Let’s unmerge a few airlines

By | November 30th, 2013

The Justice Department’s settlement agreement with American Airlines and US Airways, which will finally allow the carriers to merge, is taking the airline industry in the wrong direction, say many travelers.

The government, you’ll recall, sued to stop the latest mega-airline from being created this summer, citing competitive concerns. It only green-lit the deal after the airlines promised to surrender gates and landing permissions at several busy airports.

But it’s not what some passengers wanted. Instead, they hoped regulators would go the other way, blocking a wrongheaded merger and maybe undoing a few previous mergers, too.

That’s right, they want to unmerge a few airlines.

“I miss Continental Airlines,” says Carole Talan, a retired college professor from Gardnerville, Nev. “The attendants were friendly, accommodating, helpful and fun — and they seemed to enjoy their jobs. Frequent-flier benefits were generous and easy to redeem.”

All that changed when it merged with United Airlines. The friendliness disappeared, and the easy rewards vanished, she says. Talan wishes the merger had never happened.

Can a merger be undone? Yes and no, says Daniel Sokol, who teaches a class on antitrust mergers at the University of Florida’s law school. While there’s a precedent for breaking up a merger after it’s consummated — the most prominent being a 2007 case involving two hospitals in Cook County, Ill., whose combination allegedly resulted in higher costs to insurance purchasers and consumers — the government has never tried to reverse an airline combination.

“You can’t unscramble an airline merger,” says Sokol. The new carriers are simply too integrated to pull apart.

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That hasn’t stopped anyone from thinking about it. Diana Moss, a vice president with the American Antitrust Institute (AAI), an independent non-profit organization, says regulators shouldn’t have allowed Southwest Airlines to merge with AirTran. “Fare increases by Southwest and AirTran in the last few years have been some of the highest in the industry,” says Moss. Like Talan, she’d happily undo Continental and United, “which also resulted in fare increases.”

AAI’s research suggests that some of the promises made before past airline mergers weren’t kept. But passengers say they don’t need to study them to know they were mistakes, nor are they swayed by arguments that fares are lower or that they have more “choices.”

Just look at the customer service scores, they say. With the exception of Southwest Airlines, the grades customers give recently merged airlines are dreadful.

The year after its merger with Continental in 2010, passengers punished United with a failing grade of 61 out of a possible 100 points on the authoritative American Customer Satisfaction Index (ACSI). Since then, it’s risen by a single point. United was also the most complained-about airline last year. When Delta Air Lines and Northwest Airlines merged, the new Delta scored a 60. Its latest score? A slightly better 68, but still one point below the industry’s shameful average.

“I miss them all,” says William Doran, a retired consultant from Greensboro, N.C., of long-gone airlines. In his view, the latest mergers didn’t just destroy customer service, they reduced his choices and eliminated competition. Maybe the only way to return competition is to bring back the competitors, he says.

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Now that the US Airways-American merger is cleared for takeoff, we’ll be left with three oversize legacy airlines, plus Southwest as the major players. Inside the industry, the conventional wisdom is that even with a few big airlines, competition will remain robust. Airline observers will point to low fares and an abundance of flight options as evidence.

But passengers don’t see it that way. They recognize how today’s seemingly cheap fares are often a deceptively low starting point, and that after adding the required à la carte fees for confirmed seat assignments and luggage, most will pay more than they expected. They note that many cities aren’t served by their carrier, but rather no-name regional airlines or foreign carriers they’d never fly, thanks to a marketing agreement called code sharing. Looking at their own flight options, they see higher prices and fewer real choices.

Mostly, though, they shake their heads in disbelief at the industry’s earnings. The North American airline industry expects to rake in $4.9 billion in profits this year, more than double its 2012 profits. In passengers’ view, this windfall came from cutting and consolidating — not competing.

Unraveling the last decade’s mergers might be difficult, says Thomas Dickerson, author of Travel Law. “It would require sufficient evidence, post-merger, to warrant a finding of a negative impact upon the market for airline transportation or any violation of antitrust statutes,” he says.

He and other experts agree that competitive concerns are best addressed before any merger. But after the “new” American takes off next year, more government action is possible, especially when fares and fees rise. At the very least, the Justice Department could take a harder line on airline competition, as it did in 1992, when it successfully sued several carriers for price fixing. If that doesn’t work, unmerging an airline might not be such a remote fantasy.

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“In other words,” adds Dickerson, “time will tell, maybe.”

Were the airline mergers of the last decade good for passengers?

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