Jeff Gelles: Likeliest upshots of airline merger: Higher fares, fewer choices

When US Airways and American Airlines merge, fliers may see little effect at first. But less competition could push fares up.
When US Airways and American Airlines merge, fliers may see little effect at first. But less competition could push fares up. (AP)
Posted: February 16, 2013

Look past the cheerful talk about synergies, efficiencies, and new global connections for Philadelphians. For the passengers paying the freight, the most likely long-run effects of a merger between US Airways and American Airlines will be higher fares and fewer choices.

The good news? Those predictable effects of reduced competition may be countered on some routes if new carriers jump into the fray. And they won't happen right away - not till after the equally predictable headaches of marrying the two airlines' jet fleets, computer systems, and corporate cultures.

There is plenty to cheer in a new mega-American Airlines, the leading international carrier that will emerge if the $11 billion deal goes through. Some airfare analysts expect the merger's consumer benefits to outweigh harms. But others - including some vocal critics of airline consolidation - see worrisome clouds on the horizon if the antitrust division of the U.S. Department of Justice approves the deal as planned.

How quickly will things change? In the short run - say, the next 12 to 18 months - consumers will probably see little effect, said Kevin Mitchell, chairman of the Radnor-based Business Travel Coalition.

"The first thing travelers will see is a lot of integration problems, as we saw last year with Continental and United," Mitchell said. In one incident, "entire banks of flights just went off the grid."

But after that, he said, he expects prices to rise as the new airline faces off against three equally powerful mega-airlines.

Two are descendants of earlier mergers among so-called legacy carriers: Delta, which absorbed Northwest, and United Continental.

The third is Southwest Airlines, which itself swallowed AirTran Airways. Southwest created a niche as the prototypical "low-cost carrier." When it entered a route previously dominated by a legacy carrier or two, its downdraft on prices was dubbed the "Southwest effect."

But in a white paper he cowrote last summer with Diana L. Moss, Mitchell, vice president of the American Antitrust Institute, warned that Southwest was becoming a "legacy look-alike." More concentration, even to level the field with a third equally powerful mega-carrier, threatens airline customers, they wrote.

When more legacy carriers still flew, Mitchell said, price competition was obvious. When one announced an across-the-board increase, it didn't always stick because a renegade would balk. Often, it was US Airways.

But the landscape has changed now that Southwest has grown into the No. 1 domestic carrier, a feat he said it accomplished by picking "all the low-hanging fruit" of underserved cities and overpriced routes.

"If the three major carriers put in a 10 or 15 percent fare increase, Southwest will have an incentive to just go along with it, because it's the only way they're going to get revenue growth," he said.

To be sure, few things are more complex than airline pricing, notorious for charging passengers wildly different fares on the same flights.

The best fares go to leisure passengers who plan ahead and fly competitive routes. Paying the most are business travelers and others who must fly on short notice or on monopolized routes - such as Philadelphia-Pittsburgh or Philadelphia-Boston after Southwest quit those routes.

Leisure travelers will still enjoy some protection from price hikes even with consolidation, thanks to competition from other kinds of travel, said George Hobica, founder of AirFareWatchdog.com.

"A family of four will drive even 600 miles to avoid high airfares," he said. Hobica recently balked at an $840 fare for a same-day round-trip from New York to Boston, opting for Amtrak instead.

International fares have borne the brunt of the most recent fare increases, he said. "You can't drive to Paris."

Still, Hobica is hopeful. "In general, I don't see fares going up domestically, because the airlines are profitable now and they don't need to be greedy."

But Mitchell expects "higher prices from less competition." In the end, he said, it's just economics.


Contact Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.

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