One less airline may mean more competition
NEW YORK — There's always a question whether bigger really is better. And in the case of the proposed merger between United Airlines, the nation's largest air carrier, and US Airways, the dominant East Coast player, the answer is somewhat paradoxical: It could heighten competition overall yet diminish it in some markets.
The proposed consolidation will undoubtedly have some impact on ticket prices. But, more important, it would accelerate the transformation of the industry into a two-tiered system of large and small carriers.
Some analysts worry the whopping $11 billion consolidation will give one big company too much market power in East Coast airports, from Philadelphia to Boston.
Studies consistently show that when one airline dominates a market - as Northwest does in Minneapolis - airline fares are consistently higher.
Merger plan may propel two-tier system of air carriers
But other analysts say the merger, which must be approved by federal regulators and the unions, will ultimately be good for customers. USAirways is in a shaky financial and operational position. This solidifies it, ensuring stability in the East Coast market.
"The merger with United solves all their problems at once," says David Stempler of the Air Travelers Association, a passengers' advocacy group in Washington.
Concern always rises when a competitor disappears from the market, whether through a merger or going out of business. But in this case, Mr. Stempler doesn't expect much impact on consumers because United and USAirways don't compete directly on many routes. In fact, he believes it will end up encouraging competition with American and other large carriers.
It's part of the transformation of the airline industry into a split market, made up of larger US carriers in international alliances and low-fare, shorter-haul competitors. "As long as we allow for competition among these giants and each of them participates in large international alliances, it can benefit consumers," he says. "But that's as long as the smaller, low-fare carriers also thrive."
This merger could also accelerate the trend by prompting another round of consolidations among the other major carriers. Darryl Jenkins, executive director of the Aviation Institute at George Washington University in St. Louis, says it will put a lot of pressure on American Airlines, in particular, because it competes so closely with United.
"America West and Alaska Air are two of the smaller airlines that are now potential takeover targets," he says. "Delta will probably continue to concentrate on buying regional airlines."
But even if the market breaks into two competing sectors, some consumer advocates worry that customers will suffer. Despite threats of federal intervention and airlines' pledges to improve service, complaints against the carriers more than doubled last year. And with airlines flying at peak capacity, some consumer advocates doubt service will get much better.
Part of the problem is an antiquated air-traffic control system that adds to delays. Another problem is the airlines themselves, which continue to try to pack flights during peak times, exacerbating air-traffic snarls.
Even so, the airlines have pledged to do better - and insist they are being more responsive about lost luggage and explaining delays to passengers.
Still, some experts say this merger could create turbulence in the short term. "There will be rough edges for consumers for the next couple of years because the new airline won't work as smoothly as one airline that's been working together for quite a while," says Jan Brueckner, an airline expert at the University of Illinois in Champaign.
That's something, analysts say, both airlines must focus on. With passenger frustration growing, Congress is looking to intervene. Many in the airline industry want to do anything they can to avoid that - particularly if consolidation continues. "This is something that the airlines need to solve with their own customers, and I think they're doing an OK job," says Stempler. "But with planes so crowded, it's hard to satisfy everybody."
*Ron Scherer contributed to this report.
(c) Copyright 2000. The Christian Science Publishing Society