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Continued Airline Consolidation Forecasted

By Author: Steve Robinson
Total Articles: 468

While some continue to try to figure out the lasting impact of airline consolidation on cheap travel, including cheap fares, cheap airplane tickets, cheap vacation packages, and discount travel packages, as well as on cheap auto rentals and discount hotel rooms, the Department of Justice’s (DOJ) challenge to the American Airlines and US Airways merger is not expected to stop or slow the continuing transformation of the U.S. airline industry.

Both American Airlines and US Airways have stated that they will fight the DOJ suit and express hope that their merger, which was projected to close during the third quarter of 2013, will be completed before the end of 2013.

Regardless of the final resolution of this latest merger, experts believe that DOJ is entering the airline merger process too late to have any sustaining impact. The time to have challenged airport mergers was before the latest three airline mergers.

At this point many believe that previous airline mergers (including Delta/Northwest and United/Continental) have been positive as evidenced by additional flights, expanded routes, and new planes being ordered after the mergers were completed.

The end result appears that with fewer competing airlines travelers will have to pay more to fly but may enjoy enhanced experiences because of these mergers.

While many fliers have complained about increasing airfares in recent years mergers do not look to be the culprit. The price of jet fuel has increased from under a dollar per gallon previous to 2004 to over $3 per gallon in 2012, resulting in the cost of flying rising significantly.

If the American/US Airways merger goes forward, select smaller hubs for both airlines are expected to close. However, future increases in ticket prices are unlikely to result since competing airlines often move into smaller hubs as a result of a major airline exiting the market.

The American/US airways merger is still predicted to eventually be approved after additional concessions are granted, particularly the number of airline slots it will continue to control at Washington National Airport. Afterwards we will be left with three legacy (large, traditional) airlines, all of which tend to act in the same manner when it comes to increasing existing fees and finding new ones.

With the exception of only a couple of airlines, all airlines now charge checked baggage fees. The solution used to be to pack lightly and only bring a carry-on bag. Unfortunately regional airlines have started even charging for carry-on bags. It remains to be seen if major airlines will follow their lead.

As a result of the mergers, the three legacy carriers are reducing overlapping services, which is offset in part by other airlines entering those markets. For example, JetBlue has started flying from Boston to Houston and Philadelphia, and Spirit has announced it will start flying from Phoenix to Chicago, Dallas, and Denver this fall.

After having gone through a period of unrestrained expansion that resulted in a series of bankruptcies, airlines are starting to make long overdue investments in their planes, terminals, and services.

In July, American took initial delivery of a planned 460 plane order that comes with leather seats, in seat power outlets, and improved in flight entertainment options. Delta is in the midst of a $3 billion facelift that has resulted in the opening of new terminals at JFK and Atlanta-Hartsfield. JetBlue announced it intention in August of offering business class style lie-flat seats on flights between New York and California.

While some travelers yearn for the good old days of fare wars when ticket prices were lower, such activities prevented airlines from investing in their infrastructure, treating their employees fairly, and led to low customer satisfaction ratings.

While some mergers have caused short term major disruptions, the belief is that the end result is that the future of air travel will be much more stable going forward. Consolidation appears to be working much better than prior attempts at regulating airlines and then deregulating them.

If the American Airlines/US Airways merger is finally approved, the next challenge will be the integration of the two airlines operations, which history has shown can be particularly difficult.

The Delta/Northwest merger went relatively smoothly, whereas the United/Continental did not go as well as had been hoped, and the US Airways/America West merger was terrible. Proper execution is critical in airline mergers.
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