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Airline Mergers Push Fares Higher
Originally published on Thu April 18, 2013 12:22 pm
DAVID GREENE, HOST:
NPR's business news begins with some sky-high prices.
(SOUNDBITE OF MUSIC)
GREENE: If you travel, you might have noticed airfares are going up sharply in many markets - and the reason is mergers. This could be just the beginning. Prices may keep rising if government regulators approve another merger between American Airlines and U.S. Airways.
To talk more about this, we reached Scott McCartney. He writes an airline's column for "The Wall Street Journal."
Scott, thanks for coming on the program.
SCOTT MCCARTNEY: Good to be with you, David.
GREENE: OK. So we are talking about, you know, specific routes. And I was struck, in your article, I mean you said some routes, one airline could dominate 98 percent of a route that when American and U.S. Air come together, if they do indeed merge.
MCCARTNEY: Yeah. No, that's right. And some of these are very large routes. Today, American has about 44 percent of the traffic between Miami and Philadelphia. U.S. Air has about 54 percent. Put them together and you get the 98 percent.
GREENE: Well, just so people can start thinking about their own vacation plans, what are some other routes that stand out as places where we might see some very noticeable hikes?
MCCARTNEY: Dallas-Phoenix, Dallas-San Jose, Charlotte to Dallas, Baltimore to Miami. Places where those carriers have significant presence, they're going to have a near monopoly. And as travelers are hungry for cheap fares, it may be tough to find. They may have to try alternate airlines, alternate airports, making connections, things like that. There are still things you can do but it's going to get very much tougher.
GREENE: And we got a clear sense for the effect of this, when United and Continental merged. I mean we saw a lot of increases.
MCCARTNEY: Yeah. So I looked over the past three years, United by itself increased its average domestic prices about 16 percent. But on routes where it used to compete with Continental and now they obviously no longer compete, we saw a huge increases - 65 percent and 58 percent between New York and Los Angeles, Chicago and Houston, really busy routes that saw quite dramatic increases that were far above what the airline did across the system on an average basis.
GREENE: And weren't the younger more nimble airlines, like Southwest and Spirit, weren't they supposed to be able to get into some of these markets and create some competition?
MCCARTNEY: Well, they are. Between Philadelphia and Dallas, for example, that a route that will become a monopoly for U.S. Airways and American. Spirit just now entered the route.
MCCARTNEY: Spirit says, you know, prices were high on that route already and that's what attracted them. Southwest used to be sort of afraid of going into other airlines' dominate hubs, but now they're going into Philadelphia, Charlotte, Minneapolis, major hubs that network carriers dominate. Southwest, over the last three years, has had the largest price increase on an average basis of any airline, so they have had to raise their prices considerably and don't always provide the kind of low-fare alternatives that they used to.
GREENE: And Scott, but we just ask you. If we are going to see, or there's the expectation that fares are going to go up dramatically, is that something that the antitrust folks might consider when they're thinking about approving a big deal like U.S. Airways and American?
MCCARTNEY: Oh, I think it's definitely a consideration. But you have to look at the whole totality of the market. Can American and U.S. Airways compete separately against the large airlines that you've already created at United and Delta? Or do they need this merger to be able to stay competitive? In a lot of ways, creating a stronger third competitor could provide more competition into United and Delta and hold a check on fares. Overall, it doesn't necessarily mean fierce have to go, but it certainly, in particular markets, gives the airline's ability to really raise prices in what are very heavily traveled busy routes between big cities.
GREENE: Scott McCartney writes the Middle Seat column for The Wall Street Journal. Scott, thanks so much for joining us.
MCCARTNEY: Good to be with you. Transcript provided by NPR, Copyright NPR.