Airlines in free fall

The announcement that Delta (DAL) and Northwest (NWA) are finally getting on with their long-planned merger doesn’t exactly have airline investors doing cartwheels. Airline stocks were losing altitude Tuesday in a big way, with Delta down 13%, Northwest off 9% and UAL (UAUA) and Continental (CAL) - seen as potential partners in the next round of consolidation - each down 5%. Fortune’s Barney Gimbel points out that making a Delta-Northwest deal work is “certainly no slam-dunk,” as the new Delta will see its costs rise without any clear way of boosting revenue.

Meanwhile, the online travel agents are faring better, with Expedia (EXPE) and Orbitz (OWW) up modestly and Priceline (PCLN) down about 1%. This despite a note out this morning from Stifel Nicolaus saying the consoldation will hurt the online travel agents, or OTAs.

“Based on our analysis, we believe the Delta-Northwest merger and the airline closures will result in a one-time negative domestic revenue impact at the OTAs of 2% to 2.5%,” writes analyst George Askew, who rates the travel agencies hold. “Second, we believe demand for OTA services as a travel aggregator diminishes as airlines merge. We believe this impact is compounded as the airlines become increasingly web savvy and attract more users.” While that may indeed happen, right now savvy doesn’t seem like a good word to apply to the airlines in any context.