We are in the final period of analysis by the Department of Justice of the pending American Airlines/US Airways merger. One of the issues raised by skeptics of this merger, the Consumer Travel Alliance and myself in testimony before the Aviation Subcommittee of the Senate Commerce Committee, has been the loss of competition.
At this point everyone admits that competition will lose out. Of course, airline merger apologists twist the loss of one more major airline as a pro-competitive development. However, even George Orwell might blush at that kind of pronouncement.
When the number of competitors is reduced the amount of competition is reduced. Just as when one is subtracted from four, the result is three. Three is fewer than four. If four airlines are competing there is more competition than when only three compete. It is simple.
The only real hope for consumers if this merger is approved will be the development of more smaller, niche airlines that can compete through low fares. Southwest is still a strong pro-consumer airline. And, low airfares are kept in play by the likes of Spirit, Allegiant and, soon, Frontier Airlines. But will that be enough?
Where Southwest, JetBlue, Virgin America, Spirit, Allegiant or Republic compete with legacy carriers, there will be a semblance of competition. But, that competition is predicated on these airlines being able to gain critical mass in major airports. To that end, the legacy carriers are doing all they can to squeeze out smaller carriers by controlling gates and counters at airports so that competitors cannot get space needed to compete.
Plus, airfares (which seem remarkably similar) are only one small segment where airlines compete. They also “compete” with their fees as much as with their airfares. But, fees are semi-hidden and hard to compare across airlines.
Take a look at the latest increase of the change fees from $150 to $200. United was the first to announce the increase. They were quickly followed by US Airways and then, American and Delta. Amazingly, every airline found exactly the same moment when they “needed to” increase their change fees by 33 percent.
At the Aviation Subcommittee hearing, senators grilling Doug Parker, CEO of US Airways and soon-to-be CEO of The New American Airlines, if it is approved, didn’t come up with much of a reason. Here is the preliminary unedited transcript of that portion of the hearing.
Senator Klobuchar: And then last, this issue of the change fees on most discount fares going up from $150 to $200, that was a result that United raised theirs. American, Delta, US Air quickly followed their move and also increased their fees. I guess I would ask you this, Mr. Parker. What, if anything, changed that that would necessitate — what changed in the market that suddenly necessitated this fee increase?
Mr. Parker: Well, all sorts of things can affect pricing. But the reality is these change fees, you know, are on non-refundable tickets. We and other airlines provide non-refundable fares that are much lower than our refundable fares. In order to give us certainty, the customer agrees to, in that case, give us certainty that they are going to fly on a certain flight at a certain time, which is a different product than the people who buy a ticket that says, I want to go tomorrow, you know, when I am ready to go. We need to hold seats open for them.
But to provide lower — but to be able to provide lower fares, we also provide a product that says if you are willing to lock in your time to fly, this is — you know, we will sell you a non-refundable ticket. Changing that — making a change to that is expensive for airlines.
Senator Klobuchar: Okay.
Mr. Parker: The fees and —
Senator Klobuchar: I am just again concerned when we go down to four, we are going to see more lockstep behavior.
Mr. Parker: And the fees and the —
Senator Klobuchar: When we go down to three, we will see more.
Mr. Parker: The fees are meant to discourage changes.
Senator Klobuchar: Okay, thank you.
Senator Klobuchar has it right. When we go down to three major network carriers, they will move in lockstep even more easily than they do today. Consumers will have no way to protest airfare or fee changes by “voting with their wallets.” The major airlines that control more than 70 percent of the airline traffic won’t even give them the chance.
This all-but-orchestrated increase in change fees portends major problems for airline passengers and businesses that depend on aviation for much of their transportation needs. Prices will go up and up and up without more competition.
As I have said repeatedly — There is no meed for this merger, competition will suffer, labor problems will persist, localities will lose service and consumers will see no benefits.
Let’s hope that the Department of Justice denies this anticompetitive, anti-consumer merger.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
