Airline Mergers Seriously Impacting Prices and Services

A recent analysis of the relationship of airline mergers to airline service and pricing reports the unsurprising result that, since the mergers of Southwest Airlines and AirTran, United Airlines and Continental Airlines, and Delta Airlines and Northwest Airlines, airline capacity measured by the number of available seats, has gone down across the board at the top 100 airports in the 48 contiguous states since 2005 while prices have increased equally broadly.  For example, at the largest airport in the United States, Atlanta-Hartsfield, the number of seats has fallen by 12.3%, while the average fare price has increased by 3.7%.  Similarly, at Boston Logan, the number of seats has dropped by 10%, while the fares have increased at an average of 2.2%.  Those changes, moreover, are not limited to the top 100 airports.  At secondary airports in metropolitan areas with multiple airports, the same trend persists.  At Oakland Airport in the San Francisco Bay area, fares have increased 6%.  And those ominous trends appear to continue.

In response to the proposal of a merger between American Airlines and U.S. Airways, the Justice Department promptly brought suit on the grounds of, among other things, restraint of trade and violation of the Sherman Antitrust Act.  Last week, the Justice Department settled with the airlines on the promise by the airlines to surrender gates and slots at major airports. 
 

Consumers believe that the results of the most recent American Airlines merger will be same as for previous mergers, a degradation of service at increased prices.  For example, after United’s merger with Continental, the merged airline received a grade of 61 on the American customer satisfaction index, failing by any standard.  Since then, that rating has risen by only a single point. 

There is a ray of hope for the future, however.  As prices go up, the laws of economics tell us that demand will go down (a phenomenon called “price elasticity of demand”).  Hopefully, executives of the new monolithic airline companies will begin to see that, no matter how hard they try to line their pockets at traveler’s expense ($5 billion in profit alone for the shrunken inventory of airlines last year), the amounts they will be able to charge will always “revert to the mean” perhaps breathing new life into the concept of competition through customer service. 
 

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