... 111 

WITNESSES 

Anderson, Richard, Chief Executive Officer, Delta Air Lines, Atlanta, Georgia 10 

Bush, Darren, Associate Professor of Law, University of Houston Law Center, 

Houston, Texas ..................................................................................................... 13 

Chambliss, Hon. Saxby, a U.S. Senator from the State of Georgia ..................... 4 

Klobuchar, Hon. Amy, a U.S. Senator from the State of Minnesota ................... 5 

Mitchell, Kevin P., Chairman, Business Travel Coalition, Radnor, Pennsylvania ...................................................................................................................... 11 

Steenland, Douglas, President and CEO, Northwest Airlines, Eagan, Minnesota .................................................................................................................... 8 

QUESTIONS AND ANSWERS 

Responses of Richard Anderson to questions submitted by Senator Kohl .......... 36 

Responses of Darren Bush to questions submitted by Senator Kohl .................. 42 

Responses of Kevin Mitchell to questions submitted by Senator Kohl ............... 53 

Responses of Douglas Steenland to questions submitted by Senator Kohl ........ 57 

SUBMISSIONS FOR THE RECORD 

Air Carrier Association of America, P. Nicholas Peterson, Legislative Counsel, 

Washington, D.C., letter ...................................................................................... 71 

Anderson, Richard, Chief Executive Officer, Delta Air Lines, Atlanta, Georgia, 

statement .............................................................................................................. 75 

Buffenbarger, R. Thomas, International President, International Association 

of Machinists and Aerospace Workers, Upper Marlboro, Maryland, statement ...................................................................................................................... 86 

Bush, Darren, Associate Professor of Law, University of Houston Law Center, 

Houston, Texas, statement .................................................................................. 98 

Memphis Regional Chamber and the Memphis/Shelby County Airport Authority, John W. Moore, President and CEO, Memphis Regional Chamber, 

Larry D. Cox, President, Memphis/Shelby County Airport Authority, Memphis, Tennessee, joint statement ......................................................................... 113 

Minnesota Chamber of Commerce, David C. Olson, President, Minneapolis 

Regional Chamber of Commerce, Todd Klingel, President, Saint Paul Area 

Chamber of Commerce, Kristofer Johnson, President, and Metropolitan Coalition of Chambers, Daron Van Helden, Chair, joint statement .................... 120 

Mitchell, Kevin P., Chairman, Business Travel Coalition, Radnor, Pennsylvania, statement ................................................................................................... 125 

Moak, Lee, Captain, Chairman, Delta Air Lines Master Executive Council, 

Air Line Pilots Association, International, statement ...................................... 131 

Shook, Veda, International Vice President, Association of Flight AttendantsCWA, AFL–CIO, Washington, D.C., statement ................................................. 136 

Steenland, Douglas, President and CEO, Northwest Airlines, Eagan, Minnesota, statement ................................................................................................. 149 

(1) 

AN EXAMINATION OF THE DELTA– 

NORTHWEST MERGER 

THURSDAY, APRIL 24, 2008 

U.S. SENATE, SUBCOMMITTEE ON ANTITRUST, COMPETITION POLICY AND CONSUMER RIGHTS, COMMITTEE ON THE JUDICIARY, Washington, DC 

The Committee met, pursuant to notice, at 2:08 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Herb Kohl, Chairman of the Subcommittee, presiding. 

Present: Senators Feingold, Schumer, Cardin, and Hatch. 

OPENING STATEMENT OF HON. HERB KOHL, A U.S. SENATOR 

FROM THE STATE OF WISCONSIN 

Chairman KOHL. Good afternoon. Our hearing today will exam- ine the $3.7 billion merger between Delta and Northwest Airlines, 

a merger that will create the world’s largest airline. Many predict 

this merger will just be the beginning in a wave of mergers in our 

Nation’s airline industry. 

We recognize the tremendous pressures that the airline has endured in recent years. After recovering from the horrible tragedy 

of 9/11, the industry now faces skyrocketing fuel costs at many of 

our major airlines, including both Northwest and Delta, and have 

undergone the painful process of bankruptcy filings. 

Yet, while it has been the worst of times for the airline industry, 

it has been no better for the flying public. We all complain about 

airline service; uncomfortable flights, frequent delays, and mysterious prices are a staple of air travel. 

Now the airlines suggest that they will be able to merge their 

way out of their troubles in a way that will benefit customers. As 

we analyze their claim, we will confront the crucial question of how 

this merger will affect air competition and whether it will lead to 

higher prices and reduced services for customers. 

We need to very carefully examine the impact of this deal, and 

others that well may follow, on air service offered to small- and medium-sized cities that depend on frequent and inexpensive air service for their economic health. 

We expect to hear from the airline executives here today about 

their plans to maintain service to these communities. While there 

may always be ample competition between New York and Los Angeles, what does this deal tell us about the future of competition 

for the rest of us? Of equally vital interest to me is that this merger do no harm to the independence of Midwest Airlines of MilVerDate Aug 31 2005 12:13 Jul 02, 2008 Jkt 042877 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42877.TXT SJUD1 PsN: CMORC
2 

waukee, Wisconsin, which is, in fact, regarded as our hometown 

airline. 

Midwest Airlines is a unique company in the airline industry, an 

airline that offers the highest quality of service and is actually beloved by its customers. In the last year, Midwest Airlines was acquired by an investment firm that partnered with Northwest Airlines. If the merger before us today is completed, Delta will acquire 

Northwest’s stake in that airline. I will expect today to hear from 

Delta that this will not harm the independence, the quality, and 

the frequency of service or competitive viability of Midwest Airlines. 

Both Delta and Northwest defend this merger by arguing that 

they operate largely complementary route structures that overlap 

only occasionally. Whatever the merits of that claim—and we expect the Justice Department to scrutinize it carefully -our inquiry 

cannot end merely with an examination of overlapping routes. 

These two airlines are competing national networks. Each airline 

takes passengers from small- and medium-sized cities through 

their gigantic hubs and then on to the travelers’ final destinations. 

There are now six of these national networks. This merger will reduce it to five, and many analysts expect even more mergers soon 

to reduce the number to four, or even three. 

As we go from six, to five, to four, and maybe even three or even 

less, we need to stop and ask the question: what will be the impact 

of the loss of competition on price and service? Are the few smaller, 

low-cost airlines really sufficient for competition or will the remaining dominant airlines gain a stranglehold on our air transportation 

system? 

Other important issues are implicated by this merger, such as 

the hard-won rights of employees of both airlines. We are concerned that this merger not lead to any loss of labor protections enjoyed by the airlines’ employees. While no union is testifying here 

today in person, we are including in the record submissions from 

any union concerned about this merger. 

In closing, the executives who lead these airlines have a responsibility to their shareholders to create the strongest airline, but we 

on this subcommittee have a different, and perhaps more important, responsibility. Our responsibility is to the public, to protect 

consumers, and to ensure that no airline or small group of airlines 

gains a stranglehold on the market. 

We need to be sure that the announcement that we have all 

heard flight attendants say at the end of the flight, ‘‘We know that 

you have a choice among airlines’’, does not become as obsolete as 

airlines as TWA, PanAm, Eastern, Braniff, ATA, and now, perhaps, 

Northwest. 

Senator Hatch, the Ranking Member of this Committee, is with 

us today and we turn to him for his comments. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

Senator HATCH. Well, thank you, Mr. Chairman. I appreciate 

your leadership on this Committee. I’m sorry I’m just a little bit 

late. I’ve been behind all day long. So, I apologize to you again. 

3 

It’s always been a pleasure to work with you, and I appreciate 

that you’ve called this hearing so quickly after the announcement 

of the proposed Delta-Northwest merger. This is a matter of the 

highest importance to all of our States, and in particular my home 

State of Utah as well. I also want to thank our witnesses for accepting the subcommittee’s invitation to testify here today. 

Mr. Chairman, I am looking forward to the possibilities that this 

merger offers. Both Delta and Northwest play important roles in 

the smaller communities that are found in the mountain west and 

upper midwest. The merger holds the promise of efficiently connecting those communities not only to additional locations inside 

our own country, but to Europe, Asia, and Latin America. 

The proposed business plan for this merged entity is novel. Instead of eliminating duplicative route service or leveraging similar 

aircraft fleets, the purpose of the merger is to increase revenue by 

offering increased route offerings. 

However, this transaction raises important antitrust questions: 

first, do Delta and Northwest routes overlap? Second, will the 

merger result in higher prices? Finally, what type of analysis 

should the regulatory officials perform when considering this transaction? 

First, Delta and Northwest routes are largely complementary. In 

fact, Delta states that the transaction will result in only 12 nonstop domestic city-pair overlaps. City-pair overlaps are defined as 

those locations that both Delta and Northwest currently offer 

flights between. Of the 12 overlaps, 5 cities will have 3 or more 

non-stop competitors after the combinations, and 3 other cities will 

have 2 competitors after the merger. There will be only four citypair overlaps, reduced to a single carrier providing non-stop service. Those city pairs are Salt Lake to Detroit, Salt Lake to Minneapolis, Cincinnati to Detroit, and Cincinnati to Minneapolis. 

Delta contends that these non-stop service overlaps will affect 

only 573 people, and I might add, will compromise only 0.3 percent 

of the combined airlines’ origin and destination domestic traffic. 

Second, many speculate that this transaction will result in higher ticket prices. Now, this is a legitimate concern. However, Delta 

argues that their new business plan is designed to raise revenue. 

It can be very difficult to raise prices drastically due to potential 

competition from low-cost carriers, yet ascertaining the possible 

range of price increases will be one of the more important aspects 

of today’s hearing. 

Finally, there is the question of what type of analysis should be 

performed on this merger. Traditionally, antitrust regulatory agencies perform their analysis only on the merger ‘‘in front’’ of them. 

However, other mergers are considered as part of the analysis if 

they affect a similar market, and those mergers occur during the 

period in which the initial merger is being considered. 

In the case of this merger, Mr. Mitchell and the American Antitrust Institute advocate the Department of Justice perform a scenario analysis. Now, scenario analysis takes into consideration 

other possible mergers that could occur even though they have not 

been announced or negotiated. I believe this could have disadvantageous consequences, and I look forward to discussing this matter 

with you in greater depth. 

4 

That being said, Mr. Chairman, let me just thank you for calling 

this hearing. I look forward to a thorough discussion of these 

issues, and I appreciate your leadership on this matter. 

Chairman KOHL. Thank you very much, Senator Hatch. 

We now turn to two distinguished Senators who are here to 

make a statement, Senator Chambliss from Georgia and Senator 

Klobuchar from Minnesota. 

Senator Chambliss, we’ll hear from you. 

STATEMENT OF HON. SAXBY CHAMBLISS, A U.S. SENATOR 

FROM THE STATE OF GEORGIA 

Senator CHAMBLISS. Mr. Chairman, thank you very much. I appreciate you and the Ranking Member, Senator Hatch, holding this 

hearing today and letting us have an opportunity to come before 

you. I particularly appreciate the opportunity to introduce Delta 

Airline’s CEO, Richard Anderson. Delta’s headquarters is based in 

Atlanta in my home State of Georgia, where they are the largest 

tenant of the world’s busiest airport, Hartsfield-Jackson International Airport. 

Richard joined Delta as a member of their Board of Directors in 

April of 2007. In September of 2007, he had succeeded one of Delta’s finest chief executives, Gerald Grinstein. I’ve been pleased to 

have the opportunity to get to know Richard over the past few 

months. Last year when he took over, Delta had recently emerged 

from bankruptcy and, interestingly enough, he came to Delta after 

having served at Northwest. 

Under his leadership, Delta strengthened its balance sheet at 

time when we have seen numerous airlines file for bankruptcy or 

see separations. Richard brings more than 20 years of airline experience to the job, as he has previously served as the chief executive 

officer of Northwest, whose merger obviously you are here today to 

discuss. Richard’s experience lends him the necessary skills to successfully meet the demands that will be placed on him should this 

merger be approved. 

Mr. Chairman, we are here today to discuss the viability and the 

effect on consumer choices that a merger between Delta and Northwest Airlines would have on consumers. These two companies 

would form a stronger airline that would offer consumers increased 

access to international destinations. 

Delta has a strong presence on the East and West Coast and in 

European markets, while Northwest maintains a strong presence 

in the Midwest and Asia. These synergies should not adversely affect customer choices in air service, but should actually enhance 

them and result in a stronger airline that should be less susceptible to economic downturns and the ever-increasing fuel prices. 

Delta Airlines has come a long way since its beginnings in Monroe, Louisiana to the international commercial airline it is today. 

It has been an economic engine for Georgia and the Southeast for 

many years. Delta, as many airlines after 9/11, has faced many 

challenges and has emerged as a strong carrier. 

As a resident of rural Georgia, I fly Delta Airlines from my home 

to Atlanta and back, usually at least once a week. Excuse me. I get 

back and forth to Atlanta once a month, at least. I fly it all the 

way home. So, I depend on the connector airlines also. And you are 

5 

right, Mr. Chairman, that is a very integral part of this in the overall restructure should this merger be approved and it is something 

that I look forward to you following very closely, but I know it is 

going to be successful and is going to be continued. 

I am very proud to have the honor to introduce today a superb 

airline industry leader and a fine American in my good friend, Mr. 

Richard Anderson. 

Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Chambliss. 

Senator Klobuchar? 

STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR 

FROM THE STATE OF MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman and 

Senator Hatch. Thank you for the opportunity to testify today on 

a matter of great concern to my home State of Minnesota, as well 

as the people we represent and the future of the airline industry. 

The proposed merger of Northwest Airlines and Delta Air Lines, 

which has been called a mega-merger—it would in fact produce the 

largest airline in the world—represents a turning point in the history of our country’s airline industry, so I will start with a few 

words of history. 

Northwest Airlines was founded in Minnesota in 1926 to carry 

mail for the U.S. Post Office, and it established the first air mail 

service from Minneapolis to Chicago. During World War II, it 

joined the war effort by flying military equipment and personnel to 

Alaska, and after the war, was designated by the Federal Government as the United States’ main carrier in the Pacific. 

In 1947, Northwest became the first American airline to fly commercial passengers from the United States to Japan, and by the 

1960’s it was one of the premier U.S. carriers between the United 

States and the booming economies of Asia. 

I recite this history not out of nostalgia, but to describe the importance that Northwest Airlines has always played, and plays 

today, in the economy of Minnesota and the Midwest. Northwest, 

represented here today by many employees as well as CEO Doug 

Steenland, provides nearly 12,000 high-skilled jobs in my home 

State, including trained mechanics, pilots, flight attendants, and 

the many workers who support its airport and headquarters’ operations. In addition, it operates major reservation facilities in 

Eagan, Minnesota and in Chisholm, Minnesota on our State’s Iron 

Range. 

Moreover, Northwest is a vital link connecting the communities 

of Minnesota to one another, and Minnesota to the world. Minnesota ranks No. 9 in Fortune 500 companies, and in addition to 

being the home to a major research university, as well as major 

medical facilities like the Mayo Clinic, we are hope to many people 

that need this competitive air service. 

If Northwest has been good to Minnesota, our State has been 

good in return. In 1991, when Northwest was threatened with 

bankruptcy as a result of rising fuel costs and an economic recession, the legislature passed a loan package worth nearly $300 million in exchange for Northwest’s promise to stay in Minnesota and 

build new facilities in Minnesota. 

6 

More recently when Northwest faced financial difficulties again, 

our Metropolitan Airports Commission granted it millions of dollars 

in rent reduction and agreed to share airport concessions. These efforts came on top of a $15 billion financial rescue package that 

Congress created in 2001 to help the airline industry after 9/11. 

So I think it is fair to say that the people of Minnesota have had 

a partnership with Northwest and other major carriers over the 

last many years, and I think that Northwest has an obligation to 

uphold their end of the deal. 

The proposed merger has ramifications not only in Minnesota, 

but beyond our borders. Already, passengers are concerned about 

adequate choice and competitive fares. As the industry stands 

today, the top four carriers—American, United, Delta, and Southwest—control nearly 50 percent of the market. 

Many airline analysts predict that a Delta-Northwest merger 

would trigger a new wave of consolidation in the airline industry 

that would further increase market concentration. Already there is 

speculation about a merger between United and Continental, and 

some analysts foresee a consolidation of our country’s airline industry from seven major carriers to just three. 

I am concerned that the agencies with jurisdiction—the U.S. Department of the Transportation and the U.S. Department of Justice—will evaluate this merger in isolation and not consider its effects on the airline industry as a whole, something that Senator 

Hatch was just speaking to. 

I would urge that the departments, as part of their competition 

review, ask for specific assurances from the executives of these carriers. If the merger triggers further concentration in the industry, 

what evidence do they have that fares will not go up? What assurances can they give that consumers will still have meaningful 

choice? 

One of the major reasons given for this merger, the increasing 

oil prices, how can they show that those oil prices would somehow 

change as a result of this merger or that Delta, which is already 

the third-largest carrier, would somehow be able to negotiate better 

oil prices—much better oil prices—than they do now? How can they 

guarantee that affected communities will still have frequent, highquality service? These are the questions I hope this Committee 

asks, as our Commerce Committee will do at a later hearing. 

In short, it is essential that the Departments of Justice and 

Transportation not review this merger in a vacuum, but consider 

the likely broader implications for the aviation industry and society 

as a whole. This merger must be considered and looked at as to 

whether increased concentration would lead to an oligopoly -that is, 

a market controlled by a few—increased barriers to entry, and diminished competition. They must also consider establishing formal 

conditions for approval of this merger that would assure the government and the public that the industry will have the robust competition necessary to move forward. 

Concentration, as we know, often leads to higher prices and that 

is the core, the central concern of our country’s antitrust laws. I 

would also add that for those of us that represent States that include rural areas, we are not only concerned about the hub, but the 

spokes. One of the things that I think we must explore, is former 

7 

Delta CEO Gerald Grinstein, which Senator Chambliss mentioned, 

when he spoke about his opposition to the merger between Delta 

and U.S. Air before the Commerce Committee, on which I serve, he 

asked: ‘‘In terms of service to small communities, are you better off 

with six network carriers or are you better off with three? Are you 

better off having these network carriers fiercely competing with 

each other, trying to get into those markets? If you approve one 

merger, how are you going to say no to other carriers? You will devolve into three network carriers, and once that happens you won’t 

get the same level of service.’’ 

I think it is important that members of this Committee use this 

hearing, and as we will do on our Commerce hearing, to hold the 

airlines accountable for the commitments they have made about 

this merger and to create a record for the Department of Justice 

so that the DOJ understands the impact that this merger may 

have on jobs, on communities, and on the American flying public. 

In short, what we learn here today and what we will learn at the 

upcoming Commerce Committee hearing should help guide the Department of Justice as it considers the impact of this merger on our 

competition laws. 

In conclusion, I urge this Committee to look at this from a global 

standpoint, not just in isolation, for the impact it will have on the 

airline industry. I urge this Committee to ask the Federal regulators to undertake a full and comprehensive review of the consequences of this proposed merger. We must proceed with care and 

caution, with an eye not only to the bottom line for Wall Street, 

but the bottom line for Main Street. 

Thank you very much for this opportunity. 

Chairman KOHL. Thank you, Senator Klobuchar. 

There is a vote on the floor, so we will have a recess of 10 minutes. 

[Whereupon, at 2:29 p.m. the hearing was recessed.] 

AFTER RECESS [2:49 p.m.] 

Chairman KOHL. The hearing will continue. 

We would now like to introduce our second panel of witnesses. 

Our first witness on that panel today will be Douglas Steenland. 

Mr. Steenland is the president and CEO of Northwest Airlines, 

where he has served in various capacities since 1994. Before joining Northwest, Mr. Steenland worked as senior partner at the law 

firm Verner Liipfert in Washington, DC. 

Following him will be Richard Anderson. Mr. Anderson is the 

CEO of Delta Air Lines, where he has served since September of 

2007. Prior to joining Delta, Mr. Anderson was the executive vice 

president of United Health Group from 2004 until 2007. He worked 

at Northwest Airlines from 1990 to 2004, where he was the CEO 

from 2001 to 2004. 

Following will be Kevin Mitchell. Mr. Mitchell is the founder and 

chairman of the Business Travel Coalition, where he writes and 

speaks on airline competition and other aviation issues. Prior to 

founding BTC, Mr. Mitchell was the vice president of Human Resources and Services at Cigna. 

Finally, we will be hearing from Darren Bush. Dr. Bush is an Associate Professor of Law at the University of Houston Law Center, 

where his primary research interests are antitrust and regulated 

8 

industries, energy, as well as intellectual property. Dr. Bush also 

served in the Transportation, Energy, and Agricultural sector of 

the Antitrust Division at the Department of Justice. 

We thank you all for appearing at the subcommittee’s hearing 

today. 

We ask you all to stand and raise your right hand. 

[Whereupon, the witnesses were duly sworn.] 

Chairman KOHL. Thank you. 

Mr. Steenland, we’ll hear from you first. 

STATEMENT OF DOUGLAS STEENLAND, PRESIDENT AND CEO, 

NORTHWEST AIRLINES, EAGAN, MINNESOTA 

Mr. STEENLAND. Thank you, Senator. Chairman Kohl, Senator 

Klobuchar, I am Doug Steenland, chief executive officer of Northwest Airlines. I appreciate the opportunity to appear here this 

afternoon to explain the benefits of the recently announced merger 

between Northwest and Delta, and the fact that this merger will 

not lessen competition. 

The U.S. airline industry is at a crossroads, creating two choices 

for Northwest. One choice is to continue on the road now traveled 

as a stand-alone airline, being whipsawed by rising oil prices which 

will cost Northwest an estimated $1.4 billion more this year, facing 

competition from discount carriers that have now captured onethird of the U.S. market, and internationally facing heightened 

competition from large, well-funded foreign airlines that have been 

allowed to consolidate and are increasing service to the United 

States under Open Skies agreements. 

The other choice is to merge with Delta to create a single, stronger airline better able to face these challenges. By combining the 

complementary end-to-end networks of two great airlines, we will 

achieve substantial benefits and build a more comprehensive and 

global network. 

Most importantly, the merged airline will be more financially resilient and stable, better positioned to meet customers’ needs, better able to meet competition at home and abroad, and better able 

to provide secure jobs and benefits. 

In this merger, importantly, no hubs will be closed. We would 

like to focus on that for a second. In the U.S., Northwest operates 

hubs in Detroit, Memphis, and Minneapolis. In recognition of the 

service we provide and the essential nature we are to the community and the commitment we have made, we received strong civic 

support in Michigan, in Memphis, and in Minneapolis—in St.Paul 

we received the support of the Minnesota Chamber, the St. Paul 

Chamber, and the Metro Coalition of Chambers. The merger will 

create over $1 billion in annual benefits that will help the merged 

carrier withstand volatile fuel prices and cyclical downturns. 

All of these benefits will be achieved without harming competition. The existing domestic and international routes of Northwest 

and Delta are complementary, so the two carriers compete in only 

a minimum extent today. 

Let us start, first, with international markets. The question of 

competition internationally has been asked and answered by the 

U.S. Government. Recently, the U.S. Department of Transportation 

tentatively granted antitrust immunity to Northwest, Delta, Air 

9 

France, and KLN, and in doing so found that there would be no 

reduction in competition over the transatlantic from the combination of Delta and Northwest. Northwest does not serve Latin or 

Central—Latin America, a Delta stronghold, and Delta has only 

minimal service to Asia, which, as Senator Klobuchar pointed out, 

Northwest has served well since 1947. 

Domestically, Northwest routes are concentrated in the upper 

Midwest, while Delta is strong in the South, in the East, and in 

the mountain west. The most important fact to remember from today’s hearing on competition is that, of the 800 domestic non-stop 

routes that Northwest and Delta today collectively fly, there are 

only 12 overlap non-stop city-pair markets. On the vast majority of 

those 12 markets, there is robust non-stop competition that clearly 

will make sure that substantial competition will remain in the future. 

The domestic airline industry has undergone a competitive sea 

change over the past several years. Low-cost carriers have grown 

at an average annual rate of 11 percent since 2000. Southwest is 

the largest domestic airline in the United States and carriers more 

domestic passengers than any other airline, and that will continue 

to be the case even after this merger is consummated. 

In addition, online technologies with amongst the most powerful 

search engines in the world, run by Orbitz, Travelocity and 

Expedia, have really created a customer revolution. Customers can 

now quickly and easily compare the offerings of competing carriers 

on any given route, and if they so choose they can push the ‘‘lowest 

applicable fare’’ button and they’re guaranteed to see low prices 

from the choices that they select. All of these developments ensure 

the continued competitiveness of the U.S. market post-merger. 

For Wisconsin and Minnesota, this merger has a particular interest. It has a particular history as well, and it is worth recounting 

it briefly because it explains some of Northwest’s strengths today. 

Thirty years ago in one of the first noteworthy airline mergers, 

North Central and Southern combined to form Republic, becoming 

the largest airline in the country measured by domestic destinations served. In 1986, Northwest, then primarily known for its 

international service, acquired Republic and, but for that merger, 

I think it is highly likely that we would not be here today. 

As you know, Mr. Chairman, Northwest is also a passive investor 

in Midwest Airlines. We have a commercial cooperation agreement 

with Midwest that is beneficial to both. Tim Hoeksema, president 

of the Wisconsin-based Midwest Airlines, confirmed this weekend 

that, in his judgment, this merger will not adversely affect his company, and he observed that maintaining the status quo is not the 

way to currently overcome the industry’s difficulties. 

With this merger we have achieved our goal of crafting a transaction that creates significant value for all of our shareholders. The 

combined company will be more stable, better positioned to meet 

the challenges of the future both at home and abroad. 

Thank you very much. 

[The prepared statement of Mr. Steenland appears as a submission for the record.] 

Chairman KOHL. Thank you very much, Mr. Steenland. 

Mr. Anderson? 

10 

STATEMENT OF RICHARD ANDERSON, CEO, DELTA AIR LINES, 

ATLANTA, GEORGIA 

Mr. ANDERSON. Mr. Chairman, members of the Committee, 

thank you. I appreciate the opportunity to be here today and to 

represent the employees of Delta, many of whom are here with me 

today. 

This creates an opportunity for Delta and Northwest to create a 

real global airline. As Doug stated, the world is changing rapidly 

around us, both in terms of fuel and Open Skies agreements and 

trade agreements around the world, we really should be thinking 

about this business in a global sense. I know it’s very important. 

We serve a lot of small communities together, but we really play 

on a much broader stage and we need to be able to compete against 

the foreign competition. 

When we think about these two airlines separately, we are not 

as strong as our foreign competitors. The European Union and government agencies in other parts of the world have allowed consolidation. Open Skies agreements have now resulted in foreign flag 

carriers carrying more international passengers to and from the 

United States than U.S. flag carriers. 

U.S. airlines—we only have 5 percent of the worldwide orders for 

wide-body airplanes in the U.S., so if you take all the U.S. airlines 

and add up all their wide-body orders at Boeing and Airbus, we are 

5 percent of the outstanding backlog of wide-body airplanes. 

We are not here asking you for financial support, we just want 

the ability to react to the marketplace and do the things that we 

can do for our employees, our shareholders, and our communities 

in response to fuel prices, which have doubled. In the case of Delta, 

in the first quarter, our year-over-year fuel bill went up over $500 

million. Multiply that times four. You essentially have fuel doubling in a 1-year period of time. 

And what we miss on that are two factors. Fuel has gone from 

$60 to $120 a barrel, but refining costs have doubled to over $30 

a barrel, and we’re paying for it with dollars. Our European competitors pay for it with euros. They’re effectively paying about $80 

a barrel right now, while we pay $120 a barrel. 

These oil prices have driven five carriers to Chapter 11 since the 

beginning of the year. And what this merger does for two alreadystrong carriers is give us the power to compete and win versus foreign flag carriers. That is good for our employees, communities, 

and shareholders because we have an obligation to all of them to 

build a durable and lasting network. 

This consolidation is really complementary. When you look at 

these two airlines, there are two simple numbers. In the domestic 

market, 800 non-stops, 12 overlaps; 0.3 percent of the capacity 

overlaps on a non-stop basis, and in those markets there’s plenty 

of competition. So, they are really end-to-end networks. 

The same thing internationally. There’s really no competition 

issue here whatsoever internationally, which is over 40 percent of 

the combined flying of the two airlines. The merger provides stability for our employees. This industry has lost 150,000 jobs and 

$30 billion in financial losses since 2001, and we have built this 

combination with our employees, communities and shareholders in 

mind. 

11 

First, we have made a commitment to provide substantial ownership to the employees in the combined company. Second, we are 

committed to fair and equitable seniority integration. Third, we 

have a covenant in the merger agreement and the way this has 

been set up will protect the pensions of the employees. Last, we 

have made a commitment to the front-line employees that there 

would be no furloughs as a result of the transaction. 

Small communities and large communities benefit because there 

are no hub closures, and we become the largest airline serving 

small communities, with over 140 in the U.S. We create new service to 3,000 domestic market city pairs, and over 6,000 new international city pairs. 

Keep in mind that oil is a game changer today—and by the way, 

a much bigger game changer than just the airline business. Fuel 

prices at this level changes many things in American society today, 

and we have got to be in a position to be strong enough to weather 

that. 

The combined enterprise of these two airlines creates over $1 bil- lion in benefits, and the combined entity will have over $7 billion 

in liquid assets. We have the best combined cost structure, we have 

the best combined balance sheet, we have solid strategies. We need 

to be given the chance to be able to compete on our own. Customers 

will enjoy a significant expansion of service options and an enlarged Frequent Flyer program. 

In sum, it is good for our employees, our customers, and our communities. When you look at the stand-alone plans and you look at 

what’s happened in this industry over the last six or 7 years, we 

should be in a position to act together to build a far more durable, 

far more stable platform. 

I would also like to ask, Mr. Chairman, if I could enter statements of support from the Detroit Chamber of Commerce, the 

Memphis Chamber of Commerce, and the Airline Pilots Association 

of Delta Air Lines. 

Chairman KOHL. It will be done. 

Mr. ANDERSON. Thank you. 

[The prepared statement of Mr. Anderson appears as a submission for the record.] 

Chairman KOHL. Thank you, Mr. Anderson. 

We’ll now hear from Mr. Mitchell. 

STATEMENT OF KEVIN MITCHELL, CHAIRMAN, BUSINESS 

TRAVEL COALITION, RADNOR, PENNSYLVANIA 

Mr. MITCHELL. Mr. Chairman and members of the Committee, 

thank you for requesting that the Business Travel Coalition appear 

before you today to represent the consumer on a potential DeltaNorthwest merger and airline industry consolidation. My testimony 

today is also on behalf of the 400,000 members of the International 

Airline Passengers Association. 

As consumers stand uncomfortably on the precipice of the first 

of several breathlessly hurried transactions, dangerously poised to 

do permanent damage to our well-being, never have we needed 

your leadership more. 

From a consumer standpoint, Congress must insist that the DOT 

and DOJ not focus on the proposed on Delta-Northwest merger as 

12 

a stand-alone transaction, but rather the analysis must include implications for the competitive structure of the industry resulting 

from a radical consolidation of the major carriers. 

Let there be no doubt, Delta-Northwest is the proverbial canary 

in the coal mine. If this anti-competitive deal lives, others will follow and follow fast, leaving us in an avian apocalypse worthy of 

Hitchcock. We believe there are powerful reasons why these megamergers would be harmful to consumers and would solve none of 

the airlines’ most serious problems. 

With all due respect to my distinguished fellow panelists, airline 

CEOs have long ago lost the benefit of the doubt when it comes to 

reassurances about mergers and consumer impact. The track 

record they run on is one of dashed dreams and broken promises. 

In preparing for this hearing I reviewed the celebratory merger 

press releases, followed by the coffee-smelling Monday morning reality of shuttered hubs, wrecked communities, disappointed employees, poor service, and, of course, higher prices—and oh, yes, regretful CEOs. 

The claims from Delta and Northwest you have heard so far 

today represent the triumph of hope over experience. A rush to 

judgment regarding this merger proposal is a sure-fire recipe for a 

failed policy. BTC urges the Committee to examine the consumer 

and competitive issues carefully and deliberately. This transaction, 

and the others it will ignite, deserves thorough and appropriate 

econometric and stakeholder impact analyses. 

Congress must not allow the DOT and DOJ to rubber-stamp this 

troubling transaction based on the high price of fuel, an unfortunate reality that also requires careful policy consideration. However, one thing seems certain: this transaction will do exactly nothing to address fuel prices. 

The claim that a mega-merger would produce many billions of 

dollars in network and cost efficiencies, enough to not only provide 

a reasonable return on a very risky investment but enough new 

profits on top of that to counteract high fuel prices, is absolutely 

unrealistic. How can there be billions of dollars in untapped cost 

savings at two airlines that just underwent years of cost-cutting in 

bankruptcy? Likewise, how can one claim huge-scale benefits from 

mega-mergers unless one believes that airlines the size of Delta 

and United are too small to be competitive? 

How can one accept that there are billions of dollars in revenue 

synergy when there are no plans to restructure either network? Importantly, unless Delta can convince expert outsiders of something 

on the order of $5 billion in readily achievable synergies, there is 

no possibility this merger could benefit consumers or the public interest. 

What is more, mega-carriers create a risk of an operational meltdown that could cripple the Nation’s aviation system. Fuel prices 

and the lack of merger-related synergies would create huge pressures to cut corners on implementation spending, exacerbating conflicts with and among employee groups. Difficulties with integration of complex computer systems and maintenance programs could 

create problems, but make the recent American Airlines MD–80 debacle seem like an unobtrusive glitch. 

13 

Then there are competitive—competition problems. Going from 

three to perhaps—from six to perhaps three super-mega carriers 

would make airfare increases and onerous consumer policies easier 

to stick. Congress should also be concerned that these super-mega 

carriers would have the ability to exercise market power in adjacent markets and drive supplier prices to below competitive rates 

for travel agencies, parts suppliers, caterers, and all manner of participants in the supply chain. 

However, the primary objective and dirty little secret of these 

mega-mergers is the permanent end—the permanent end—to 

meaningful competition between the United States and continental 

Europe. Two-airline competitor groupings, led by Air France and 

Lufthansa, who are poised to provide the lion’s share of financing 

for these mergers, would control 90 to 95 percent of a profitable 

growing market of over 30 million passengers, where there would 

be zero possibility of new competition. Airlines could raise prices at 

will without any risk that market forces could constrain competitive abuses. 

As you can see, members of the Committee, this proposed merger 

will do everything but help the competitive structure of the airline 

industry and the airlines have failed to answer the many questions 

consumers have surrounding this merger. 

Thank you. 

Chairman KOHL. We thank you, Mr. Mitchell. 

[The prepared statement of Mr. Mitchell appears as a submission 

for the record.] 

Chairman KOHL. Dr. Bush? 

STATEMENT OF DARREN BUSH, ASSOCIATE PROFESSOR OF 

LAW, UNIVERSITY OF HOUSTON LAW CENTER, HOUSTON, 

TEXAS 

Mr. BUSH. Mr. Chairman and other distinguished members of 

the Antitrust Subcommittee, I want to thank you for giving me the 

opportunity today to speak to you about the potential anti-competitive effects inherent in a new wave of consolidations that might be 

spurred by the proposed merger of Delta and Northwest Airlines. 

In doing so, my remarks today are my own. I do not represent 

anyone. I speak today based upon my experience as a former Antitrust Division trial attorney, focused on deregulated industries—in 

particular, airlines—and as an economist, and as a law professor 

who has done extensive research on the issue. 

Rather than rehash my written testimony, I want to signal to 

you not the things that may be problematic with the merger, but 

rather those things that may be problematic with the Department 

of Justice’s ultimate decision with respect to the merger. I do so to 

highlight larger issues in the world of antitrust that are in dire 

need of your attention. 

With any merger, the ultimate question posed to the Department 

of Justice or the Federal Trade Commission is whether the proposed merger injures consumers. The analysis is far more complex 

than that, but the gist is to determine whether there is anti-competitive harm and whether or not anything about the transaction 

or the nature of the industry mitigates that harm. 

14 

With respect to the anti-competitive harms, the DOJ, in the context of the airline industry, has examined in the context of mergers 

the following issues: the effect of the merger on competition in nonstop city-pair markets, typically routes between the hubs of the 

merging airlines. In many of these routes, non-stop air passenger 

service faces a monopoly. In other routes, there is likely to be reduction in service from three to two. 

The effect of the merger on competition and connection markets. 

For example, connections from origins or destinations east of Colorado in the Midwest to the East Coast destinations may have a 

reasonable—may have as reasonable connection options the hubs of 

the merging firms and Chicago-O’Hare, an airport which is seriously congested and constrained. 

In some markets, Delta may be a potential entrant into a Northwest market, and vice versa. One example might be the Salt Lake 

City to Detroit market, where Northwest might have provided service but for the merger. In addition, there may be numerous potential competition opportunities in connection markets. The importance of potential competition in an industry with rapidly eroding 

existing competition cannot be understated, although such a case 

is difficult to bring in court. 

Competition for contracts is an issue. Northwest and Delta may 

compete vigorously with each other for company contracts, particularly where the corporation requires significant travel on non-stop 

routes where the companies—where the firms compete. 

The combination may foreclose downstream and upstream markets. Specifically, care must be taken to examine the nature of any 

contract vital to the core function of providing air passenger service. In particular, contracts between the merging parties and vendors and suppliers should be examined to determine whether there 

is a potential that the combined firm could foreclose competitors 

from obtaining vital services. These are the issues that DOJ gets. 

They understand this, and DOJ’s excellent press release in the 

United-U.S. Airways investigation demonstrates the agency’s understanding of these issues. 

However, I reserve judgment as to whether these issues, apart 

from the first two listed, are fully understood by the current Assistant Attorney General, whose track record in bringing enforcement 

actions in mergers is a panorama of inaction, with the notable exception of the Exxon merger and a few others. 

So what difficulties did the DOJ staff face in enforcing the antitrust laws? Well, there are some issues that will give the DOJ staff 

pause. The first issue is that there is a trend in the courts and 

with the agency administration that efficiencies are now the god of 

antitrust. 

If there are cost savings involved in a merger or any other transaction, it is often the case that, whether those efficiencies are ethereal, illusory, only stated, not cognizable, not verifiable, they are 

still given the benefit of the doubt and the transaction moves forward. It cannot be the case, however, in looking at this transaction 

that one only looks at the notions of efficiencies without seeing that 

they are actual efficiencies. Unfortunately that has not been the 

trend, either in the court or in the Department of Justice currently. 

15 

Even, however, if we examine the anti-competitive effects of the 

merger at the Department of Justice and look at any potential efficiencies, there are some other hurdles. If the merger turns out to 

be anti-competitive, the DOJ may actually have to bring an action 

in court. The courts have made it abundantly clear that they no 

longer follow what is called the incipiency standard in Section 7 of 

the Clayton Act. Whether or not the transactions are likely to lessen competition is now irrelevant in court, and what matters is only 

tangible evidence that the merger will lessen competition, a nearly 

impossible standard in a forward-looking analysis such as merger 

review. 

Another issue that is of great importance is the fact that current 

antitrust law, and if I were to challenge a merger, or if anybody 

were to challenge a merger based upon the notion of a follow-on 

merger creating anti-competitive effects, that challenge would be 

thrown out of court. There is no ability for the Justice Department 

to bring a case based upon some speculative merger in the future. 

However, there is an ability for the Justice Department to determine whether there is in reality follow-on antitrust—follow-on 

mergers. They have the potential and are likely to do so to engage 

in civil investigative demands and other investigative techniques to 

ensure, or enable to determine, whether Continental and United 

were, say, merging. If that were the case, then you would have to 

take those transactions as a whole to determine the anti-competitive effects. 

However, if the transactions are not sufficiently close together, 

then of course there is no way to bring that kind of challenge. So 

I am sorry, I am running out of time, but I wanted to bring these 

issues up because it is not just the transaction that is problematic, 

it is if this transaction is anti-competitive, bringing a challenge to 

enjoin the transaction is inherently problematic. 

Thank you for your time. 

Chairman KOHL. Thank you, Dr. Bush. 

[The prepared statement of Mr. Bush appears as a submission 

for the record.] 

Chairman KOHL. Mr. Anderson, as we discussed in our meeting 

yesterday in my office, the future of Milwaukee’s hometown airline, 

Midwest Airlines, is a major concern to me. I believe it is crucial 

to our economy that Midwest remains independent and locally 

owned and operated. As part of a deal that closed earlier this year, 

Northwest Airlines owns 47 percent, as you know, but has no operational control of the partnership that owns Midwest. 

We also understand that as part of that transaction Northwest 

has an option to purchase the rest of Midwest. If the Delta-Northwest deal is completed, we presume that Delta will own that share 

and control that option. Can you assure us that you will not exercise that option, Mr. Anderson? 

Mr. ANDERSON. Well, the entities aren’t merged yet so I’m not 

perfectly familiar with the terms of that transaction, but I can tell 

you that it would be our intention to keep them independent. The 

transaction, as I understand it, contemplated that Northwest would 

be a purely passive investor, that they don’t have any membership 

on the Board of Directors and the two firms act independently. 

16 

That was the whole idea behind the investment, and it would be 

our intention to maintain that position with respect to Midwest. 

Chairman KOHL. So I can take that as something of a near certainty? 

Mr. ANDERSON. Yes. 

Chairman KOHL. Thank you. 

Mr. Anderson, will you pledge, as a major shareholder in Midwest, that Delta will do everything it can to maintain the independence of operations of Midwest and not take any action to interfere with the route structure, frequency, and quality of service of 

Midwest Airlines from its Milwaukee hub? 

Mr. ANDERSON. Yes. 

Chairman KOHL. After the merger with Northwest, will it be Delta’s business interest to have Midwest remain as an independent 

and strong airline based in Milwaukee? 

Mr. ANDERSON. Yes, because the whole transaction is predicated 

upon a domestic alliance with Northwest, with the shared Frequent 

Flyer program, connecting passenger exchanges through code sharing, and that was an important part of the transaction for Northwest, as I understand it. And that sort of alliance relationship is 

important to Northwest’s service patterns in the upper midwest because they flow traffic on each other, particularly international 

traffic, since Midwest doesn’t have an international network. 

So I think the original agreement that Doug put together contemplated that it would remain an independent airline. It’s got a 

great service reputation. It bakes cookies and does other special 

passenger amenities on its flights, and I think it’s very well run— 

a very well-run hometown airline. It would be our intention that 

it would remain that way. 

Chairman KOHL. Finally, gentlemen—Mr. Steenland and Mr. Anderson—what is it about Midwest that generates such strong approval from customers that I don’t think you find in too many other 

airline businesses across the country? What is it about their business that you feel cannot, or should not, be emulated in your business? 

Mr. ANDERSON. Well, if it’s good customer service, we want to 

emulate it. 

Chairman KOHL. Well, their ratings. 

Mr. ANDERSON. Right. 

Chairman KOHL. You know, the things that characterize them in 

the competitive markets in which it plays, from time to time those 

things come out and Midwest seems to be somewhere close to the 

very top. 

How about you, Mr. Steenland. What do you think? 

Mr. STEENLAND. Well, I think Midwest has done an excellent job 

in terms of fashioning itself as the hometown airline. Milwaukee 

travelers are very familiar with it. It has strong local roots. It still 

has members of the Milwaukee community on its board. It was a 

good civic supporter, and I think that developed a loyalty and a responsiveness that is admirable. 

Chairman KOHL. Thank you so much. 

Senator Klobuchar? 

Senator KLOBUCHAR. Thank you very much, Chairman Kohl, and 

thank you for allowing me to join this Committee today. 

17 

I know that you testified, both of you. And again, welcome to 

both of you, and also welcome to all the employees from Northwest 

and Delta that are here. I know that both of these employee groups 

stood by their airlines when you went through some very difficult 

financial times and I have their interests in mind, as well as the 

interests of the people of this country as we go forward. 

I know this morning when you testified in front of the House, a 

questioned was asked about the number of jobs that would be lost 

as a result of the merger. I think one of you—maybe it was you, 

Mr. Anderson—said something about, that it would be less than 

1,000 jobs. 

Could you elaborate on that? 

Mr. ANDERSON. That was a very general number. We have not 

done the bottoms-up diligence to determine, you know, how the 

merged airline will look. It was really a guesstimate, an estimate 

of where we think it might end up. But, you know, we haven’t yet 

put together the transition planning teams to really go department 

by department and figure it out. 

Senator KLOBUCHAR. You know, there are nearly 12,000 employees in Minnesota, but there are about 1,300 employees in the 

Eagan headquarters. How do you think these employees’ jobs will 

fare? 

Mr. ANDERSON. The efficiency savings comes from both headquarters, so when you look at putting two companies together, the 

efficiencies—those efficiencies will come from both headquarters. 

Senator KLOBUCHAR. And so do you still stand by your words, I 

think it was in the merger announcement, where you said that 

Delta and Northwest were committed to retaining significant jobs, 

operations, and facilities in the State of Minnesota? 

Mr. ANDERSON. Absolutely. 

Senator KLOBUCHAR. All right. 

Mr. Steenland, do you want to comment on that? 

Mr. STEENLAND. I would concur. That was a joint press release 

and we fashioned those words together. When you look at the— 

clearly, if you start with preservation of the hub, which we have 

signed onto, obviously all of the front-line employees at the airports, the pilot base, the flight attendant base, the ancillary services necessary to operate a hub, our res. offices in Chisholm and 

in Minneapolis, our information technology center, our pilot training center are all activities that will need to be part of the combined entity going forward. 

And just the fact that one particular activity or a particular service was not named on that list does not mean that they will not 

be included, it just means that’s about as far as the process has 

gone so far and that there will be a joint transition planning effort 

under way where we will then start getting into some more detail, 

into some more granular efforts where we’ll identify some of the 

additional services as to— 

Senator KLOBUCHAR. Mr. Anderson? 

Mr. ANDERSON. Well, so for just a little bit of history, I was actually involved at Northwest with Mr. Steenland 16 years ago when 

we negotiated that covenant with the State of Minnesota, so I have 

a particular closeness to that commitment, No. 1. 

18 

No. 2, Minneapolis is a very important part of this combined network. It has a significant number of Fortune 200 companies. I’m 

on the board of two of them, Cargill and Medtronic, in Minneapolis. 

And it’s very important to the vibrancy of that hub and to our commitment to Minnesota that you make that same corporate commitment to the community. As you know how that community works, 

that’s a very important part of the Minneapolis fabric. I understand that fabric, and we’re going to do our very best to live up to 

that statement in our press release. 

Senator KLOBUCHAR. Thank you. And you understand, with 

what’s happened with some of these other airline mergers that 

have been referenced and some promises made with TWA and others, I’m just concerned about the staying power of these commitments. In other words, what will prevent the combined airline from 

laying off workers a year or two from now, you know, claiming 

market forces drove them there? 

Mr. ANDERSON. Actually, I would answer that by sort of flipping 

it a little bit. You know, the reason why Northwest is where it is 

today is the Republic-Northwest merger. There were three international carriers at deregulation: PanAm, TWA, and Northwest 

Orient, a set of three to which you do not want to be a member, 

because you’ll recall that both PanAm and TWA liquidated because 

they had no domestic route system, and it was a result of the Republic-Northwest merger in 1986 that Northwest got a solidified 

hub position in Minneapolis, Detroit, and Memphis. The same 

thing for Delta. 

So my point is, we almost have to view it in light of what our 

alternatives are, and the idea that you can put two airlines together and make it stronger. Because the situation with TWA was, 

the St. Louis hub was probably never a reliable hub. It had been 

the result of a transaction between TWA and Ozark when Ozark 

was not in very good shape. And so by the time American had 

bought it, TWA had been through bankruptcy three times and it 

was actually an asset acquisition, it wasn’t a merger. Today it 

doesn’t have the local traffic base to really support a large hub operation. 

So I would sort of really answer it by saying that this is actually 

the best alternative for those jobs and those communities, because 

in the end the only real job security is a sound business plan, when 

it’s all said and done. And what this combination allows us to do 

is be much stronger together, and that’s really—really—we understand our commitment to communities and our employees, and so 

we look at the landscape of what we can do in this fuel environment and the world economy, and this is really the best and safest 

option. 

Senator KLOBUCHAR. You know, you mentioned the fuel environment right now. I’m trying to understand this, because if oil is 

$120 a barrel before the merger, there’s a good chance it’s still 

going to be $120 a barrel for a combined carrier. It’s going to be 

the same price. And so could you explain why this would make it 

different? 

Mr. STEENLAND. The merger will not create an entity that will 

have more negotiating power and will be able to drive a lower price 

19 

with respect to oil. You’re exactly right. We’ll spend $120 a barrel 

prior to the merger, $120 after the merger. 

Senator KLOBUCHAR. And the fact that, say—because Delta is already, what, the third biggest carrier? So I thought you might 

make the argument that now we’re even bigger so we can get more 

leverage to get cheaper prices. 

Mr. ANDERSON. The Federal Government can’t even do that 

when they fill the Strategic Petroleum Reserve, so if they can’t— 

Senator KLOBUCHAR. Yeah, we noticed that. OK. 

Mr. STEENLAND. But what the transaction does do, is by putting 

the two entities together we’re able to generate cost savings and 

revenue benefits not in the form of increased fares, that on an annual basis, in our judgment, conservatively create a billion dollars 

of additional value that falls to the bottom line. That makes the 

two entities stronger as a result than they would have been if they 

had stayed independent, and that additional benefit helps offset. 

We’re not here saying it completely offsets. Oil remains an independent, significant challenge to the airline industry whether this 

merger happens or not. But if it does happen, we will be in a 

stronger position to accept that challenge and to tackle it than we 

would have been if we had stayed separate. 

Senator KLOBUCHAR. And so one of my focuses here is to get information so the Justice Department can look at this, as well as 

the information we need to enforce our agreements in Minnesota. 

But clearly when I talk to my colleagues about this, one of the first 

things they say is oil prices. And so I just think it’s very important 

people realize that that’s not really going to change, it just creates 

a challenge. 

And my last one or two questions here is about the point that 

Mr. Mitchell made. The argument is that you’re going to create this 

synergy, but you pledge to keep the hubs, you’ve promised to maintain employment, around 1,000 job loss. You’re still looking at it. 

But I think, what was the word that Chairman Kohl used? Near 

certainty. I would hope that it would not cost that many employees. 

So could you again go through where these synergies are that is 

going to save these substantial costs? 

Mr. ANDERSON. OK. I’ll go on the cost side, and Doug can take 

the revenue side. 

First, is airports. There are many airports around the country 

where we both have significant facilities and the overlap, what we 

call station overlap—you go to a city like Los Angeles where Northwest has Terminal 2 and Delta has Terminals 5 and 6, we can consolidate into Terminal 5 and 6 and basically give back one whole 

terminal at the airport and still be able to accommodate our schedules. So you have the station overlap. 

The second thing is, you migrate to one IT platform. Today we 

all operate a multiplicity of technology platforms. Believe it or not, 

airlines are massive IT consumers with decision technology and 

consumer technology, and moving from one—from two IT platforms 

to one IT platform has a significant amount of benefit. 

Third, you move to single-commission agreements for sales and 

distribution agreements. We get more purchasing power on a combined basis when we’re buying—we buy a lot at airlines from 

oligopolists, and having joint purchasing power for aircraft engine 

20 

parts and other suppliers, caterers, is valuable in the industry. And 

then there’s the general and administrative overhead. And you add 

all that up and the gross synergies or gross benefit is in the $600 

to $800 million range on the cost line. 

Doug, you could do the— 

Mr. STEENLAND. On the revenue side, let me just give you a very 

specific example. Delta has no wide-body airplanes that have more 

than 275 seats. Northwest has a fleet of 16 747 400’s that have 400 

seats. We operate some of those 400-seat airplanes on routes that 

would be much more profitably served if we had a 275-seat airplane. Delta operates it 275-seat airplane on some routes that 

would be much more profitably served if it had a 400-seat airplane. 

So the optimization of our combined fleets over our collective network—Delta has no airplanes between 77 seats and 140 seats. We 

have approximately 130 airplanes that fit in that size. 

When you optimize the network, employing our combined fleet 

over all of the opportunities that the combined network will generate is literally worth hundreds of millions of dollars of just efficiency and benefit by better matching the size of airplane with the 

demand of route that we can’t do today as single and separate entities. 

Senator KLOBUCHAR. Thank you. I don’t want to go beyond Senator Kohl’s midwestern hospitality as a visiting member here, but 

I will save some other questions for the Commerce Committee, and 

especially ones concerning how we try to enforce some of the problems that have been made here today. 

Thank you very much. 

Chairman KOHL. Thank you very much. 

We now turn to Senator Hatch. 

Senator HATCH. Well, thank you, Mr. Chairman. 

I will ask a question that Senator Grassley has courteously asked 

me to ask, so I’ll just put it out to you folks. He’s been interested 

in this issue particularly because Iowa air travelers and businesses 

have never been shy about expressing their concerns about the lack 

of competition in air service to Iowa cities, as well as high airfares. 

Senator Grassley has tried to stay on top of things and ask the 

hard questions when airline mergers are proposed and when these 

competition issues arise. 

Now, here’s this question, I believe: ‘‘The proposed NorthwestDelta merger is poised to offer certain benefits to some consumers 

who will have access to a larger network with greater flight frequency and more travel options. However, this proposed merger 

also raises questions as to whether the transaction will spark 

mergers of other air carriers and thereby consolidate the airline industry so as to inhibit free and fair competition. 

Further, the proposed merger raises questions about the effects 

on the air travel in smaller cities and rural communities, both in 

terms of cost and services.’’ Specifically, Senator Grassley has 

heard concerns about possible reductions in the number if aircraft 

flown into Iowa, which in turn could lead to reduced or eliminated 

service as well as higher prices. He is very concerned about that. 

As he has said before, ‘‘Competitive air service is directly related 

to the economic prosperity of smaller and rural communities. With 

a weakened economy, even the threat of route elimination, cutVerDate Aug 31 2005 12:13 Jul 02, 2008 Jkt 042877 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42877.TXT SJUD1 PsN: CMORC
21 

backs in service, or higher airfares can be extremely detrimental to 

these communities and their economic development.’’ 

Finally, he says, ‘‘Related to this issue is how the proposed 

Northwest-Delta merger will impact the regional partners of these 

airlines. Regional airlines have been a critical component in serving Iowa not only for air travelers, but also for jobs in our community.’’ He goes on about how Iowa is affected. 

So what he wants to know is whether the proposed merger will 

impact essential air service, AIS contracts, and continued service in 

Mason City and Ft. Dodge. You can take a crack at that, if you 

will, in answer to that question. 

Mr. STEENLAND. Let me take a shot at that, Senator. 

Between Northwest and Delta, we presently serve seven—actually, yes, seven cities in Iowa. Five are served exclusively by Northwest. They are: Sioux City, Ft. Dodge, Mason City, Waterloo, and 

Dubuque. We both serve Des Moines, but we serve them to different cities, and we both serve Cedar Rapids, and we serve them 

to different cities. So, there is no overlap. We serve our cities over 

Minneapolis. We expect the level of service to continue by being 

part of a more global network as a result of the merger. 

We would expect passengers coming out of these cities to have 

more service offerings. The regional carriers that largely provide 

these services will remain intact. We own two regional carriers. 

The merged carrier will continue to own them. And we have a longterm contract with another, and that will also remain in effect. 

Senator HATCH. OK. Thank you. 

Let me ask both of you, Mr. Anderson, and you, Mr. Steenland, 

according to the New York Times, Delta has raised its fare 6 percent year-over-year, and Northwest increased its fare by 2.9 percent from a year ago. However, as we all know, fuel prices have 

increased 28 percent or more on an annualized basis over the past 

5 years. 

Now, how do you respond to those who believe that this merger 

is a ploy to raise prices? Do you forecast a raise in your prices, and 

how much of a raise will it be in real terms, once you factor in inflation and fuel costs? 

Mr. ANDERSON. You know, as Doug stated in his testimony and 

I stated in my testimony, it’s really an end-to-end combination between the two carriers. 

Senator HATCH. Sure. 

Mr. ANDERSON. The industry is incredibly competitive. If you— 

we did an analysis and analyzed the number of city-pair markets 

on what airfares were 30 years ago compared to today. If you adjust for inflation, airfares are down about 30 percent since deregulation. It is an incredibly competitive marketplace, and it will stay 

an incredibly competitive marketplace. 

I think the issue that we face, which is separate and apart from 

this transaction, is I don’t think people have a fundamental appreciation for what fuel is going to do to this industry over the longer 

term. With crack spreads at $30 and a barrel of fuel at $115, there 

is—you know, we are selling 15 to 20 airplanes, you know, pretty 

large airplanes—you know, we are a pretty good-sized airline—15 

to 20 airplanes, simply because the fares have got to reflect the 

price of oil. 

22 

I don’t know how to run a business effectively if the main sort 

of commodity that you have to have to run the business goes up, 

and every other thing we do, we go to the gas pump to fill our car 

or pay our home heating bill, the utility company or the oil company charges us full price. We don’t do that for airline tickets. Over 

time, ultimately this industry has got to be able to recoup that in 

order to be successful. There’s just no other way to be able to do 

it. 

So far we don’t have any of the pricing power, and I doubt we’ll 

have the pricing power to be able to do that. So the way that we 

deal with it, is we take capacity out. In other words, as fuel goes 

up, more city pairs in the network become unprofitable and you 

drop those city pairs. So I think the biggest sort of issue you have 

with respect to service, separate and apart from this merger, which 

is when fuel is moving at these levels, flying that was economic to 

do at $60 a barrel isn’t economic to do at $120 a barrel, and that’s 

really the challenge that the industry faces. 

Senator HATCH. Well, let me just say to both of you, as I look 

at this merger—and I’ve been studying it pretty thoroughly -it 

seems to me that they are both complementary to each other and 

that this is a reality we’re going to have to face in the future. You 

know, there’s a lot of concerns about it, as there is in all mergers 

of huge industries. But unless somebody can show some real reasons why this shouldn’t go through, it seems to me that this may 

be in the best interests of air transportation in this country. 

But I’ll keep looking at it. Naturally, I want to listen to everybody. I’ve been in five ‘‘must do’’ things this afternoon and I have 

to leave right now for an interview, but I just want to personally 

express my regard for both of you and what you’re trying to do to 

keep our country competitive and keep our people and our country 

in the air, as needed. 

Mr. ANDERSON. Thank you very much. 

Mr. STEENLAND. Thank you for your support. 

Chairman KOHL. Thank you, Senator Hatch. 

Senator Cardin? 

Senator CARDIN. Senator Kohl, thank you very much. Thank you 

for conducting this hearing, and I thank the witnesses for being 

here. This is certainly an area of great interest. 

The information that’s been given to me concerning BWI Airport, 

which is the major airport in Maryland, is that there are 37 departures daily by the two carriers. None of the markets overlap, so if 

I am hearing your testimony, the people of Maryland should not be 

concerned because the service levels will be maintained. So, I start 

with that. 

But I am mindful of Mr. Mitchell’s admonition that this may lead 

to other changes within the airline industry, and am very concerned about the process that we go through to look at the competitive nature of the airline industry. 

So let me try to understand your logic here for a moment, because I am having a little bit of problems with the economics. If, 

in fact, the service levels are going to be maintained—and I understand, Mr. Anderson, your point about, whether there’s a merger 

or not, there’s liable to be changes because of cost issues. But as 

a result of the merger, if the service levels are going to be mainVerDate Aug 31 2005 12:13 Jul 02, 2008 Jkt 042877 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42877.TXT SJUD1 PsN: CMORC
23 

tained, the hubs are going to be maintained, you can’t do anything 

about fuel costs as a merged entity, it’s still going to be the same 

unit cost, so you mentioned two major areas. You might have some 

savings by closing a terminal building or doing your IT together. 

But help me with the math here. If you’re really going to—you’re 

not going to fire the front-line workers, and we’ll get to the other 

workers in a moment, where do we expect to do this great savings 

that’s going to make this combined entity much more efficient? 

Mr. ANDERSON. So take the stand-alone—the way you do a classic sort of synergy analysis in an M&A transaction is to take the 

two stand-alone plans and you put a series of assumptions in there 

on fuel and you put the fuel wherever it is, and you take the two 

stand-alone plans as a given. Then you analyze what benefits you 

create by putting them together that would be there—but for the 

combination would not be there. 

But start on the revenue side of the line. Some of these pictures—if we just put up any of—just put up any of these. In the 

airline industry there’s something called a QSI index, it’s called a 

Quality Service Index. It’s a very well-known, well-understood algorithm that calculates your passenger share of the marketplace. Because of code sharing and alliances, we have learned over time 

that, with the display in the CRS systems and the way product is 

distributed, when we connect these networks together we will get 

additional passengers that we didn’t have before. 

So in a city where we are both, for instance, serving a city like 

Los Angeles, we combine both of our schedules in Los Angeles, 

even though we go to different places, and we increase our local 

share of traffic in that market because we have greater presence 

and greater utility. That’s No. 1. 

Senator CARDIN. OK. 

Mr. ANDERSON. All right. Do you want me to keep going or do 

you want— 

Senator CARDIN. I understand that point, that you’re hoping to 

get greater passenger— 

Mr. ANDERSON. Yes. 

The second thing is, we create new online unique city pairs from 

end-to-end. You may not think that my example in the earlier 

hearing is, you know, we’re going to be one of the best ways to get 

from Lincoln, Nebraska to Key West, Florida, but every day there 

are many passengers that travel collectively from these different 

cities to other cities that, today, Delta does not serve or Northwest 

doesn’t serve. 

The best example I can give you of how this works is an effort 

we made when I was at Northwest in the Minneapolis/Amsterdam 

market, where we put together a code sharing arrangement with 

KLM in 1993. We started that with four flights as week, not even 

daily service. Today it’s three a day, with a 300-seat airplane. So 

you went from a market that didn’t exist to a much bigger market 

because you’re combining networks. 

Senator CARDIN. I think you’re answering my question. So one of 

the things that might happen as a result of this application, there’s 

liable to be conditions attached to this merger. It seems to me you 

are saying that you have little concern about a commitment to 

maintain your employment level, your employee benefits, your 

24 

service levels, your hubs. Those are issues that you, based on your 

assumption, would not produce the greater profitability that you 

envision by a merged company. Am I missing something on that or 

am I correct? 

Mr. ANDERSON. Well, except for the overhead. I mean, the overhead issue—you know, we do have to reduce the dual overhead of 

the two airlines. 

Senator CARDIN. And define ‘‘overhead’’. 

Mr. ANDERSON. You have two public companies. 

Senator CARDIN. These are the non-front line employees? 

Mr. ANDERSON. Right. Non-front line. 

Senator CARDIN. So they’re not being protected. Just so I understand. 

Mr. ANDERSON. Right. 

Senator CARDIN. OK. So I understand what you’re saying there. 

Now, Mr. Steenland, let me ask you a question, and I’ll come 

back to Mr. Anderson in a moment. That is, can you give us an explanation why the pilots and other workers and unions are much 

more hostile in Northwest toward this merger than those at Delta? 

Mr. STEENLAND. I guess I’d answer that two ways, OK? First, 

let’s talk about the pilots. OK. Normally in an airline merger transaction, as these deals have been done in the past, the transaction 

gets announced, you wait until closing, and at that point in time 

the effort is under way to take the pilot contract—and let’s just use 

the Northwest-Delta example, the Northwest pilot contract, the 

Delta pilot contract—and negotiate a single agreement, and then to 

take the two seniority lists and merge them together. 

Senator CARDIN. On the seniority lists, you have the U.S. Air and 

America West merger. They never seemed to be able to get that 

worked out. 

Mr. STEENLAND. Right. 

Senator CARDIN. Are you concerned that you can work that out? 

Mr. STEENLAND. Well, we undertook an effort to try to do that 

differently this time. And so at the request of both pilot groups, 

during the negotiation of the transaction the pilot groups got together, worked on negotiating a new pilot agreement, and worked 

on negotiating a combined seniority list. A new pilot agreement 

was, in fact, reached, but the pilots, working between themselves, 

were unable to get to a new seniority agreement. If that had happened it would have been revolutionary. That never would have— 

that has never happened before in airline mergers. 

We went ahead and announced the transaction, but in announcing it indicated that we were prepared to go forward and to continue that process and to try to get the seniority list finished and 

a combined agreement completed prior to the closing, which would 

also be precedent-setting. The two pilot groups are working on 

that. They issued a statement the other day indicating that that 

was the case, and we are confident that, if everybody is acting in 

good faith, that we will, in fact, be able to do that. 

Senator CARDIN. Prior to closing. But how about prior to the 

DOJ’s review? 

Mr. STEENLAND. Well, the DOJ’s review would have to occur, and 

then the transaction would close. 

25 

Senator CARDIN. I understand that. But it would be, I think, 

helpful if there was an agreement between the pilots. 

Mr. STEENLAND. Well, we agree. 

Senator CARDIN. Prior to the completion of the DOJ process rather than the closing. 

Mr. STEENLAND. Yes. Well, it will be almost simultaneous if that 

happens. 

Senator CARDIN. And you’re optimistic that that will happen? 

Mr. STEENLAND. We will certainly use our best efforts to try to 

bring that about. 

Mr. ANDERSON. I’m an eternal optimist. 

Senator CARDIN. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Cardin. 

Senator Schumer? 

Senator SCHUMER. Well, thank you, Mr. Chairman, for holding 

this timely hearing. I’d like to say to Mr. Anderson, you wouldn’t 

have the job you did unless you were an eternal optimist. [Laughter.] 

Mr. ANDERSON. You probably wouldn’t either. [Laughter.] 

Senator SCHUMER. That is exactly what I was thinking. You beat 

me to the punch. I was going to say, neither would any of us. 

[Laughter.] But in any case, it’s good to be here, and I thank you 

for coming. 

I want to really thank Chairman Kohl. He’s always on the ball 

with these things, and this is a timely hearing and very much appreciated. 

Let me tell you my basic view. I generally think that our antitrust policy has been too weak. I think we’ve seen too much consolidation. Even in the airlines industry, mergers in general don’t appeal to me. I am worried that we’ll only have three or four big carriers. 

However, my preliminary review of this merger is that it’s a good 

one. I will not sign off on it yet. We have a lot more to explore. 

But I think that because there’s very little overlap in the service 

between Delta and Northwest and because of the changing conditions in the airline industry, as I said, on first glance it makes 

some sense. The negatives seem more benign than in other instances and the positives seem more real. Obviously with the dramatic increase in fuel costs, fuel costs really are a game changer 

that affects, I think, how one would view this deal, because the 

need to provide efficiencies to make up for the dramatic increase 

in fuel costs is kind of large. 

Having said that, some of the other airlines that might merge 

simply to eliminate routes and eliminate competition, you have 

very little overlap of competition and would worry me a great deal. 

So, I don’t think anyone who supports this merger does not—it 

does not necessarily indicate you’d support a general merging of 

the airline industry. 

I have two caveats here that I want to be careful with and I want 

to put on the record before I ask questions. First, I think it’s very 

important that labor have a seat at the table here. I know that 

some of Northwest’s pilots feel that they have not been adequately 

involved in the talks about the merger, so I signed a letter with 

26 

Senator Kennedy and others to make sure labor interests from both 

companies were heard and respected. 

Second, and this is vital to me, I worked very hard to bring good 

air service to Upstate New York. We had terrible service 10 years 

ago, and I helped bring some of your competitors to New York, particularly Jet Blue and Southwest to Upstate, and they make money 

on those routes because they were so under-served. 

We met, Mr. Anderson and I did, yesterday. We went over it city 

by city, and it seems that the effects will be either positive or neutral in terms of both flights, number of flights, where they go, and 

jobs. I’m going to hold Delta to that, and that is key to, at least 

for whatever it’s worth, my view and my support on this. I know 

you’re going to get back to me in writing on the things we discussed, Mr. Anderson. 

But, first, to just make it clear, it did seems as we went through 

all of the New York State areas that there would not be a cut-back 

in service or in jobs as a result of this merger. Is that correct? 

Mr. ANDERSON. That’s correct. 

Senator SCHUMER. OK. 

Second, I would like to ask either you or Mr. Steenland about the 

first question, unless you’ve answered it, because I came in late, 

about the pilot situation. 

Did you answer that already? 

Mr. ANDERSON. We did, but I will— 

Senator SCHUMER. You don’t have to go over it. I’ll look at the 

record. I don’t want to take people’s time, as long as that’s been 

brought up. 

Third, could you comment—one other point I want to make. So 

jet fuel is—you guys are hollering about that, as you should. So is 

the average motorist who drives around Rochester, New York, or 

any other part of New York State. 

But frankly, we have had a policy for 7 years that’s done nothing 

about this and the chickens are coming home to roost. Frankly, we 

don’t hear a peep out of industry. We hear it when you come talk 

to us, but when some of us say we have to change our policy the 

President’s basic view—it’s no secret—is, what’s good for big oil is 

good for America. It’s sure not good for Delta Air Lines, Northwest 

Airlines, or the airline industry. 

Yet—maybe because of solidarity among businesses—we don’t 

hear anything from you all. I think that’s got to change in the 

whole transportation industry, not just the airline industry, in 

terms of this. Sitting at your seat, Mr. Anderson, a year or two ago 

was Mr. Rex Tillerson, then the newly installed—I think it was at 

a hearing that you called, Mr. Chairman—head of Exxon-Mobil. He 

said, we don’t believe in alternative energy. That’s what he said. 

And, you know, jaws dropped. But basically through the friendship 

of the President and the administration, we don’t have an alternative energy policy, despite the fact that, as I look at my four colleagues here, every one of them, including myself, we pushed hard 

for it. 

We need your help in that. We need you to speak out and we 

need you to speak out on specific policies. Oil companies get royalties that they got when oil was $19 a barrel to encourage them to 

explore. They don’t need them at $120, whatever it is today, a barVerDate Aug 31 2005 12:13 Jul 02, 2008 Jkt 042877 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\42877.TXT SJUD1 PsN: CMORC
27 

rel. But when we try to change them, the Chamber of Commerce 

doesn’t support us. Now, I understand the oil company is a part of 

the Chamber of Commerce, but neither do we hear from anybody 

else in business, and most of whom are affected negatively. 

Would you comment a little on any of the things I said, because 

my time is running out? 

Mr. ANDERSON. Well, OK. I have, in the past 6 months, at a 

speech at the FAA Forecasting Conference about 6 weeks ago, 

made the very clear statement that jaw-boning OPEC is not an energy policy and that this industry suffers because we haven’t had 

an energy policy in this country. 

Now it’s not just airlines. It’s going to fundamentally change the 

fabric of how people live because many people live far away from 

where they work, and we’ve all grown up with two cars and our 

parents working far away from where we lived. That’s going to 

change. So, perhaps our voices haven’t been loud enough, but we 

have taken at Delta, and I know Northwest has taken a public position in that regard, that’s been critical for the lack of an energy 

policy. 

Senator SCHUMER. But, sir, we need your help on specific issues, 

for instance, the royalty issue. I mean, you know, I know that some 

of your confreres in the oil industry don’t like it. Or when we say 

that, you know—well, there are a whole variety of policies and we 

need—rather than saying we need a new energy policy—everyone 

says that except Mr. Tillerson— 

Mr. STEENLAND. Senator, as an industry we went on the record, 

I think it was last week, and took the position that we should stop 

filling the Strategic Petroleum Reserve at $120 a barrel. 

Senator SCHUMER. Right. 

Mr. STEENLAND. We had the chairman of the trade association 

testify. We said that’s a terrible thing to do. It’s just simply forcing 

up price, and we ought to stop right now. 

Senator SCHUMER. Right. Right. OK. 

Any other comments on anything I said? Because my time is up. 

Mr. STEENLAND. No, sir. 

Senator SCHUMER. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you, Senator Schumer. 

Senator Feingold? 

Senator FEINGOLD. Well, first I’d like to, of course, thank the 

senior Senator from my State of Wisconsin and Chairman of the 

Subcommittee for calling this important hearing. I share Senator 

Kohl’s concerns and questions about how the proposed merger will 

affect the prices paid and the routes available to the flying public. 

From the written testimony, the companies estimate that the merger will result in ‘‘over $1 billion in annual synergies.’’ While there 

could be savings from consolidation of headquarters and from more 

efficient allocation of planes, I fear that ‘‘synergies’’ may also be a 

euphemism for increased cost and reduced service in the long run. 

So these are obviously serious concerns for my constituents, and 

particularly the ones that read a recent Milwaukee Journal Sentinel article headlined ‘‘Northwest-Delta Deal Could Yield Fewer, 

Costlier Flights Around State’’. And the impact would not just be 

felt in Milwaukee where Delta and Northwest currently compete. 

28 

The merger would also mean one fewer competitor in Green Bay, 

Appleton, and Madison. 

Smaller communities could be particularly vulnerable. For example, Appleton, Wisconsin is currently served by only four airlines, 

including Delta’s Comair service to Cincinnati and Atlanta, and 

Northwest’s Airlink to Minneapolis and Detroit. Despite the companies’ expressed desire to retain all service, there is speculation that 

service to some of the network hubs will be reduced. 

Specifically, Standard & Poor’s suggests that some Cincinnati 

and Memphis hub traffic may be shifted to Detroit or Atlanta, respectively. That could leave my constituents in Appleton facing the 

very real possibility of fewer airlines, less competition, higher 

prices, and fewer destinations. 

Mr. Chairman, I’m also concerned about the impact this proposed 

merger would have on employees at Northwest and Delta Air 

Lines. A number of employees have expressed doubt that the proposed merger would improve their working environment. The machinists union, which represents thousands of employees at Northwest, has said ‘‘we firmly believe that this merger is not in the best 

interests of passengers, employees, and the communities these airlines currently serve.’’ 

The Association of Flight Attendants—CWA, which represents 

thousands of Northwest flight attendants, and is working to organize thousands of Delta flight attendants has expressed concern 

that, while the executives of both companies have promised employees will not be laid off, the companies have refused to ‘‘put that 

commitment in writing’’. 

The Northwest Pilots Union has also voiced concerns about the 

fact that Delta and Northwest engaged the Delta Pilots Union in 

reaching a merger deal, while leaving the Northwest Pilots Union 

out of further discussions to date. 

The fact that these concerns have not yet been addressed troubles me. All employees and their bargaining representatives must 

be included in pre-merger discussions, and I hope that the companies make a concerted effort to reach out to these employees and 

their representatives in the coming days and weeks. 

I understand that Senator Kohl has already asked some questions with regard to Midwest Airlines. I will not ask additional 

questions on that topic now, but I of course want everyone to know, 

and to have the record reflect, that I share Senator Kohl’s concerns 

and support for our home State airline. 

Now, Mr. Anderson, in your written testimony you state, ‘‘...We 

have provided a written commitment to honor the existing Northwest collective bargaining agreements, consistent with applicable 

law, until any post-merger representation issues are resolved.’’ 

The fact that you have provided this written commitment indicates that you may be unable to integrate the Delta-Northwest 

work forces prior to the approval of the proposed merger, and that 

you may have various work rules in place should the merger go forward. 

Various employees have voiced concern that differing work rules 

could cause resentment among employees and potentially result in 

less cooperation in a newly merged company. If you’re not able to 

fully integrate the different employee groups at Northwest and 

29 

Delta, how do you plan to realize the synergies and the so-called 

‘‘substantial cost savings’’ that you and Mr. Steenland have testified about today? 

Mr. ANDERSON. Well, the process under the Railway Labor Act, 

where you have two separate groups of employees, we have a legal 

obligation to—and really a moral obligation—honor those collective 

bargaining agreements until the National Mediation Board completes a determination of a single carrier and completes a representation—resolves the representation issues between the two carriers. 

So we have a legal obligation to do that. Our hope is that we’re 

going to be able to get that done with the pilots in pretty quick 

order. 

Senator, to give you just a little bit of background, the way it’s 

historically been done in the airline business is the merger is announced, goes through the approval process, and is closed and then 

the process commenced. So if you go back to the North Central 

merger and the Republic merger, that’s how it’s always happened 

in the industry. What we tried to undertake with our pilots, the 

two pilot groups, was very unusual. We think we can get that done. 

I’m optimistic that, between now and the time that we close this 

transaction, that we’re going to be able to get that done with the 

pilot groups. 

With respect to seniority protection, it’s both Federal law, it’s a 

provision in the merger agreement, and it is included in the resolutions of the company at Delta, so we have very clear protections on 

Allegheny-Mohawk seniority integration on the front line. 

Last, we set aside a very significant portion of equity in the new 

company for the employees so that the employees share in the benefits that get created by the transaction. So, we believe that ultimately it provides a more stable place. As I said earlier in my testimony, the only true job security in the airline business is working 

for a financially stable and durable airline. 

Senator FEINGOLD. Mr. Steenland and Mr. Anderson, I understand that both Delta and Northwest have affiliates that provide 

services as part of their networks. What are the plans with regard 

to the regional jet service? Are there any plans to merge their operations or shift capacity? 

Mr. STEENLAND. Northwest owns two regional carriers, Masaba 

and Compass. We have a long-term contract with a third carrier 

called Pinnacle. We have, as a result of this merger, no plans to 

change those arrangements. Those three airlines will remain providers of regional service. There might be some back-office functions that get made more efficient, but in terms of a separate entity 

continuing to operate the regional service that we provide, there 

will be no change. 

Senator FEINGOLD. Mr. Anderson? 

Mr. ANDERSON. And we have a wholly owned subsidiary called 

Comair, which is based in Cincinnati and operates a significant 

number of flights out of Cincinnati and JFK, and no change in that 

regard. 

Senator FEINGOLD. Thank you, Mr. Chairman. 

Chairman KOHL. Thank you very much, Senator Feingold. 

Mr. Anderson and Mr. Steenland, many airline analysts expect 

that the Delta-Northwest deal is just the first merger in a massive 

30 

wave of consolidation in your industry. Indeed, it has been widely 

reported in the press that other major airlines are in merger discussions as we speak. 

Well, the now six major network airline competitors may soon be 

down to four, or even three, legacy carriers dominating our skies, 

and so consumers may be left with little or no competition on many 

routes, with the remaining large airlines carving up the country. 

In your view, Mr. Anderson, what’s the minimum number of legacy airlines necessary for a competitive market? Would three be 

enough? Would two? Would you like to have it all to yourself? 

Mr. ANDERSON. I’m not that optimistic. [Laughter.] You know, 

that’s a really hard question to answer. You know, I’ve just been 

focused on this one. We’ve been focused on this one because, in a 

classic analysis, a classic combination analysis under the U.S. antitrust laws when you just look at the Herfindahl-Hirschman Index 

and you look at the overlap and the lack of overlap, this transaction is a transaction that should be approved. 

I would note the good point that was made by the Professor down 

at the end of the table, that the legal analysis is to look at each 

of these on a stand-alone basis. I think Mr. Schumer may have had 

it right, which is, this is the right transaction. It passes antitrust 

muster. That doesn’t necessarily mean anything that follows on 

would pass antitrust muster. So, focusing on this one, this one 

should be approved. 

Mr. STEENLAND. I also think, Senator, we can’t forget Southwest 

Airlines is out there. They remain the largest airline in the United 

States. They have 20 percent market share. In addition to Southwest, we have Jet Blue, we have AirTran, we have a recent new 

entrant in the form of Virgin America, and entry in this industry 

historically has not been a problem. There is ample access to gates, 

facilities. Aircraft historically, particularly in times when the manufacturers have been wanting to keep their assembly lines going, 

have been easy to finance and so it’s an industry where entry is 

available, and historically there has been no lack of it. 

Chairman KOHL. OK. Yes. Mr. Mitchell, then Dr. Bush, would 

you respond? 

Mr. MITCHELL. Well, I think that the main point here is that this 

transaction is going to lead to additional transactions, which will 

not solve the airline industry’s problems at all, will cause tremendous difficulties for consumers, not just on the pricing side, but on 

the customer service side. Republic-Northwest took close to 8 years 

after that merger to get customer service levels back to an acceptable level. Most consumers today would say we’ve hit the floor in 

terms of customer service, very broadly defined: cancellations, 

delays, no middle seats, employees looking over their shoulders for 

the next shoe to drop, et cetera, et cetera, et cetera. If we see the 

industry collapse from six carriers down to three, virtually all at 

the same time, this will make the Republic-Northwest merger look 

like a walk in the park and we will go below the floor, we’ll go into 

the basement, and it will not be for 8 years, it will be for a long 

time after. 

I do not buy into the benefits of this merger at all. The evidence 

has not been put forth in any kind of quantitative way, and the 

31 

structure of the industry will be forever changed, to the detriment 

of the consumer and our economy. 

Chairman KOHL. Yes, sir. Dr. Bush? 

Mr. BUSH. The interesting thing about merger is they’re much 

like marriages. It is very interesting that in times of trouble, it’s 

always nice to have someone to go along in those times of trouble 

with, but it doesn’t necessarily make sense. When you look back at 

the history of the airline mergers and you look at the economic literature, the history—that literature demonstrates that they are 

typically bad marriages for both consumers, and they do not 

present the synergies, or as we call them efficiencies, that the companies purport. Rather, what they tend to do is they tend to cause 

consumer injury. 

So when we are looking to save our companies by getting them 

bigger to face international competition, which I find ironic, given 

that they also said that they’re having their lunch handed to them 

by LCCs which are not big companies, I think they’re really tilting 

at windmills, or perhaps airline turbines, because in fact they 

aren’t going to receive those synergies. What you’re going to have 

is increased consolidation, follow-on mergers because of that consolidation whether or not those mergers make sense. 

So you will be left with something like maybe three systems, and 

that is problematic because I’m not convinced that this merger— 

we don’t have enough evidence that this merger is pro-competitive. 

We don’t have any evidence this merger is pro-competitive. We 

have no evidence of efficiencies. We have serious problems with respect to overlap. This is not necessarily an end to end. There are 

systems-based competition issues here, and therefore this merger 

requires deeper analysis. 

Chairman KOHL. Now, if I understand the two of you, it’s your 

judgment that this merger, as well as others that are contemplated, the two primary things that are likely to occur is that 

prices are going to go up and service is going to go down. Now, I’m 

sure that Mr. Anderson and Mr. Steenland would not see that as 

the two major characteristics of this merger, is that right? 

Mr. STEENLAND. That’s correct. 

Mr. ANDERSON. That’s correct. 

Chairman KOHL. We’re not going to resolve that today, are we? 

Mr. ANDERSON. No. 

Chairman KOHL. You both have pretty strong opinions on this, 

don’t you? 

Mr. ANDERSON. Yes. [Laughter.] 

Chairman KOHL. An expressive person. I appreciate that, Mr. 

Anderson. We all do. 

Yes. Ms. Klobuchar? 

Senator KLOBUCHAR. Thank you very much. 

I just want to followup, Mr. Anderson, on some things that your 

predecessor said—I mentioned them in my opening statement—at 

a 2007 Commerce Committee hearing on U.S. Air’s proposed takeover of Delta. As you know, that proposed merger went down a few 

weeks later. Former Delta CEO Gerald Grinstein touched on concerns that Chairman Kohl was just mentioning about this consolidation and what it would mean. 

32 

He said, ‘‘In terms of service to small communities, are you better off with six network carriers or are you better off with three? 

Are you better off having those network carriers fiercely competing 

with each other, trying to get into those markets?’’ Then a few sentences later he said, ‘‘If you approve one merger, how are you going 

to say no to other carriers? You will devolve into three network carriers, and once that happens you won’t get the same level of service.’’ 

Do you want to respond to that? 

Mr. ANDERSON. That was in the context of a hostile U.S. Air had 

made a hostile takeover attempt of Delta Air Lines, and that hostile takeover attempt required the company to do everything it humanly could to try to fight off the hostile takeover attempt. 

Through the help of Congress and the Creditors Committee and the 

Bankruptcy Court, they were successful in doing that. 

In that same testimony, Mr. Grinstein also said he’s not opposed 

to mergers, he was just opposed to bad mergers. The U.S. Air 

transaction was a bad merger because there was a lot of overlap 

between the U.S. Air network and the Delta network on the East 

Coast. 

Senator KLOBUCHAR. But one of the reasons given for airline deregulation was that we would have more competition, and that 

would bring lower fares. Would you agree that if you had more 

competition you’d have lower fares? 

Mr. ANDERSON. The evidence on deregulation is compelling. Just 

any fare study would show that the real average airfares in the 

United States have gone down and the amount of service has gone 

up. 

Senator KLOBUCHAR. With the number of competitors. 

Mr. ANDERSON. Well, there’s been an awful—there’s free entry. 

There’s free entry, and unfortunately not free exit in this business. 

There will always be free entry and exit. Virgin America is the 

most recent new entrant into the domestic market. You don’t have 

real constraints at any of the airports where we operate in terms 

of access. Airplanes are the most easily financed assets in the 

world because you can always find them, you can always move 

them to a different market, and there’s always a known value for 

them. 

So no barriers to entry, free entry into the marketplace, and 

that’s not going to change. I mean, Southwest still carries 30 percent of the passengers and that’s not going to change after this 

transaction is approved. 

Senator KLOBUCHAR. You know, speaking of Southwest, we were 

talking about the higher fuel prices. You have argued, both of you, 

that this bigger mega-merger would better able you to cope with 

these fuel prices, but it doesn’t seem like all airlines agree. The 

CEO of Southwest told the Wall Street Journal last week that his 

airline’s best course of action ‘‘could very well be to sit on the sidelines and let others combine.’’ Other airlines like Jet Blue and 

Southwest have been subject to these same fuel increases, yet they 

haven’t seemed to have made that decision. 

Mr. STEENLAND. Senator Klobuchar, Southwest is in the enviable 

position of having made an extraordinarily successful bet—and I 

underline bet—in terms of fuel hedging. So for this year, 2008, I 

33 

believe it’s 75 percent of its fuel needs are hedged at about $52 a 

barrel. So they have been spared the tremendous run-up, and it’s 

part of the competitive challenge we face because obviously, you 

know, they’ve got a benefit in that—on that side and we don’t. But 

that’s just the way the free market works and that’s the way competition works. 

Senator KLOBUCHAR. OK. Then my last question here is another 

quote from your predecessor, Gerald Grinstein, at this hearing, 

where I still remember he was arguing vigorously not to have this 

merger. He expressed a concern that during merger negotiations all 

airlines will promise to keep service and maintain current levels of 

employment. Then, in his words, ‘‘there is no one to enforce’’ those 

promises. He said that airlines’ promises are ‘‘not a contract, is it? 

Believe me, trust me.’’ 

You have made commitments today to all of these Senators, and 

under oath, of keeping jobs, hubs, and service. Is it possible, however, that you would come back a year or two from now and say 

changed circumstances have forced you to change your tune? 

Mr. ANDERSON. The issue is going to be fuel. Tell me where fuel 

will be. And this merger will not be the result of having to make 

a dramatic change, but whether these carriers merge or not, fuel 

is going to be the determinant of what capacity is going to be in 

this country and what airplanes are going to fly where. That is 

going to be the case before or after the merger. 

Senator KLOBUCHAR. So it is possible that you’d come back and 

say that? 

Mr. ANDERSON. It’s going to depend upon fuel prices, but it won’t 

be the result of this merger because the merger is end to end. 

Senator KLOBUCHAR. The last thing is, I hope that you will join 

us, as Mr. Steenland mentioned with oil reserves, with some of the 

things that Senator Schumer and I have been trying to do with 

changing our energy policy, because we clearly can’t keep going the 

way we’re going. 

Mr. ANDERSON. I agree. 

Senator KLOBUCHAR. Thank you. 

Chairman KOHL. Thank you very much, Senator Klobuchar. 

Before we end the hearing, just on the cost of fuel, you think 

about it all the time, gentlemen. That’s the primary thing in your 

business. Why is the price of oil, the price of fuel going through the 

roof, other than China and India, which of course is a part of it? 

But there must be a lot more. What’s going on, can you tell us? 

Mr. ANDERSON. Well, I think there are two factors. One, part of 

that increase is refining capacity in the United States. We haven’t 

added any refining capacity in the United States. In fact, I saw 

some statistics recently that our refining capacity, actual capacity, 

has been going down. 

The second thing is, there’s an enormous amount of financial 

speculation. Because of the issues in the bond and stock market, 

a lot of investment has moved to commodity markets. So you see 

it with corn prices, wheat prices, gold prices, oil prices. Oil has had 

a flood of just not people like airlines that are buying it, but people 

that are just commodity traders. 

Chairman KOHL. Some people are making a ton of money. 

34 

Mr. ANDERSON. Yes. The third factor, Senator, is the weak U.S. 

dollar. So oil is priced in dollars— 

Chairman KOHL. Right. 

Mr. ANDERSON.—and oil-producing countries do not want to bear 

the devaluation risk or face what they would face if prices had historically stayed in supply/demand limits with them taking dollars 

at the weaker international level that they’re now at. So there is 

a clear correlation between how the dollar trades and how oil 

trades. 

Chairman KOHL. And isn’t it also true that you can speculate in 

this market with very small amounts of money, 5, 6 or 7 percent 

margin? 

Mr. STEENLAND. Margin requirements are clearly less than what 

they would be if you play in the equity markets or something like 

that. 

Mr. ANDERSON. Right. Because we do that. We hedge. Delta, in 

the past 6 months, we’ve had to, you know, spend a fair amount 

of money to hedge fuel. The margin calls are a lot less than the 

margin calls if you’re in a bond or a stock. 

Chairman KOHL. Well, if we really want to do something about 

this—not that this is the only thing—one thing that we know is 

that if the margin calls were much, much bigger than they are 

now, that would reduce speculation by a ton, wouldn’t it? 

Mr. STEENLAND. I think you’d want to make sure that that was 

done across all markets, because if the United States just took that 

position, oil trades in Singapore, oil trades in London— 

Chairman KOHL. Absolutely. 

Mr. STEENLAND. But if it was across the board it would have a 

very positive impact on reducing oil prices. 

Chairman KOHL. So would it benefit our collective societies 

around the world if people at the top of the ladder in government 

would get together and do just that? 

Mr. STEENLAND. Yes. 

Mr. ANDERSON. Yes. 

Chairman KOHL. And they should. 

Mr. STEENLAND. We agree. 

Chairman KOHL. All right. 

Mr. ANDERSON. Are we optimistic about that? 

Chairman KOHL. That it will happen? I don’t know. But you’re 

being very clear— 

Mr. ANDERSON. We’ll work with you to try to bring that about. 

Chairman KOHL. Well, why would people at the top of government collectively not want to do that? 

Mr. STEENLAND. If you look at—I think it’s called the paper 

trades, which is basically people not actually taking delivery but 

simply trading as a trading mechanism, the volume of that has 

skyrocketed over the course of the last 12 to 24 months. 

Chairman KOHL. Huge. 

Mr. STEENLAND. Yes. 

Chairman KOHL. So would you like to make another comment? 

Senator KLOBUCHAR. No. 

Chairman KOHL. We want to thank you all for being here today. 

It’s been very useful, very helpful. I’m sure we’ve not heard the last 

word on this. 

35 

Before I close the hearing, very briefly I’d like to enter into the 

record statements from the Association of Flight Attendants, Memphis and Minneapolis Chambers of Commerce, and the International Association of Machinists & Aerospace Workers. 

We thank you, one and all, for being here. This hearing is concluded. 

[Whereupon, at 4:17 p.m. the hearing was adjourned.] 

[Questions and answers and submissions for the record follow.] 

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