From a modern perspective, the combination of the NKP and the Southern Tier Mainline makes perfect sense as a through route for NS. However, there other factors in play during the '60s and '70s that made sense to keep the EL mainline at that time. According to H Roger Grant's Erie Lackawanna: Death Of An American Railroad 1938-1992, the EL main was 2nd only to the NYC's Water Level Route in terms of speed between Chicago and the East Coast. The N&W/LV combo was several hours slower, which I suspect had at least something to do with congestion in Buffalo. Speaking LV, they had partnered with N&W on the Apollo and Mercury trains, so it may also be the N&W didn't want to put all of its eggs into one proverbial basket. And by keeping EL at arm's length in a subsidiary (DERECO), the Norfolk & Western could shield itself from EL's losses.. .which was probably a prudent move to protect N&W 's stock value.
"It is highly likely that the 1990s were an overrated decade."