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Will airline mega-mergers be good for travelers?

by Edward Hasbrouck, author of "The Practical Nomad"

Will airline mega-mergers be good for travelers? No.

Airline mega-mergers will lead to higher fares, fewer direct flights, less choice, and worse service for travelers. And the damage will continue long into the future, since these mergers will make it even harder for new airlines to get started.

Airlines want to merge because they think they will make more money that way. Larger airlines don't have lower costs -- some smaller airlines have much lower costs. Mergers will lead to higher airline profits only if mega- airlines are able to charge higher fares, or restructure their routes to reduce the number of flights.

Both of these are bad for passengers. Merged airlines will likely operate fewer flights, and "consolidate" services. It's cheaper to operate fewer, larger planes between a smaller number of hubs. But that means fewer direct flights, more people changing planes, and flight delays and overcrowded terminals when more, larger planes converge on mega-hubs.

Mega-mergers will mean more airports monopolized by one or two airlines. Airlines have a proven propensity to raise prices wherever lack of competition -- and lack of enforcement of Federal antitrust law -- makes it possible. Since airlines were deregulated, they have raised prices both at their "fortress hubs" and at small airports that are "spokes" on the route system of only one or two airlines.

Airlines claim that bigger airlines will offer passengers conveniences like single-airline ticketing and baggage checking to more places. But airlines have had systems in place for decades that permit through fares, ticketing, and baggage checking between airlines. What travelers care about is price and quality of service, and neither will be improved by mega- mergers. Airlines are exempt from almost all state and local fraud, truth-in-advertising, and consumer protection laws. Airlines have abused that exemption to the max, with deceptive practices like "code sharing" and ads for "half roundtrip" fares that no other businesses could get away with.

Despite airlines' hypocritical prattle about "open skies" and the need for "global competitiveness", airlines benefit from the most extreme protectionism of any industry in the USA. Domestic US air routes are closed completely to foreign airlines, and foreign ownership of US airlines is forbidden.

The public would best be served by measures to open the American skies to global competition; repeal Federal "preemption" of airline regulation; step up enforcement of existing Federal airline laws; ban code sharing as fraudulent; and reintroduce regulation of routes and fares in those markets without real competition.

[Published in the Costco Connection, August 2000.]


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