August 14, 2013

Airline mergers have already led to higher fares

The Associated Press

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A US Airways, foreground, and an American Airlines plane are seen parked at the terminal at Washington's Ronald Reagan National Airport, Tuesday, Aug. 13, 2013. The Justice Department and a number of U.S. state attorneys general on Tuesday challenged a proposed $11 billion merger between US Airways Group Inc. and American Airlines' parent company, AMR Corp. (AP Photo/Susan Walsh)

For instance, on April 18, United Airlines increased its fee for changing a reservation from $150 to $200. Like lemmings, American, Delta Air Lines and US Airways all matched the higher fee within two weeks. Even JetBlue Airways — which has largely resisted fees — increased its change fee by 50 percent.

In the past, passengers might have balked at such fees and boycotted a particular airline. Today, they have no choice but to pay because of fewer options.

The airlines instituted many of the fees in 2008, when the price of fuel spiked 46 percent and the Great Recession sharply curtailed travel. Fuel prices are slightly lower today and travelers have returned to the skies. But airlines rely even more heavily on fees as a source of revenue, while increasingly catering to the highest-paying customers.

Airlines have taken their newfound profits and reinvested in new airplanes. That has led to some improvements for passengers, most notably individual TV screens and Wi-Fi. But those features really just distract fliers from the realities of modern air travel: no pillows or blankets, less legroom and no hot meals.

At the same time, those fare wars that once allowed families to sneak away for a cheap vacation are quickly disappearing.

To deter aggressive discounting, the airlines have set up mutually assured destruction mechanisms known as "cross-market initiatives." If one airline discounts fares on a route that is highly-profitable for another airline, the affected competitor often responds with discounts in another market that hurts the first airline.

In the fall of 2009, US Airways lowered fares to Philadelphia on flights from Detroit, an extremely profitable hub for Delta. In turn, Delta lowered its fares between Washington D.C. and Boston, one of the more-profitable routes for US Airways. The message was heard and US Airways quickly bailed on its Detroit sale.

The big airlines are all now playing by the same rulebook: They are keeping planes full, cutting unprofitable flights to small towns and not encroaching on the other guys' territory.

And all of this has occurred while American and US Airways were separate companies.

 

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