U.S. airline mergers: What's the upside?

  • Article by: STAR TRIBUNE EDITORIAL BOARD
  • Updated: April 1, 2013 - 8:18 PM

Credit Klobuchar for questioning impact of American-US Airways deal.

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Airlines.

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Pan Am, TWA, Eastern, Northwest, Continental, Allegheny, Piedmont, Western, Republic, PSA, Ozark, Braniff, America West, Midway, New York Air, People Express, ATA and ValuJet. In the years following Congress’ 1978 deregulation of the airline industry, those were common brands in airports across the country.

Now they’re all gone.

A few went belly up, but most were swallowed, one at a time, by larger rivals to the point that now, as American Airlines prepares to absorb US Airways, just four giant carriers would control 80 percent of the domestic/overseas market.

The question is: Is that enough competition to guarantee the service and fares that travelers need? Or are the Big Four — American, Delta, United and Southwest — now so dominant that they can carve up the national air travel map in ways that benefit their corporate desires while leaving many travelers in the nation’s midsection with fewer flights and rising costs?

Considering the Justice Department’s weak knees on past deals, little resistance is expected for this $11 billion merger, which would create the world’s largest airline. Still, as chair of the Judiciary Antitrust Subcommittee, Sen. Amy Klobuchar, D-Minn., was right to ask the Government Accountability Office to examine the pending deal in a larger context: How does having fewer and fewer airline choices affect the flying public?

Her question serves as a reminder to the government that the benefits of merger should extend beyond shareholders, corporate executives, corporate lawyers and, in this case, American’s ability to compete with Delta and United on overseas routes. The broader flying public should also benefit, and that’s where the upside is hard to see.

It’s an especially appropriate time to ask the question, considering the changing state of the domestic market. A quarter-century has passed since deregulation took hold. Its benefits are less and less clear as time goes by.

Yes, deregulation opened air travel to many more Americans. Since 1978, passenger numbers have increased at four times the rate of population growth. Ticket prices have remained remarkably stable in relative terms, despite huge runups in the cost of fuel and security. Safety has not been compromised. Airline efficiency has greatly improved. But service has stratified and, in many cases, declined. Overbooked flights are common. In-flight meals are gone in the coach sections, and hefty premiums are charged for checked bags, changed tickets and, in many markets, nonstop flights. Major carriers have farmed out less-appealing routes to regional affiliates with tiny planes and inexperienced crews.

Perhaps the biggest concern going forward is that the four surviving giants could increasingly concentrate their competitive flights in just a few main hubs (New York, Atlanta, Chicago, Dallas and Los Angeles) while turning lesser hubs (Minneapolis-St. Paul, Charlotte, Philadelphia, etc.) into one-airline towns with higher prices and weaker schedules. The trend is already evident. In theory, the antidote was supposed to be low-cost startups (Sun Country, Spirit, JetBlue, etc.) stepping in to fill the gap. But the cost of entry into the airline business is enormous. In 25 years, only Southwest has risen in a major way to challenge the big network carriers and their fortress hubs.

Just because the American-US Airways deal is likely to gain approval doesn’t mean that consumers don’t deserve an answer to Klobuchar’s question about the marketplace narrowing. A typical traveler’s choices have dwindled from a dozen major airlines in the 1980s to three or four today.

A closer look, especially, at the price and service impacts of the latest consolidation wave — Delta-­Northwest, United-Continental and Southwest-AirTran — should yield important context for judging whether the advantages of airline deregulation still outweigh the shortcomings.

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An editorial of the Star Tribune (Minneapolis). Follow the editorial board: on Twitter  |  on Facebook   |  on Instagram | on Google+

 

  • U.S. DOMESTIC
    AIR TRAVEL, 2012
    % of Market Share
    American-
    U.S. Airways
    21.0
    Southwest-AirTran 17.8
    Delta 16.3
    United-Continental 16.1
    Others 28.8
    Source: U.S. Bureau
    of Transportation Statistics
    MSP AIRPORT, 2012
    % of Market Share
    Delta 76.5
    American-U.S. Airways 6.9
    Southwest-AirTran 5.6
    United-Continental 4.3
    Sun Country 3.8
    Six Others 3.3
    Source: Metropolitan
    Airports Commission
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