Let’s unmerge a few airlines

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.

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.

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.

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

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

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or contact him at chris@elliott.org. Got a question or comment? You can post it on the new forum.

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  • TonyA_says

    Why stop at airlines? Hey, look around you and do some basic research. What there left that is not owned by private equity, hedge funds, large financial institutions or biggies like Warren Buffett?

  • http://elliott.org Christopher Elliott

    They still don’t own my cats and my espresso maker. I’m on cup #2.

  • TonyA_says

    Aha, they don’t have to. But they own the pet food maker, pet food stores, vet supply, etc. Same with your coffee. Ever trace how that bean finally gets to your cup. You might just be surprised how coffee is very much a controlled commodity. Think cartel.

  • AirlineEmployee

    Passengers are not exempt……just think how employees feel. We are also “victims” of mergers. What was said to be combining the “best of both carriers” translated to what was “best” OR KEEPING THINGS THE SAME for the carrier that had the upper hand, the carrier whose leadership was top heavy with management from the “other guy”. Personally I wish government regulation would step in with suggestions from the flying public – LIKE GET RID OF EXPENSIVE ancillary fees.
    Statements like these ……”XX (airline) remains committed to offering customers high quality options that they value and are willing to pay for”.
    Take a poll…..Who thinks bag fees are a “valued” option and they are “willing” to pay for it. ?

  • ctporter

    Unfortunately, that is not true. I hear often that Southwest doesn’t charge baggage fees, and is cheaper, but a direct comparison proves otherwise in the flights I take. The success of Spirit airlines is another example, customers WANT the lowest fare regardless of the actual total cost to them for the flight.

  • omgstfualready

    Reminder today is a national day to commit to buying from small businesses. Whether they have what you want and at a price you are willing to pay is another matter.

  • bodega3

    ctporter, Southwest often has the same fares as the other carriers flying the same route. Your comparison, which I assume is online, doesn’t show you that. What you see is what is available and that is totally different from actually looking at fares in a market. In my GDS I can do that, online you can’t. Since many think Southwest is the only carrier offering a low fare in a market, those low fares get purchased faster, so when you look online you aren’t seeing the full story.

  • http://elliott.org Christopher Elliott

    Good point. They probably own me, too.

  • JH

    Remember the breakup of the gigantic AT&T in the early 1980s? What developed from that was not only the many communications corporations we have today but manufacturers such as Northern Telecom were able to expand their customer base for the new [at the time] digital switches that AT&T were stalling on because of its massive investment in current technology. As a direct result of that breakup we now have superior technology in the field that helped bring on cell phone technology, the Internet, etc. If we are ever going to have new technology in air travel and planes it won’t be because of these mergers that encourage status quo that is concerned only with bottom line, profits, cost cutting….

  • ctporter

    Thanks Bodega3, when i search for flights, I am required to use my corporate online travel agency, which I assume is a GDS? The bottom line for me is that the fares that are offered when I am booking are the fares I have to select from. it has no relevance to me what the fares might have been yesterday or last month, or even tomorrow. What counts is what the fares are when I am actually making my purchases and letting the customer know when I can arrive on site. I should have said that Southwest is “not always” the lowest fare for me when I am making my purchases. One of my coworkers is an avid Southwest fan, he flies them exclusively when he has a domestic flight even if it means he must drive to the destination 6 hrs after landing.

  • Mark H

    The amusing thing in this article is the person who says she “misses Continental” and how bad the service is on the new United. The new United is almost entirely run by former Continental executives. There is almost no United left. It just shows that the Texas hillbillies are incapable of running a worldwide carrier.

  • Extramail

    The final “ownership” will come in the form of a chip. It’s already appearing in credit cards, in automobiles, in cell phones . . . Need I continue?

  • Jeanne_in_NE

    +1. Thank you. I admire @bodega3, but I’m with you on this particular subject. If the fare I want isn’t available when I want it, it doesn’t do me any good. I’m so tired of the “Southwest is the greatest airline since the invention of sliced bread” hyperbole.

  • bodega3

    Those who book online don’t see fares, they see price, which I get. But fare and price are not the same. A fare dictates the prices. I often over hear people in the grocery line say, ‘I paid a lot for my Southwest ticket and I thought they had low fares’. What they aren’t understanding is that while WN has low fares in a market, so will the other carriers, but my guess is they didn’t bother to look, thinking UA or DL or AS would be higher in cost so they bought the ticket on WN not researching it further. Since many think of WN first, the lower priced fares sell out faster and what is showing on the screen is what is left.

  • bodega3

    And the reason WN isn’t showing the lowest is due to fact that their inventory in the lower fare is sold out. A fare dictates the price. So many THINK WN is the only carrier with a low fare being offered in a market, so WN’s inventory gets booked quickly so what is showing up in an online search is what is left for those flights on those days.
    I get price. But I also know that many don’t look past what they think they know and are not getting the best deal.

  • MarkKelling

    Pre breakup AT&T was the worst type of monopoly. They even dictated what type of phone you could use and would cut off your service if you didn’t rent the phone from them. They charged $1200 a month for a modem. Now you can get one practically free that is far superior to the one they forced you to use. Where would the internet be if that had not been forcibly changed?

    Airlines are headed the same direction. They will bring down government regulation and forced breakup on themselves if they are not careful.

  • MarkKelling

    But what good is it to me, the traveling customer, if there is a 99 cent fare on a route offered by multiple airlines with only one seat in that fare that is always sold out when I look for a ticket? Even you as a travel agent cannot book me in that fare if there are no seats available. So to agree with the others, we can only see what is available when we book and really don’t care about what is not available. Also, with WN, they do not appear in travel search sites on the web. Us regular people without access to a GDS have to search on the WN site separately to see what is available.

    I look at multiple airlines whenever I go to book a ticket since I am lucky enough to live near an airport with multiple choices. Sometimes WN is lowest, sometimes UA, sometimes F9. And I add in any extra fees for things I know I will need. Like the early boarding fee with WN. Or the extra legroom fee with F9. I rarely check bags, so that is something that does not affect my total prices. I also consider the convenience of the route the airline offers at the best prices for me. Are they non-stop, are they at weird hours, how close to my destination is the actual airport I end up at? All of these impact the choice I make sometimes more than price.

  • MarkKelling

    Unfortunately, the new United retained many of the things that we hated about the old United, no matter who is actually running the show. Since UA was larger, most of what was good about Continental was overwhelmed and the few things that did make it into the new United are slowly disappearing.

    And hilbillies aren’t from Texas.

  • MarkKelling

    Depending on what you need, Southwest can be the greatest airline. ;-) Sometimes it is the worst airline these days because they have simply grown too large.

    For me, if I can get ALL of the following on a WN flight, it is the best for me:
    1. A Non stop flight. If I have to connect to get where I am going WN is not for me due to their no assigned seats and short connect time.
    2. A significantly lower price. Yes, WN does have better prices or fares on many of the routes I fly some times. I am flying home with them for Christmas because their price where I am going is more than half off every other airline (except Spirit which I refuse to fly).
    3. A convenient flight time. I have no need to do red eye fights at this point in my life.
    4. For the rare instances I check bags, WN works best.

  • bodega3

    Actually I have been able to get a discounted fare that doesn’t show up. There are ways in our GDS to do things you can’t do online. But if you think you know what you are doing, keep doing it, but know that you really may not be getting what you want to get.

  • bodega3

    Your comment below is incorrect. I am sorry that I am not getting my point across more clearly. 99% of the time, ALL carriers have the same fare in the market you are researching. What you are seeing is what is available. Two completely different things.

    2. A significantly lower price. Yes, WN does have better prices or fares on many of the routes I fly some times. I am flying home with them for Christmas because their price where I am going is more than half off every other airline (except Spirit which I refuse to fly).

  • MarkKelling

    I think we are having a failure to communicate. :-)

    I never doubted any travel agent who knows what they are doing can get me a better ticket price than what I am seeing when I check online or even when I call the airline. That is not what I stated or meant to state. I stated that if a specific fare class is sold out, it is sold out and unless the airline releases more seats in that fare, no one can book a seat for that fare. Once again, it doesn’t matter what fares are offered, even if every airline offers exactly the same fares on the same routes, if the desired ones have no availability. And the more desirable fares always have minimal availability.

    When I book my own travel I get something that is acceptable even if it is not the absolute lowest price. And I do understand how the GDS works, I used to have full access to Sabre with the ability to book actual flights as part of one of my previous careers. I kinds miss it now that I don’t have access.

  • bodega3

    Just as long as DIY’ers know the difference that is all I care about. Sort of like saying direct when it is nonstop :-) Yes, not having access to the GDS is going to be hard when I retire in a few months.

  • bayareascott

    This is not accurate. Most of what may have been good about Continental was doomed once corporate attorney Jeff Smisek (from the CO side) was pegged to lead the merged carrier. He said that the airline needs to be run like a business. Well, one can choose to run an airline in a business-minded fashion, or run a business that happens to fly planes. They are not the same thing. I think you can decide what is happening here.