April 16, 2010
by Irwin Stelzer
If you are really fond of those middle seats, and prefer planes that fly full and less frequently, make sure you get off a letter to some editor supporting the proposed merger between United Airlines and US Air.
If, on the other hand, you think things are bad enough already, hope that the merger talks, which broke down once before, collapse again. That would disappoint investors who have bid up shares of those companies in anticipation of the promised cost savings and, more recently, of a summer fare increase of "as much as 25 percent this summer from a year ago as passengers fight over fewer seats," according to MarketWatch.
A bit of background. United is the nation's third largest carrier, measured by traffic, US Air the sixth. Put them together and you have the nation's second largest carrier, behind Delta, which merged with Northwest in 2008. United's strength is on its trans-Pacific routes and at its five U.S. hubs; US Air has a large hub in Phoenix as a result of its 2005 merger with America West, and is a big player on the East Coast routes.
The chief executive officers of both airlines have long advocated mergers to reduce capacity and permit fares to rise. United CEO Glen Tilton has been rebuffed by Continental, and US Air CEO Douglas Parker made an unsuccessful bid for Delta in 2006. Now the rejected suitors, who have had what might be called an engagement of sorts -- both are members of the Star Alliance -- are exploring a marriage of the jilted.
If these talks result in a merger -- and that is far from certain as these companies have romanced each other in the past without consummating a merger -- Washington residents are likely to be the most immediately affected.
The combined carrier would control 60 percent of the seats at Reagan and Dulles airports, and would certainly cut back on flights to the 40 cities they both serve from the two D.C. area airports. They would also try to raise fares even more than the industry expects to be able to do in coming months.
Whether they would succeed is another matter. Southwest and other low-cost carriers operate on the routes served by United and US Air, and would be unlikely to match completely any fare increases that the merged company might feel emboldened to institute.
If the regulators approve the deal, they will probably force the carriers to surrender some gates and slots at crowded airports, making room for new entrants or the expansion of existing rivals. Whether that will protect area travelers from any increase in market power by the newly enlarged airline is, however, not certain. After all, United has been able to maintain charges for baggage in the face of Southwest's refusal to do so, loudly trumpeted in its quirky and charming "We love baggage" television ad campaign.
But these worries can be deferred, at least for now. The talks have a long way to go. For one thing, the pilots' and other unions are opposed, mainly because they fear job or seniority losses. This is no trivial matter: US Air has not resolved the seniority-ranking problems created by its merger with Air West five years ago.
Parker's failure to do so "hardly qualifies him to consider the possibility of another merger," claim officials of the flight attendants' union -- like the pilots' union, not exactly an easy bunch with which to reach a reasonable accommodation.
So, this summer things will be relatively unchanged, except that fares will be higher, seat availability lower as the economic recovery gets more people into the air, and lines at security check points longer. Have a nice trip.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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