Here we go again: Airline merger madness, back in the news
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Airline mergers are headlining the news again today, with United and Continental in early discussions, and with AirTran’s offer for Midwest Airlines confirmed (but declined). This of course comes on top of the US Airways offer for Delta, which Delta is resisting.
So consolidation is afoot. Like lemmings, the airlines run off the cliff, hoping to grow bigger. My feelings on mergers like this are negative, and I’ll just repeat part of an earlier post, when Continental and United were first being bandied about as potential merger partners:
But the bottom line for travelers doesn’t look good. Planes are full, demand is there, and airlines are eking out a profit, even with high oil prices. When airlines say there’s too much capacity, it just means that they want to charge more. A merger would drive out competition and increase prices — at ALL airlines, not just United-Continental. Not to mention the mess that could arise from merging two frequent flyer programs. I’m wary of a merger, and hoping it doesn’t happen.
That said, the counterargument suggests that consolidation will breed the rise of new competitors, or the expansion of other carriers to fill the void (and higher prices) in the wake of mega-mergers.
Possible, and probable in the long run, but in the short to medium run, mergers like this aren’t pro-consumer. They’re pro-Wall Street, and pro-airline executives, and that’s about it.
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December 13th, 2006 at 6:28 pm |
I don’t see how airline mergers are anti-consumer. Yes they are good for Wall St and businesses, but anti-consumer I don’t think so. The ability to travel worldwide on one carrier is worth it to me. A United/Continental or a United/Delta (also mentioned briefly today) would create an airline with routes that span the globe and personally that is a lot better than using partner airlines when flying international. Will it drive up airfare in the states? I don’t think it will drive it up much more than if the airlines were to stay seperate. There is too much downward pressure on airfares from the likes of SouthWest, AirTran, and Jetblue for a merger to create a huge fare hike.
December 14th, 2006 at 10:34 am |
Jason,
Thanks for your comment. As you might expect, I disagree. Here’s why:
Mergers may increase the size of an airline’s network, but the benefits of that expansion for the consumer, above and beyond existing alliances or codesharing agreements, is something I don’t see.
The disadvantages, on the other hand, are clearer. In every merger scenario, the airlines name reducing the number of planes out there, i.e., “capacity cuts.” That means fewer seats, thus leading to planes being more jam-packed than they already are, and higher prices.
Like I said in the post above, eventually other airlines will come in to fill the gap, but for the short term, prices are bound to rise. On some routes, you’re right, there’s enough competition to keep the prices in check, but the Southwests and JetBlues of the world want to raise fares, too.
Check out this article in today’s NYT. It has a quote from the CEO of AirTran, with regard to the Delta-US Airways merger. He’s in favor of the merger:
And his enthusiasm is exactly why I am wary of these mergers.
December 16th, 2006 at 7:47 pm |
and now, flying under the radar by comparison, is the offer by airtran for midwest. but certainly in line with the consolidation craze.
folks in milwaukee were always fond of the level of service and all business class seating, but it’s a model that has failed and all midwest will try to do now is seek a deal that best treats the shareholders.
December 17th, 2006 at 12:11 pm |
Rich:
It’s true, people in Milwaukee are quite fond of their airline. For example:
http://mydailyfatwa.blogspot.com/2006/12/takeover-conundrum.html
I haven’t followed Midwest, so I can’t comment on their viability as a standalone company long-term. But it would be sad to see their wider seats and warm cookies disappear.
January 14th, 2007 at 6:17 pm |
[…] Ha! Well, Todd, as I’ve said before, on the “suck - rock continuum,” I think mergers are closer to “suck” for consumers. (See here and here.) Sure you might get a few more potential destinations or routings for your flights, but the total number of flights is bound to be cut, and prices in turn are bound to rise. Prices are already rising, despite oil prices dropping significantly in recent weeks. (Neil Bainton has the fare hike play-by-play.) With less competition, it’ll be easier than ever to raise fares and make them stick. […]