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American-US Airways Merger: Why Worry?

Although some potential barriers remain—mainly getting the necessary financial and legal barriers—nobody seriously expects that American Airlines and US Airways will not complete their merger. Although the hard part of actually combining the two disparate lines remains, everyone in the industry would be hugely surprised if the deal doesn’t get the required approvals and proceed.

Just because it will happen, however, doesn’t mean it should happen. Sure, those on the industry side of the airline business are virtually unanimous in claiming the merger will benefit everybody. Most analysts on the buyer side, on the other hand, are generally against: Just about all the consumer/user advocates I know, from “Consumer Traveler” Charlie Leocha to the Business Travel Coalition’s Kevin Mitchell, oppose the merger. Some, in fact, if invited, may testify against it in regulatory congressional hearings—I certainly would. Why are we concerned? I would suggest four main problems.

Upward Fare Pressure: “Reduced competition inevitably leads to higher prices.” That’s almost a mantra for consumer advocates in any market segment, and it certainly has its adherents in the airline business. Although some prominent economic studies conclude that fares didn’t go up following the Delta-Northwest and United-Continental mergers, we all have a nervous feeling about the fact that the country will now have only four mega-airlines and only three with worldwide scope. Certainly, fewer big competitors will mean fewer separate lines to initiate industry-wide price cuts and fewer to block industry-wide fare increases.

Beyond that, however, some of us see the key question in a more focused way: Will Southwest Airlines be able and willing to maintain its role as the primary market force keeping a lid on prices? Southwest has itself become a giant and may no longer see a benefit in policing the industry’s prices, and no other line is big enough to fill that vital function. And if Southwest abdicates, you can expect substantial price increases and—at least as important—the return of more onerous restrictions on the lowest fares.

Too Big to Fail: I’m old enough to remember how the last strike and shutdown on United devastated the travel business—and that was back when United’s market share was probably just a bit more than half of what it is now and when load factors in the ’60s meant other airlines could absorb much of the slack. Now, with planes operating almost full all the time, a shutdown of any of the remaining big four lines airline—for labor or any other reason—would cripple business travel and tourism for weeks, if not months. Although a shutdown isn’t imminent, it could happen.

What probably won’t be a problem is loss of service to smaller communities. Overlaps are less in this merger than in the previous big mergers, and my take is that this prospect—widely speculated—is probably not a big worry.

Temporary Chaos? If the American-US Airways merger follows the path of United’s, travelers on the combined line will face months—maybe years—of confused records, confused procedures, and general disorganization. Three big barriers to smooth integration are possible labor push-back when the lines try to merge seniority lists, integration of the IT/reservations/customer-service computer systems and general “corporate culture” differences. Delta-Northwest did a bit better than United at getting over these hurdles, and so far Southwest and AirTran are getting along with hardly a blip. Let’s hope that’s the model.

Frequent-Flyer Devaluation: Although nothing has yet been announced, it’s likely that the merged line will follow Delta’s lead in gradually downgrading frequent-flyer benefits for all but the top tier of elite customers. United, too, is likely to follow. Former US Airways fliers interested in travel to Europe will also be stuck with converting from Star Alliance to the OneWorld Alliance, where American’s primary transatlantic partner, British Airways, gouges frequent-flyer awards with fees. Although BA apparently no longer calls those fees “fuel charges,” by any other name, they’re still onerous.

Ed Perkins on Travel is copyright (c) 2012 Tribune Media Services, Inc.

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