The sad truth about US Air/American merger; plane ticket costs going up again, perhaps 50 percent

AA.com
AA.com

If you like rising prices, less competition, crowded planes, and decreased service, you’ll love the deal announced this week that gives US Airways and American Airlines the right to merge.   Sure, the airlines made a small, novel concession that will give a boost to low-cost airlines flying in and out of Washington D.C. and New York, but the rest of the country’s fliers will surely suffer.

This week, the Justice Department announced it had reached a settlement with the airline dance partners, and would not stand in the way of their marriage.  The settlement must still be approved by a federal judge.

You might hear a lot of complex analysis during the coming weeks and months about this merger. You will probably see beautiful commercials showing how far and wide the footprint of this new airline is. But only one thing is guaranteed. You will see higher prices. Lots of them.

Analyzing airline mergers is tricky. Flight route competition is not like cable TV competition.  We all understand that when there’s only one or two places to buy TV service in a city, consumers suffer from the monopoly/duopoly situation. Consumer flight costs, and the impact of competition, is not so easy to compare. Airlines operate between hundreds of city pairs. Prices go up in some, and down in others, based on a host of factors — the state of the economy, fuel costs, and the weather, to name a few.

But there is no denying the impact of competition, and no denying that costs will rise, again, after this merger. How much? Perhaps 50 percent or so on routes that the merged airline now dominates.

Back in April, the Wall Street Journal ran the numbers on previous big mergers and came up with some startling statistics. The numbers don’t lie: After Continental and United merged, prices between Newark and San Francisco jumped 49.9 percent between 2009 and 2012. Denver to Houston trips jumped 56.9 percent.  After Delta and Northwest combined in 2008, the results were similar: Atlanta to Minneapolis climbed 39.3 percent; Cincinnati to Memphis climbed 65.6 percent.   (There’s plenty more sad data at the WSJ story).

The critical element here: when the combining airlines overlap routes, and the merger eliminates that competition. I’m looking at you Chicago to Orlando fliers. After USAir/American, the new airline will own 80 percent of the trips. Consumers flying from Philadelphia and Miami have it much worse. The new entity will own 98 percent of flights, the WSJ says.

Left unsaid is the impact that mergers have on service. I was a loyal Continental flier for years, taking frequent trips between Seattle and Newark.  After the merger, flights were eliminated,  and times were adjusted to became torturous — on many eastbound trips, I was stuck with an oppressive 7 a.m. departure or a 3:30 p.m. flight that arrived at almost midnight and might as well have been a red-eye. Meanwhile, despite United ads clogging Facebook bragging about the airlines Wi-Fi service, United’s in-flight Internet is still AWOL from the carriers most popular routes and aircraft.

William J. McGee, travel and aviation consultant for Consumers Union, said that after the merger, four airlines — American, Delta, United, and Southwest — will control 80 percent of the U.S. air travel market. He openly fretted that the big four will now be “too big to fail.”

Antitrust law isn’t simple.  It might feel like government interference with private enterprise when the Justice Department steps in to block a merger.  In fact, it’s simply preservation of free markets.  Trustbusting was invented by Teddy Roosevelt, hardly a staunch supporter of meddling government activity. And trustbusting works; so does blocking mergers that eliminate consumer competition. Exhibit A: the successful block of the proposed AT&T/T-Mobile wireless merger.  Since the block, T-Mobile has become the industry’s price innovator, creating programs like JUMP and cheap international calling. 

Please, prove me wrong, AA/USAir, but I don’t think you can. Prices will go up, service will go down, and fliers will be stuck paying the bill. Now, you don’t think that the token gift of cheaper flights to Washington D.C. had anything to do with pushing the settlement across the finish line, do you?

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About Bob Sullivan 1381 Articles
BOB SULLIVAN is a veteran journalist and the author of four books, including the 2008 New York Times Best-Seller, Gotcha Capitalism, and the 2010 New York Times Best Seller, Stop Getting Ripped Off! His latest, The Plateau Effect, was published in 2013, and as a paperback, called Getting Unstuck in 2014. He has won the Society of Professional Journalists prestigious Public Service award, a Peabody award, and The Consumer Federation of America Betty Furness award, and been given Consumer Action’s Consumer Excellence Award.

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