Bill McGee, presenting at the DOT Advisory Committee for Consumer Protections (ACACP) meeting, noted the good and bad of airline consolidation. The hearings focused on the use of cell phones for voice calls in the air, the impact of government-imposed taxes and fees and the effects of consolidation on consumer travelers. McGee was invited to speak at the hearing as the representative of Consumers Union, the policy arm of Consumer Reports.
Granted, the question about the impact of airline consolidation on the aviation system is far more complex than even I acknowledged previous to hearing from the stream of economists and aviation experts. However, McGee’s summation of the good and bad of consolidation hits home for most consumers.
The ACACP meeting was held on the 6th anniversary of the merger of Delta Air Lines and Northwest Airlines back in 2008. Since then, United Airlines and Continental Airlines have merged, Southwest Airlines merged with Airtran and American Airlines merged with US Airways. Today, according to testimony presented at the committee meeting, 87 percent of the domestic airline market is now concentrated in the hands of four airlines formed through these above mergers.
McGee’s litany of “the good” and “the bad” seems clear from a black and white consumer perspective. It is a basic part of the fabric of the explorations that include other factors. He mentioned one or two other good/bad scenarios and his explanations were, perhaps, more colorful. But, these are what I came away with jotted down in my note pad:
1. Airline consolidation has resulted in fewer competitors.
The Good: Airlines now have an easier path toward increasing prices and the airlines have only three other airlines that can stop or approve fare increases.
The Bad: Consumers have much less leverage vs. these major carriers. Major network carriers no longer have to work together to take care of distressed passengers. The negative effects on passengers is exacerbated.
2. Fares are increasing.
The Good: There have been six fare increases during the past year, as fuel costs have been plummeting. Consolidation is just about as good as printing money for the airlines, as they can keep raising prices even when reporting record profits.
The Bad: You guessed it — consumers have to pay these higher fares. Vacations become more expensive. Business becomes more expensive.
3. Ancillary fees are proliferating.
The Good: Extra fees, known as ancillary fees in the industry, have been increasing in numbers and, for some, in cost. Passengers now pay for everything from checked bags and seat reservations to meals and early boarding. Even more fees for check-in at the airports, carry-on baggage, pillows and blankets plus others have proliferated.
The Bad: Consumers are stuck with the costs and the confusion. Airlines do not disclose these ancillary fees openly through any sales channel that they choose to sell their airline tickets. The current system amounts to a drip pricing system and feels like bait-and-switch to consumers surprised by extra fees through the air-travel process.
4. Fuller cabins.
The Good: Airlines are squeezing more profits out of their aircraft by filling their aircraft more. A decade ago the average load factor on domestic flights was around 65-70 percent. That meant that one-third of the plane was empty on average. Today, the load factor is in the mid-80 percent. That means more revenue produced per airplane load.
The Bad: More passengers on every aircraft means that finding an empty middle seat is now almost impossible. More passengers using the same lavatories and more passengers crowding the airports. Once, crowds like these were only found on holidays when families traveled together. Today, every day is the day before Thanksgiving.
5. More seats are being squeezed into airplanes.
The Good This effect is on top of the previous effect. Not only are the planes flying at higher load factors, the planes now have more seats crammed into them. Passengers have never had so little legroom on planes. Spirit Airlines almost boasts that they only provide 28 inches of legroom. In presentations, their CEO, Ben Baldanza, has noted that he knows passengers will face discomfort. However, they will willingly sacrifice comfort for price savings. That is what his airline is doing, he claims. However, even Spirit executives admit that the level of discomfort passengers are willing to endure is proportional to the length of the flight. Other airlines, such as Southwest, have installed “thinner” seats (each seat is about an inch thinner, from front to back, than the old airline seats) that has allowed them to add more seats without taking away legroom.
The Bad: Consumers are faced with less legroom and less comfort on most airplanes and find themselves in a test program to determine the level of discomfort to which they will subject themselves in order to save money when flying. Will they rebel? Or will they go for the cheapest seats and say, “Damn the legroom, I want cheaper airfares.” So far, the ultra-low-cost-carriers seem to be making the right bet on price over comfort.
