Why merger mania is set to sweep the airline biz

US Airways CEO Doug Parker's surprise $8.4 billion bid to buy Delta was merely the first in a series of recent takeover talks.

By Telis Demos, Fortune reporter

(Fortune Magazine) -- US Airways CEO Doug Parker's surprise $8.4 billion bid to buy Delta was merely the first in a series of recent takeover talks.

1 Who's looking to buy whom - and why? US Airways' Parker says a merger with Delta could save his company $1.65 billion a year. United is talking to Continental, coveting its Texas routes and lucrative terminals at New Jersey's Newark airport. AirTran is bidding for Midwest to help expand its Southeastern U.S. low-cost model northward. Wall Street sees Northwest and Air Alaska as great pickups for the national carriers.

2 Why merge now? Airlines have long wanted to slash costs by combining routes, hubs, and marketing. But regulatory approval was considered a long shot, and financing was scarce. The 2005 merger of US Airways and America West showed it could be done. Thank JetBlue and new discounters for proving the industry is still viable and competitive.

3 If it's such a good idea, why is Delta spurning a deal? As Delta exits bankruptcy $5 billion leaner and with a better labor agreement, it's excited about its chances in an airline market projected to be very profitable in 2007. Future years, however, might change Delta's tune. "There needs to be consolidation, or the next downturn will hit the industry hard," says S&P's Jim Corridore.

4 Will fares rise? Discounters will keep some tickets cheap. But in markets where the only two players merge, expect increases of about $100 a seat.  Top of page