Following months of talks, Delta Air Lines and Northwest Airlines announced yesterday (14 April) they have agreed a merger deal in which they will combine to create a new airline – Delta – worth $17.7bn (£8.9bn).

The consolidation comes as oil prices have doubled since early 2007 – fuel is the highest single expense for the carriers - and competition grown much fiercer as US routes are opened up to European carriers under Open Skies.

Delta’s world headquarters will be in Atlanta, but there will be a commitment to retaining ‘significant’ jobs, operations and facilities in Minnesota. No hub closures are currently planned – they include Cincinnati, Detroit, Memphis, Minneapolis St Paul, New York JFK and Tokyo - and the company says passengers will benefit from the world’s largest frequent flier programme across its expanded network of 390 destinations in 67 countries.

More than $1bn is expected to be saved every year through merging costs and operations, with reduced overheads and improved efficiency – although integration is expected to cost around $1bn. Delta will employ around 75,000 worldwide, operating a fleet of 800 aircraft with more than $35bn in aggregate annual revenues.

As well as regulatory approval, the merger needs the blessing of Delta and Northwest shareholders – the latter will receive 1.25 Delta shares for each Northwest share.

Delta pilots will vote on a 3.5% equity offer in the new company under an agreement between the airline and its pilot union, but the integration of Northwest’s 5,000 pilots into Delta’s 6,000 could well sour the deal, with issues of job seniority a major potential stumbling block – and a reason the merger has taken such a long time to take off.

Delta CEO Richard Anderson – who will become chief executive of the combined company – said: “We would only enter into a consolidation transaction if it was right for all of our constituencies; Delta and Northwest are a perfect fit.

“We’re announcing a transaction that is about addition, not subtraction, and combines end-to-end networks that open a world of opportunities for our customers and employees.”

Northwest CEO Doug Steenland added: “The new carrier will offer superior route diversity across the US, Latin America, Europe and Asia and will be better able to overcome the industry’s boom-and-bust cycles.”

Both airlines are SkyTeam Alliance members, and this move should accelerate a joint venture with fellow members Air France and KLM, creating a broader global network better connecting key global business centres – therefore gearing it up to grow in the highly lucrative corporate travel sector.

In the US, Delta will connect around 140 communities to the global marketplace – more than any other airline, it says.

“Together, we will have a more robust platform for profitable international growth,” said Delta president and chief financial officer Edward Bastian.

“Combining both carriers’ international and domestic strengths, with our worldwide SkyTeam partners, we are well positioned to lead the industry and deliver value to our shareholders.”

A strong balance sheet will permit the combined airline to invest in its fleet, with accelerated upgrading of existing aircraft with lie-flat seats, and the opportunity to exercise options for buying 20 widebody jets by 2013 to provide better international service. Other improvements could include better bag-tracking technology and refurbished cabins.

There has been speculation ticket prices could go up, but the carriers say the move is pro-competitive as there is little overlap in routes the two serve, with direct competitive service on only 12 of more than 1,000 nonstop rotations.

Delta was the third-largest US airline and Northwest the fifth. Their merger could pave the way for other American carriers to join forces, notably United and Continental.