What airline consolidation might bring

George Hobica, February 20, 2008
Fares from Washington DC:

    It looks like the major airlines are seriously considering mergers.

    Will it bring higher fares?

    Here's the Airfarewatchdog.com take in Q&A form:

    Q: Will mergers cause a huge spike in airfares?

    A: I’m not so sure this will happen. First, let’s admit that adjusted for inflation, airfares are incredibly cheap. Twenty years ago, you would pay more to fly in inflation adjusted dollars than you do now. According to  the Air Transport Association of America, admittedly an industry trade group, the inflation-adjusted cost of domestic air travel has dropped by 50% since deregulation, from 8 cents per mile to 4 cents per mile today, in 1978 dollars.

    When American bought TWA, fares increased for a while on certain routes, but then we saw the creation and expansion of discount carriers, such as Airtran, Skybus, ATA, JetBlue, Spirit, Frontier, Virgin America, and Southwest, and probably the same thing will happen again.

    If there’s a Delta/Northwest merger, Atlanta fares will be kept low as long as Airtran keeps flying, and fares into and out of Minneapolis, already high since that airport is a Northwest Airlines “fortress hub” with little low cost carrier competition, mainly from Airtran, probably won’t go much higher. Detroit is also a Northwest hub, but perhaps the combined airline will close hubs (for example, they may not want to keep both Cincinnati and Detroit) and that might open the way for a discount airline, such as Southwest, to take over gates and landing slots in the closed hub(s). Although it’s a small carrier, Sun Country keeps Northwest on its toes in MSP, and perhaps with the merger Delta will have to give up its (admittedly few) gates and landing slots in MSP and hand them over to a discount carrier.

    What we won’t see anymore are those crazy retaliatory, tit-for-tat unadvertised hub airport fare wars. That’s when Delta would lower fares out of Northwest’s hubs to ridiculously low levels and then Northwest would return the favor out of Delta’s hubs a few hours later. This sort of irrational behavior may be history, so we’re not going to see as many unadvertised fare wars.



    Q: What about other costs associated with flying, such as extra fees?

    A: Airline fees may indeed increase. For example, United is one of the few airlines that refunds, without charging a fee, when you buy a fare and it goes down in price before you fly (in the form of a voucher good for future travel within a year). Continental, however, charges a $100 fee in such a scenario. So I wouldn’t be surprised, should the two airlines merge, if the Continental fee prevails. Conversely, Continental would probably adopt United's $25 second bag fee. Airline fees, for everything from bringing a pet into the cabin to rebanking frequent flyer miles, just keep on going up and up, and often add a surprising amount to the cost of flying. It will also be easier to push through fuel surcharges as oil prices continue to increase.

    Q: What about international fares?

    A: Luckily, there isn’t much overlap between Delta’s and Northwest’s international routes. Delta flies mostly to Europe, and Northwest is big on trans-Pacific routes. In fact, the two airlines don’t compete all that much domestically, either. Plus, the new “open skies” agreements, which allow foreign airlines more leeway to fly between the US and foreign airports, may keep fares from spiking too terribly, and may also keep service levels from plunging.

    Q: Will other airlines merge if Northwest and Delta combine?

    A: Most likely. We might see Continental merge with United, and perhaps US Air would buy a smaller carrier such as Airtran or Frontier. American, which bought Midway and TWA at the end of the last century, might also buy another small carrier, but anti-trust concerns would probably preclude it from swallowing up a larger player.

    Q: What will happen to my frequent flyer miles?

    A: If you have 10,000 miles on Northwest, and 15,000 on Delta, you’ll have 25,000 combined on Delta (assuming that the new airline is named Delta, which is most likely). No miles will be lost. However, and it's a big however, I wouldn't be surprised if the airlines, post-merger, increase the number of miles required for free trips. After all, if there are just three or four major carriers, who you gonna complain to?

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