The airline industry took a decisive step toward greater concentration on Thursday with the announcement that American Airlines and US Airways had agreed to merge, forming the nation’s biggest airline. The merged airline, to be called American, leaves just three major carriers — Delta Air Lines and United Airlines too — able to offer extensive domestic and international service, a sharp contraction over the last decade.
But while airline executives argue that mergers are good for passengers because they bring more service to more destinations, some economists and consumer advocates warn that all this consolidation comes at a price for travelers.
With fewer carriers, passengers have fewer options; fares and fees are now more likely to go up, particularly for flights between midsize cities. And more cities, especially smaller ones, can expect to see further reductions in service.
“It’s much easier to have tacit collusion with just three airlines,” said George Hoffer, a transportation economist at the University of Richmond. “It’s not illegal. But it’s like having a few big people in a small boat. Anyone’s decisions tie you all together.”
That helps explain why fees had become so uniform within the industry in recent years, he said, and why all airlines now charge extra fees beyond ticket prices for things like checking bags, rebooking reservations or even picking seats or boarding early.
Those extra fees now account for a growing share of airline revenue and are a big reason behind the industry’s renewed profitability.
Fares, too, have risen in recent years, according to the latest government statistics. Some of that increase, analysts said, reflects rising oil prices. And while airfares on average are still lower than they were in 1995, once adjusted for inflation, they have been steadily rising since 2008.
But some airports, where the number of carriers has fallen, have had steep increases in fares. Ticket prices between Delta’s hub in Atlanta and Detroit, for instance, rose more than 20 percent from 2007 to 2011, while the number of carriers serving that route fell to two from four, according to a study released last year.
Still, most analysts expect the merger to be cleared by federal antitrust authorities, who have approved seven major mergers in the last decade.
The last time the Justice Department challenged a merger was the proposed combination of United Airlines and US Airways in 2001. That merger was rejected on the ground it would reduce choice and possibly lead to higher fares.
Since then, regulators have taken a different view of airline mergers. Instead of looking at any carrier’s overall market share, antitrust authorities now examine whether a merger would decrease competition on specific routes.
The department raised no objections to the merger of Delta and Northwest in 2008. It required United to sell only a handful of takeoff rights at Newark Liberty Airport before allowing its merger with Continental in 2010. And when Southwest bought AirTran, federal regulators found in 2011 that “the merged firm will be able to offer new service routes that neither serves today.”
A decade ago, the Justice Department “would not have stomached mergers the size of Delta-Northwest, United-Continental, or American-US Airways,” said Paul Stephen Dempsey, a professor of global governance in air and space law at McGill University. “Now, having approved the gargantuan Delta and United acquisitions, it cannot equitably deny American the same.”
“Apparently, Washington believes that this is the optimum path to industry health, and that concentration and collusion is preferable to regulated competition,” he said.
Airline executives say mergers are necessary to reduce financial volatility and restore a measure of stability to a business that lost about $60 billion in the last decade. Instead of stifling competition, the argument goes, bigger airlines with bigger networks provide passengers with more travel options, more destinations and, theoretically, better service.
Article source: http://www.nytimes.com/2013/02/15/business/airline-consolidation-may-be-costly-to-travelers.html?partner=rss&emc=rss
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