It turns out the case isn’t so clear either way. There are some benefits to stronger airlines, though low fuel costs and the state of the economy are bigger drivers of that than consolidation. We should be careful to remember that correlation isn’t causation.
A column in the Dallas Morning News argues that airline mergers (‘consolidation’) has been good for consumers.
[Fare wars work] for consumers, especially when airlines are plowing billions into improving the product. In the first half of 2015, the 10 publicly traded carriers spent an average of $1.4 billion a month, including buying a new plane each day. That’s almost $1 billion more per month than in 2010, according to Airlines for America, an industry trade group.
U.S. airlines also added 265 new routes in the first six months of 2015, the group said.
More consumer options, more competition, higher wages for workers and finally a break on prices — that sounds like a system that’s working.
Most readers will equate this with Doublethink. After all, we’ve always been at war with Eastasia.
However there are some things that any fair-minded observer will grant.
- Financially viable airlines are better for consumers than carriers that run long term losses. They invest in product, in IT, and… they don’t go out of business.
- Large airlines with redundant route networks are valuable to travelers trying to get where they’re going in the face of weather and other irregular operations issues.
- Large feeder networks to hubs support growing long haul flight operations. Aided by mission-appropriate aircraft like the Boeing 787 we’re seeing lots of new routes open up.
- And in many airports around the country dominated by a single carrier a merger of two smaller players in that market creates a viable competitor that really can lower fares and create meaningful flight options.
Delta did just increase wages (though they’re pulling back on profit sharing). The particulars of the American – US Airways means higher wages too — it’s how US Airways got unions onboard with their plan to merge with (in my view overpay for) the airline.
But much of the current strong airline results – as well as competitive position pushing down fares – is driven far more by lower fuel prices than it is consolidation. Fuel prices are masking what might otherwise have been some of the downsides of consolidation for consumers.
I would have far preferred an independent American Airlines to one merged with US Airways. If they had held off bankruptcy a little longer, if previous management had begun to accrue the benefits of lower fuel prices, that might well have happened… though American’s pilots had more or less determined they were unwilling to work with previous CEO Tom Horton, and engaged in a work slowdown. Horton might not have managed to stay atop the standalone carrier, but they might not have been taken over by the smaller airline.
Consumers would have been better off without the United-Continental merger. More than five years in it seems clear the merger made both carriers worse.
Still, unquestionably US Airways was made better off because of its merger with America West. It survived brutal conditions in the industry after going through two bankruptcies. For US Airways the counterfactual really was going out of business.
For all my preference for Northwest Worldperks over Delta SkyMiles, that combined entity is running a far better airline operation than ever before.
I never believed there was a strong legal or moral case for blocking the mergers. That doesn’t mean I like them. The results for consumers, hardly the only metric of success, are in my view mixed. The ‘parade of horribles’ predicted for each never really came to pass. But it’s also not clear that the things in the industry that are going quite well derive as much from mergers as from a stronger economy than 6 or 13 years ago and savings derived from lower fuel costs.