Two cheers for all those airline mergers

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When I think about the benefits of airline mergers, I’m reminded of Karen Griffin’s story.

Griffin, a library clerk from Blue Springs, Mo., booked a non-refundable ticket on US Airways from Kansas City to Wilmington, N.C., a few months ago. “The day before I left, my mother had a stroke and was hospitalized,” she says.

She had to extend her stay, for which US Airways charged her an extra $200. Griffin politely asked if the carrier, which recently merged with American Airlines, would waive the fee. It refused.

Thank goodness for the merger. I gave the “new” American a little nudge, and it refunded the fee on compassionate grounds.

That’s one of the perks of an airline marriage. Afterward, the new company typically embarks on a goodwill tour, making nice with customers like Griffin.

And those aren’t the only benefits. These days, merged airlines — including American, Delta, Southwest and United — are obscenely profitable. Even passengers can find a silver lining in these corporate mash-ups. So can I. In fact, I’m ready for more.

A year ago in this very column, I argued against the combination of American and US Airways. But the government allowed it anyway after a silly settlement that forced the new airline to divest itself of a few slots and gates. Last month, American announced a record quarterly profit of $1.5 billion. At the time, American CEO Doug Parker said he found it “hard to believe” that less than eight months ago, American was in bankruptcy. Me too.

American is hardly alone. United Airlines (which merged with Continental) recorded a quarterly net income of $919 million, Southwest Airlines (AirTran) $485 million, and Delta (Northwest) $801 million. How could a shareholder not love, love, love these mergers?

Let’s ignore, for a moment, the critics who claim these corporate marriages have decimated airline service, leaving us with companies that put profits over people.

The biggest benefit to consumers, once you look past the cuts in service, the new fees and the higher fares, is that you get a strong airline industry.

“What the consumer has gained over this time is a much more stable industry — airlines that aren’t teetering on the brink of bankruptcy,” says Andrew Henry, a vice president at Uniglobe Travel International.

Ah, the argument that what’s good for the airlines is good for you. How often was that repeated during congressional hearings? Until everyone accepted it as fact.

Mergers are adored by frequent business travelers, who see an airline’s route structure grow and with it the opportunity to redeem their frequent-flier miles. Kent Zimmermann is a legal analyst in Chicago who has close to 1 million miles on United.

“I’d say the United-Continental merger has been largely positive for me,” he says. “That has resulted in benefits I didn’t previously enjoy on United.” Those include wireless Internet access on most flights, modernized airline lounges at O’Hare and other airports, and better connections in Houston and Newark.

Oh, and who am I kidding? I shouldn’t have fought so hard to stop United from combining with Continental and or been so skeptical of American and US Airways. Because now, readers like Griffin enjoy a little corporate welfare from the “new” American, until, of course it invents a new junk fee that will make it billions.

I can see other “benefits,” too. For example, Northwest Airlines and US Airways, which were never overachievers in the customer service department, disappear. This may not seem like a big deal, but for travelers, it’s one or two fewer airlines to avoid. If there’s enough consolidation, it could give rise to new start-ups.

Or maybe not.

Consolidating your way to profitability seems to work so well, I’m surprised more airlines aren’t trying it. Alaska Airlines, JetBlue Airways, Frontier Airlines and, uh, Spirit Airlines, what are you waiting for?

Of course, I’m being facetious. Airline mergers are great for shareholders and business travelers, but they’re negligible for steerage class. With regulators asleep at the wheel and Congress in the airline lobby’s pocket, it is not a question of if, but when, we’ll be down to one or two underperforming, expensive and highly profitable airlines.

I’m going to need to hire an assistant to handle the complaints.

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

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Have your say on merger mania

Buy local. Patronize your hometown airline even when it’s less convenient or affordable. By rewarding local businesses, you’re sending a message that bigger isn’t necessarily better.

Complain. If you’re unhappy with the results of the last few mergers, let your representative know. Bonus points if your congressional representative is on one of the House or Senate committees that oversee aviation.

Next time, get involved. When the next merger is announced, let the airline, your representative and regulators know that fewer airlines are not in your best interests.

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 . Got a question or comment? You can post it on the new forum.

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  • bodega3

    The rest of us are paying the higher price without getting our bag checked. Wow, what a great deal this all is :-( The carriers stated that fares would be lower….and I bet they have some swamp land in FL they would like to sell, too.

  • bodega3

    It is relevant to your search because you are making a false statement. I see fare basis’ daily, which is different than pricing. I can pull up SFO to Kansas City and will see the same fare in the market for all or most of the carriers, but what I price will be based on the available class of service on the flights I book. You don’t see fares basis’, you see prices based on what is available for the carrier, city pair and dates you put in. I put in city pairs and dates to see what fare basis is in the market. I then look at availability, either general or by carrier. A fare basis determines the price you pay. I can also request the class of service needed for booking that low fare basis, which I often get, which you can’t, as what you see online is what the carrier wants you to book.

  • bodega3

    Yes, what you see is what is available at that moment and what the carrier wants to show you. Not all flights show up online, but they do in our GDS as it is regulated by the US Gov, where online isn’t. So you see what the OTA or airline wants to put out there for you to book.

  • bodega3

    I buy yearly park passes. But I wouldn’t be happy to buy the pass, then still have to pay to park, pay to hike a trail, pay to use the restroom.

  • VoR61

    In TN for example, state park access is free to all, which means TN residents subsidize non-residents’ access.

  • VoR61

    Thank you for making my point. The statement has been made that flyers (not TAs) will book a similar flight that is $1 cheaper without regard for other factors (e.g., seat pitch). Since I can’t see anything other than what’s in front of me, and I don’t see fares within $5 of one another AND that have similar schedules (take off, landing, # of stops, and layover times), I can’t book the “$1″ less fare of which Carver spoke. It does not matter what you can see.

    But to re-check, I searched for a flight that we completed last year. Here’s a snapshot based upon the same relative dates:

    DEN-ATL Sep 27-Oct 4 nonstop
    Frontier $215 (includes Airtran)
    Delta $260, $320
    United $260 (dep 5:15p)

    Granted, we are close to those dates, which will reduce availability, but this is what I have from which to choose. As a further test, I chose other SAT-SAT dates into next year with similar results.

    Edited: please note that I show United as departing at 5:15p, which is much later than the others.

  • VoR61

    I’m not following you. We both (you and I) pay $300 for the same flight, but you pay another $25 to check an additional bag. How am I paying a higher price without the bag check?

  • Carver Clark Farrow

    I’m not sure which four hour window you selected, but suspect that it included late Friday. or early Monday. Both times on that route tend to have wild fluctuations. But besides that, looking at the fares and using the four hour window that I generally travel on that route (knowing to avoid Friday after 12pm and Monday before 12pm).

    Leaving 9/5 in the early morning 6-10am,
    and returning 2-6pm on 9/8

    You can price a fare on Yahoo Travel (travelocity) for $218.19 on

    outbound

    United 261
    United 635
    Virgin 922
    AA 1232
    Virgin 1930

    Inbound

    American 209
    US Airways 2841
    United 273 (6:10pm)
    United 1581
    United 1184
    etc.

    If you go directly to the sites the prices will probably be about $5 cheaper across the board which would account for your $212. As stated before, prices are identical.

  • Carver Clark Farrow

    I’ll let Bodega speak for herself, but the argument that has been proffered is that yesterday the $300 included a bag, but today it doesn’t, thus a price increase.

    The argument is a red herring. Yes, of course its a price increase. Prices increase regularly. The question is who should pay the price increase. Should it be spread out amongst all citizens (e.g. taxes), all passengers (raise all fares), or just the passengers who incur the costs.

  • VoR61

    I see the difference in our searches. You only care about ONE takeoff and ONE landing time. For an apples-to-apples comparison, I filtered for take off and landing both ways. Thus, if you want to compare flights for the $1 question, you HAVE to (IMO) narrow the search that way. In other words, using your search you could leave LAX coming back to SFO anytime you want, and that widens the options (for same price) considerably.

    While that may be fine for you, it doesn’t address the issue of flyers booking the “same” flight(s) on an airline that is $1 cheaper.

  • VoR61

    Yes, and that’s my point. She longs for the old days when everyone had to pay for her checked (additional) bag, and I would like her to pay for her own, as I consider that particular charge to be reasonable.

  • VoR61

    And, I want to say one more thing, bodega, with all the back and forth we’ve done and that is that I have read many of your posts here and consider you to be skilled and highly articulate. You have my respect …

  • Carver Clark Farrow

    I don’t understand what you mean when you say filter searches both ways.

    Can you show what you mean and how that is meaningful.

  • VoR61

    I use Kayak. In their search screen they present sliders that you can use to narrow a given search. For the purposes of this discussion (can an ordinary passenger book similar flights on different carriers for $1 less), I plugged in your itinerary and set the sliders for a DEP of 9a-1p (both ways) and an ARR of 11a-3p (both ways). Thus it showed me only the SFO-LAX-SFO flights that:

    Left SFO between 9a and 1p and arrived LAX between 11a and 3p
    Left LAX between 9a and 1p and arrived SFO between 11a and 3p

    This narrows the results sufficiently to compare carriers’ fares for flights leaving AND arriving at similar times for BOTH airports.

    While you may care only when you leave SFO and return there, the $1 comparison needs a narrower search criteria.

  • bodega3

    Thank you.

  • bodega3

    City parks are free to visitors but citizens of that city pay for it. So it all evens out, which is why I think the old way was best. IMHO, it is very selfish of travelers to want to take away what we had, making us pay more, when in reality, they are paying more, too, as fares haven’t dropped but gone up.

  • PsyGuy

    Speaking of apples and oranges. Here in Tokyo, we use the yen, and at a very rough conversion it’s about 100Y to $1. Apples here can go for about 500Y-800Y depending on the apple and the store. For those who are math challenged, thats $5.00-$8.00 for ONE apple. At that point a single yen really does make the difference, and people will cross the street, go down the street around the corner, wait until the end of the day to go buy the fruit market they know literally to save the equivalent of few pennies.

    In the spring/summer you often find markets set up in the hallways of various train stations (usually the bigger ones) and a common item is a kilo or oranges, these are those really small oranges that aren’t very sweet, that you would get in the US for 10-15 for $1, here they sell for 500Y-600Y a kilo, and a lot of the vendors will attempt to outbid each other. You can literally see one vendor across from another vendor mark down their oranges by a single yen or a couple yen and it will shift the consumers to that vendor. Most of them end up selling their oranges at cost or below cost, because the oranges get the attention, but the customer stays and buys something else ina ddition to the oranges.

  • PsyGuy

    I would really like to see an updated study or report done on what constitutes “necessary” services. It wasn’t that long ago when having a bank was optional. You got a pay check, you went to the grocery store, they cashed it for you. A lot of people didn’t have bank accounts and if they did they had “passbook” or savings accounts. That’s not too much different for some countries. Even here in Tokyo, the vast majority of people pay in cash, with stops at an ATM to fill up. Sure we have debit cards and credit cards, but we don’t really use them here, unless your eating out at a high end restaurant. You really can’t live without a bank account now in this time period, everything we do is so focused on auto deposit to get your money and the use of debit cards (alas the ATM card in the States is almost extinct) to spend your money. Remember when ordering something you actually called a real person on a phone (who was in the USA0 and you could order something COD (Cash on Delivery)? You really cant do that now, and if it still exists in some niche, youd be way overpaying by not ordering it from Walmart or Amazon (at least in the USA, in Japan you can order items from Amazon, and prepay for them at a convenience store). The people in the USA without bank accounts essentially pay more (and a significant amount more).

    A recent article I read had stated that more people in the 20 and 30 something, age bracket considered internet access a higher priority than a car. I wonder what else would be considered a “necessity” now???

  • Carver Clark Farrow

    As I surmised above, your slider included leaving Monday morning which as mentioned above, tends to skew results on that particular route. Change your 4 hour window to leaving between 2pm and 6pm, and arriving between 4pm and 8pm and I”ll bet you’ll be surprised at the results. And no, I have not checked.

    On that particular route, there are three times (roughly) which the prices tend to fluctuate wildly, Friday after 12pm, Sunday after 12pm, and Monday before 2pm. Other than that, the prices tend to be fairly stable and consistent among the airlines.

    The range of arrival time on a short hop, non-stop is irrelevant to the discussion. Mathematically, since the transit time (Flight Time plus layovers) is effectively a constant (Flight time is 1 hour, layover is “0”), once you determine the departure range, the arrival time range is also determined.

    Arrival time = Departure Time + Transit Time
    Transit Time = Flight Time = 1 hour
    Arrival Time = Departure Time +1 hour

    Thus, if the departure time is constrained to be between 9am and 1pm, the arrival time is similarly constrained to be between 10am and 2pm. You cannot schedule a non-stop flight to leave SFO at 1pm and arrive at 3pm.

    Now, if the flight is not a non-stop, then mathematically, we have to consider the arrival time as transit time Flight Time and neither remains constant (different routing and layovers). But that’s not the situation with my SFO-LAX-SFO simple hypo.

  • Carver Clark Farrow

    Ahhhh, loss leaders.

    I have not had the privilege to go to Tokyo. One day.

  • Carver Clark Farrow

    I would also point out that leaving at the same time on different days is not necessarily a better or even meaningful comparison. Friday morning and Monday have very different cost structure because different people are flying. Friday morning is an average morning, Monday morning is laden with business travelers. Even when I was a 100k miles per year traveler, I went to LAX on Monday morning with fear and trepidation.

    Friday afternoon is packed because it’s when people, who couldn’t leave work early, begin their travel weekend. Sunday afternoon is similarly packed because they’re coming home. Monday afternoon is unremarkable for travel.

  • VoR61

    Using just your two time slots, I checked SFO to LAX, LAS, and ORD. All are major market cities and the fares match exactly, so we can’t apply these to the argument about “I flew with XXX airlines because they were $3 cheaper). Go to a lesser market and the fares will vary more than a few dollars.

    Over the 17 years that I have flown more frequently the from was not considered a major market city so perhaps that’s the controlling factor in my not seeing flights for the same-or-similar schedule within a few dollars of one another. As previously stated, I’ve never seen them differ that slightly.

    I just find it improbable that “most” flyers will buy “an identical” flight on airline XXX just because that airline was $1 (or $8) less. The odds seem low to even find one …

  • VoR61

    Travelers didn’t take away what we had, airlines did. Many were filing bankruptcy and looking for ways to cut costs and increase revenue, so they took away meals and started charging for everything as “an option”. I recall them saving millions by just eliminating food items.

    Then came the inevitable seat pitch changes and charges for reserved seats, checked bags, etc. I’ve never heard or read of anyone saying they’re paying for your sandwich, your better seat pitch, or your checked bags. A la carte was the brainchild of the airlines. The rest is a myth …

  • Cybrsk8r

    Actually, I do care which airline. US Airways could be flying where I want to go for free, but since I NEVER check their price, I’d never know that. I check Southwest’s site. If they go where I want to go, the search ends right there.

  • Carver Clark Farrow

    That’s exactly the point. 100% on target.

    Economics tells us that if an item is considered a commodity, the price will be identical to the extent the the goods and services are the same. There will be no price differentiation because if one supplier is higher no one will purchase from that supplier.

    Since the lowest cost coach seats are a commodity, in major markets, such as SFO-LAX, etc with lots of competition and supply, we rapidly approach the economic situation known as perfect competition which what you found leaving SFO. Lots of supply of an undifferentiated product –> identical prices which is exactly what you found.

    Now, having said all of that, you are correct about smaller markets because it’s harder to approach perfect competition. The limited supply permits differentiation between the carriers based on scheduling, routing, etc. That’s the key, differentiation.

    But as to your point about the $1, it’s easily shown. If you have no preference between Delta and United. IF, and remember this is just for illustration, you found the identical flight, same time, routing, departure gates inches from each other, same with arrival gate, etc, Delta is $299, United is $300. Why would you choose United?

  • Carver Clark Farrow

    lol

  • VoR61

    “Let me count the ways …”

    #1 – I really don’t care about $1
    #2 – United has a more favorable schedule
    ……..(times are NEVER exactly the same – sorry)
    #3 – I prefer United (maybe I just do)
    #4 – I dislike Delta (some do)
    #5 – I have a mileage number with United

  • Carver Clark Farrow

    You’ve proven the point, which I can’t take credit for since it’s simple economic theory. To show why you would prefer United, you had to change the hypo.

    1 Create a more favorable schedule for United
    2. Show a preference for United
    3. Show a dislike of Delta.
    and add a FF account, to further bolster a preference.

    But the point is that the reason that the flights were all the same price in those major markets is because travelers don’t have a preference and chose the lowest price. Thus, if someone is lower than you, you must lower your price to match when your consumers don’t have a preference.

    Now, you have a preference for United over Delta. The result is that there is some amount of extra money “X” that you would pay to fly United over Delta. If that were normative within the market, then United would charge “X” amount of money extra on a comparable flight.

    The fact that it doesn’t, again, in those markets that you checked, necessitates that there United cannot charge a premium, i.e. the extra amount “X” is zero, i.e. lowest price coach seats are a commodity and travelers so not choose based on airlines amenities such as space, food, etc. (Note, at no point did you articulate those as being reasons )

  • VoR61

    I was answering in the hypothetical, Carver. I, in fact, do not have a preference for United, but some travelers may. And I don’t have FF miles with United – just a mileage number for Delta, so why not use it.

    I’ll describe my approach this way. I sort by price (low to high), but then proceed through the details of the flights offered. My wife and I prefer to depart between 9-10 AM if leaving from home, 11-12 if leaving from one of the multiple airports near us (2 hours away). And we prefer to arrive between 5-6 PM, but no later than 9PM (ideally). For layovers, we really try to schedule a 1.5 hour minimum, with 2 hours being ideal. If a nonstop flight is over 4 hours, we prefer 1 stop to deplane, stretch, and get a bite to eat.

    So you can see that, for us, we would pay slightly more (although it’s sometimes less) to meet our criteria. The difference has to approach $50 per person for us to deviate from the desired schedule. And I have checked out seat pitch and/or class upgrades, but for us a 2 – 2.5 hour flight is normal and therefore paying extra for “amenities” holds no value for us.

    Of course, you’re used to this last one. When flying west to east, we are forced to adjust our departure preferences or else we arrive very late.

    Perhaps this all highlights why I doubt that “most” would select the theoretical $1 less fare. Even a 1 hour difference in the schedule could be worth a few dollars more.

    Finally, Carver, I really appreciate your back and forth with me on this thread. I follow your comments with intrigue and admiration and you always articulate your position with politeness and incredible patience. I envision you as a very successful attorney …