Big airline mergers have been a fact of life for 30 years, but this era is coming to an end. The proposed combination of US Airways with American Airlines is likely to be the last one we see for a long while. This makes it an opportune time to ask whether this deal is a good thing and, by extension, whether the long history of similar deals has helped or hurt consumers.
To me, the answer is clear: Airline mergers as a whole have been a net positive for the flying public, and this merger is no different. Here’s why it should be approved.
A generation ago, U.S. airports were host to a bewildering array of companies. Pan Am and TWA were household names around the world, but for every big player there were a half-dozen small ones, from Ozark and Allegheny to Eastern, Western, Southern and even North Central. They each had a small fleet of planes and a small share of the market. Many were strong in one region of the country but weak everywhere else.
Air travel has become largely a commodity, and the key to survival is efficiency. All major airlines fly the same Boeing and Airbus planes, burn the same fuel and pick from the same pool of qualified pilots. As passengers, we all go through the same security lines and sit in the same seats. The result is a market driven more by price and convenience than any inherent difference in what is being sold.
The key to running a successful airline is pretty clear: Keep the planes flying rather than sitting on the ground, keep the seats full and ensure the lucrative business traveler is happy. Unfortunately, the prior generation of competitors was never equipped to do this. And so one by one, over the decades, they either failed or were bought by other airlines at fire sale prices. Even big players like Pan Am and Eastern went under; those that survived struggled to turn a profit. It’s been said that the net profits of the entire U.S. airline industry for its first 100 years were exactly zero.
Before consolidation, the industry was a mess, but the pressure to attract fliers with lower fares had a profound effect. After adjusting for inflation, today the cost per mile of flying is half of what is was in 1980. Investors who put money into airlines haven’t done very well, but passengers who want to fly have been clear winners.
Under these conditions, the industry did about the only thing it could — it consolidated into larger companies that could operate at a lower cost per seat while attracting passengers by serving many more destinations. This led to the “Big Three”: Delta, United and Southwest. They serve about 47 percent of the country. Numbers four and five are American and US Airways with another 21 percent. A collection of smaller carriers make up the final one-third.
Allowing US Airways and American to merge would give us four big airlines instead of three. This is a net plus for consumers because the thing that keeps fares reasonable is relentless competition. The thing that will keep big airlines in check is other big airlines, and so four of them will be better than three.