Airline Mergers Provoke Anticipation and Alarm
The sky is shrinking. At least, as one major airline after another announces merger plans, the number of competing airlines seems likely to decrease. This makes many travelers nervous, which observers inside and outside the travel industry say is understandable.
Since May, United Airlines has been pushing a plan to absorb US Airways, an $11.6-billion proposal that federal regulators won’t approve or block until at least April.
And since Jan. 10, AMR Corp., the parent company of American Airlines, has been publicly pursuing plans to take over most of Trans World Airlines’ assets. That also awaits government approvals.
Taken together, these deals mean that a third of the travelers who pass through LAX in a typical week are sitting on airlines at which merger proposals are pending. Most of these travelers are using United, which handles more than 22% of LAX’s 65 million annual travelers.
Since first word of these proposed consolidations, travel agents’ groups and consumer advocates have warned travelers and government regulators that a reduced field of carriers could lead to higher fares.
Representatives for the airlines argue that there’s still plenty of competition and that the main effect will be greater convenience--reaching more cities on a single carrier, for instance, and enjoying connection schedules designed to mesh more comfortably than they do now. United has said that its addition of US Airways routes will spur competition by allowing it to more forcefully challenge Delta’s dominance of air service through Atlanta and what it calls American’s “virtual control” of the Caribbean and Latin American markets.
Consumers, meanwhile, may harbor more immediate worries: What about frequent-flier miles? What about TWA’s bankruptcy announcement earlier this month?
US Airways has told its customers that the two airlines’ frequent-flier program would be consolidated, giving passengers “more destinations than any other airline program.” TWA management has pledged that mileage programs will merge and that TWA passengers who are American AAdvantage frequent-flier program members may soon accrue AAdvantage miles on TWA flights.
Those moves were expected but not necessarily givens. As Randy Petersen, publisher of InsideFlyer magazine, notes, all of this country’s major carriers have reserved the right to drop their mileage programs whenever they like, some with as little as six months’ notice, some with no notice at all.
Nevertheless, Petersen’s guess is “not a single person will lose a mile out there” as a result of the proposed mergers. But he does see some immediate losses for consumers. In many ways, he said, the mileage programs of TWA and US Airways offer more perks than the programs that may gobble them up--unlimited upgrades for some travelers, for instance, and tie-ins with American Express card users.
Consumers also may be worried about TWA’s financial health, especially if they’re holding tickets on that airline. Though TWA filed for Chapter 11 federal bankruptcy protection on Jan. 10, its planes continue to fly, and agents continue to sell tickets.
Broader issues--including the long-term effects of industry consolidation--are bound to simmer. That has been the case since the deregulation of the U.S. airline industry more than 20 years ago, which launched an era of marketplace combat, intrigues and alliances that has surprised even the largest players.
As industry veterans readily concede, nobody realized the pervasive role that frequent-flier miles would play when American Airlines introduced the concept in the early 1980s.
One striking result of this freewheeling marketplace has been a decrease in air fares, especially the discounted, restricted tickets that most leisure travelers buy. The Air Transport Assn., a trade group that lobbies in Washington on behalf of the major airlines, reports that after numbers are adjusted for inflation, domestic fares have fallen 36% since deregulation in 1978.
Some other fallout on the pending merger proposals:
At United, which has 130 destinations in 26 countries, a merger with US Airways would add 80 U.S. cities and 13 international destinations to the airline’s route network. As a move to quiet allegations of anti-competitive practices, United and US Airways planned to sell off US Airways operations at Ronald Reagan National in suburban Washington as a separate entity, DC Air, under control of Black Entertainment Network founder Robert L. Johnson.
United deal makers have agreed to extend the U.S. Justice Department’s review of the proposed US Airways acquisition until April 2.
On the American Airlines drawing board, the carrier’s parent company is to pay about $500 million and assume aircraft leases of TWA, whose St. Louis headquarters would become an American hub. AMR would buy 49% of still-hypothetical DC Air. American also would invest $1.2 billion to share operation of the current US Airways Shuttle (which serves Washington, New York and Boston) with its erstwhile competitor, United.
Another uncertainty in the deal is investor and former TWA chief executive Carl Icahn, who retains rights to purchase and resell vast numbers of TWA tickets at discounted rates. It’s unclear whether these discounted tickets will continue to reach the public through such sources at the Icahn-owned Web site https://www.lowestfare.com.
Much of the American-TWA deal is contingent on approval of the United-US Airways merger. In other words, United and American, the nation’s No. 1 and No. 2 carriers by operating revenues, are rooting for each other to succeed in buying lesser competitors.
Such arrangements alarm many others in the industry, beginning with the leaders of the nation’s largest travel agents’ organization, which opposed both deals. From its headquarters in Alexandria, Va., the American Society of Travel Agents asserts that soon “the nation will be left with three or four mega-airlines. Those carriers are also interlocked in complex alliances and other relationships that promote anti-competitive outcomes.”
ASTA predicts “price increases, fewer choices and further deterioration in customer service” if the mergers are approved.
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Christopher Reynolds welcomes comments and suggestions but cannot respond individually to letters and calls. Write Travel Insider, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012 or e-mail chris.reynolds@latimes.com.
