Airline mergers won't benefit travelers
As more of the nation's largest airlines slump into bankruptcy, megamergers are beginning to be touted as a cure for the airline industry's serious ills.Skip to next paragraph
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Merging together Delta, Northwest, United, American, and US Airways to form even fewer, even bigger carriers, it is being suggested, will return struggling airline giants to economic stability. There are only two serious flaws with this suggestion - it might work, and it might not.
If it worked, it would concentrate control of the industry into even fewer, even more powerful firms. The hub monopolies that the major carriers have exploited to the torment of air passengers for two decades would gain even more clout, enabling the merged firms to price even more monopolistically.
It would also give the major airlines more market power to drive out smaller competitors through such tactics as temporary predatory cuts in fares; denial of access to terminals, gates, and takeoff and landing slots; and obstructing their access to computer and online reservation systems.
So if megamergers work we will see even more passengers traveling even farther distances to escape sky-high fares at monopoly hubs, and wasting even more gasoline and driving time in the process. We will see the innate advantages of air travel - speed, ease, convenience - eroded even more. In short, we would suffer the disadvantages of airline monopoly on a nationwide scale.
On the other hand, merging major bankrupt carriers together might fail. The proposal rests on the highly dubious assumption that the basic problem of United, American, USAir, Delta, and Northwest is that they are too small to be efficient and effective - an assumption that flies in the face of reality.
Recall that it is smaller carriers like JetBlue and AirTran - firms that are a fraction of the size of United, USAir, Delta, or Northwest in terms of revenues and aircraft fleets - that are running profit rings around the collapsing giants.
It is the smaller carriers that (along with Southwest) have pioneered the low-cost policy of flying only one type of aircraft in order to economize on parts and maintenance. It is they who have avoided the high costs of monopoly hubs which are fully utilized only a few times during the day.
In fact, it can be argued that mergers over the past 20 years paved the way to the catastrophic conditions now afflicting the major airlines.
During that era, Northwest acquired Republic Airlines, a major regional carrier in the upper Midwest, to monopolize hubs in Detroit and Minneapolis. American Airlines absorbed feisty upstart AirCal on the West Coast, and acquired TWA after the latter had acquired Ozark Airlines, another formerly successful regional carrier. Delta acquired Western Airlines, a major carrier in the western region of the country. And USAir acquired Pacific Southwest Airlines, as well as Piedmont, a highly successful and rapidly expanding former regional carrier.
The majors also obtained control over most of the nation's commuter carriers, and have struck "alliances" and partnership pacts with virtually all of the world's largest carriers outside the US.
So if mergers are bad for airline travelers and bad for airlines, what is the solution?
Dumping billions more dollars of taxpayer funds into failed megacarriers is clearly not the answer. Since 9/11, the airline giants already have received billions of public subsidies, billions of government loan guarantees, and billions of government bailouts of their pension obligations and liabilities.
Perhaps, instead, smaller carriers that have demonstrated their superior ability to operate airlines efficiently and profitably should be encouraged to acquire the assets and employ the people of the failed major carriers, and to do so in ways that will promote rather than destroy competition in the field. Perhaps the current turmoil affords a golden opportunity to remove the monopoly chokehold over the nation's major airports and routes in order to encourage the entry and expansion of more new competitors.
Instead of repeating the mistakes of the past, perhaps now is the time to truly begin to remedy them.
• James W. Brock is the Moeckel Professor of Economics at Miami University in Oxford, Ohio, and author of 'The Bigness Complex.'