After Delta/ Northwest Can Other Airline Mergers be Far Behind?

Airline mergers are never good for the traveling public.

The bosses always do what's best for the airlines, and the public be damned. Travel is going to be even more of a nightmare than it already is.

Other airline mergers are in the works. United has been trying to merge with Delta for months, but now it will try and work something out with Continental. American is going to scramble to keep up.

And it's going to cost passengers more money in the long run.

Economics 101: Less competition means higher prices, decreased customer service, crowded flights, and serious disruptions in the event of labor disputes or maintenance issues.

As a result, of mergers and bankruptcies, competition in dozens of cities will disappear and there will be increased pressure on existing airline passengers because of fuller planes and higher prices.

The legacy airlines- American, United, Delta, Northwest, and Continental- are frantically plotting increased consolidation. And with the massive clout they wield in Washington, they usually get what they want.

Nobody messes with the major airlines in DC. They are not allowed to fail. When one of them gets into trouble, they "reorganize" and, with large federal loans from Congress, go on as before.

No such largesse applies to smaller low cost airlines.

The US is heading for a two or three airline cartel, which then will systematically eliminate all remaining low cost carriers --- Southwest, America West, Air Tran, Jet Blue and others -- opening the way for astronomical price hikes.

When major airlines eliminate competition from a specific city, prices are higher. A report issued a few years ago by the Department of Transportation found that in dominated hubs, passengers paid, on average, 41% more than their counterparts in markets with low-fare competition.

When a single carrier dominates a market, bad things happen. Travel managers and the traveling public have no bargaining power, planes are always full, and service deteriorates.

For example, in a university study done a few years ago, the "fortress hub" dominated by Northwest Airlines in Minneapolis cost passengers an additional $456 million annually, beyond the average cost for comparable flights at non-hubs. (The figure today is probably double that.)

Economists call it the "Fortress Hub Premium." Passengers flying from other fortress hubs (Pittsburgh, Philadelphia, Miami, Denver, Houston, Dallas, Detroit, St. Louis, Atlanta, Memphis, Phoenix) are already paying this exorbitant premium.

American, United, and Delta are like kids going behind a playground wall and dividing up the marbles for themselves. Without low cost competition, airline giants will hold the traveling public hostage.

The way it works was well documented in a Justice Department antitrust suit against American Airlines several years ago. Federal officials charged that American used the combination of lower fares, wider availability of low-fare seats, and added flights to force several low-fare airlines -Vanguard, Western Pacific, and Sunjet - to end or reduce service in the Dallas market. Once the smaller airlines were forced out, American cancelled flights and raised prices, which they were free to do, with impunity, given their monopoly position.

This kind of predatory behavior is why new airlines have such a difficult time breaking into a market. And it's the same reason why Southwest and JetBlue often fly from smaller cities or under serviced airports: they don't dare compete directly with the major airlines.

This latest merger frenzy is driven by --$100-a-barrel oil which none of the carriers predicted--or hedged for. Fuel is the largest item on an airline balance sheet. Over the last year the large airline stock prices have dropped an average of 50%, battered by high oil prices and exhorbitant debt which they can't afford.

In Europe, a slew of new low cost airlines have been thriving. Ryan Air, easyJet, AirBerlin, BMI, WizzAir, Blue Air, Norwegian Air Shuttle, and German Wings offer incredible low prices for leisure travelers (e.g. London to Cologne: one Euro).

Although the new Open Skies Treaty, which allows increased access to American cities for foreign airlines, holds some promise for international flights, there's little hope for domestic flights. Airlines already charge practically identical prices through secret computer signaling. The only price relief for passengers in the last few years has come from smaller startup carriers like ...Southwest, Airbus, Frontier.... and USAir's rate cuts in their attempt to compete with the behemoths. This competition has kept prices low and increased service.

But living in America does not mean that government supported, virtual monopolies should be allowed to crush their competitors. Our free market economic system is built on competition. If airlines want to increase market share, the big guys should have to earn it by winning the business and loyalty of their customers, not by gobbling up competitors or driving them out of business with cutthroat pricing and government loans to cover up bad business decisions.

Comments

[LeftRight]

Yup, uh huh, deregulation of the industry works SO WELL!!!

[Thorn]

Airlines have been consistently failing in this country since the time of Lindbergh. You write this post as if they're making monster profits. If you think that's the case, buy a newspaper. (It can be any newspaper from the past several decades.)

[Blake Fleetwood - Huffpost Blogger]

This is true. But its because the major airlines are very badly run and not allowed to fail. If the Government didn't bail them out all the time, then new more efficient ailines would arise and there might be real price competition in the industry.

State campitalism never works and inevitably creates inefficient companies that drive out the competition.

[LeftRight]

I'm sorry Blake, I gotta disagree with you here. I don't think that ANY airline would work without gov't propping it up, and that we would have something more like a relatively cheap charter system rather than this hub and spoke system which fails us so often today!