Will United-Continental merger raise airfares?

The Continental merger with United will get tough antitrust scrutiny, which has the potential to result in fewer flights, less competition, and higher airfares.

By , Staff writer

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    The Continental merger with United will see the companies' planes take on a new look. Will it also see a drop in competition and increased airfares?
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What does the merger of Continental and United Airlines mean for airfares?

The obvious concern, with two already-large airlines combining to become the biggest player in the whole US industry, is that the deal will harm competition.

In this case, while antitrust authorities are sure to give the merger a deep review, the answer may be that competition will remain strong on most routes. In many cases, the current routes flown by United and Continental don't overlap, so a merger wouldn't likely increase fares.

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On routes where antitrust officials see a threat to competition, they may ask the airline to give up slots to other carriers.

Overall the airline industry is a competitive one, even though it seems like the big competition lately has been about which airline can raise its baggage fees the most:

• Ticket prices paid by US consumers have risen more slowly than overall inflation during the era of deregulation, since 1978. Thus, passengers are now paying about half as much (on an inflation-adjusted basis) to fly one mile as they paid in 1978, according to Bureau of Transportation Statistics (BTS) numbers reported by the Air Transport Association.

• Over the past year, airfares have risen faster than overall inflation (more than 7 percent), according to inflation data from the Labor Department. But a big reason is that oil prices have nearly doubled in that time.

• The average domestic airfare, at $306 as of the third quarter of 2009, is lower than its level of $340 at the beginning of 2000, according to BTS numbers.

• Carriers aren't exactly rolling in profits. The US industry has lost money in five of past 10 years, according to BTS data. In all, the dollar volume of losses and profits nearly balance out, so that the industry hasn't done much better than break even for the decade.

Of course, all of this doesn't mean it's easy for shoppers to find bargain fares. The BTS data on airfares, for example, include the impact of discounts like Internet specials and frequent-flier awards. Travelers pile onto red-eyes and jump through other hoops to get those deals. Also, many airlines have cut back on routes, so that planes typically have few empty seats to spare.

The company that results from the merger announced Monday will take the name United Airlines. Jeff Smisek, Continental's chief executive officer, will be CEO and have offices in both Chicago and Houston. Aircraft will have the Continental "logo and colors with the United name," the firms said in a joint press release.

The new United Airlines will be the nation's largest carrier, but will account for less than 25 percent of the overall market by revenue, according to industry numbers from 2008.

Related:

Airlines: First it was the baggage fees. What’s next? Pay toilets?

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