Why An American Airlines, US Airways Merger Could Mean Higher Fares

on April 23 2012 2:45 PM
American Airlines
American Airlines customers traveling with only one personal carry-on item can now board right after premium passengers. REUTERS

The rumor mill is spinning over news that US Airways is courting American Airlines unions for a possible takeover -- a merger that would likely lead to higher ticket prices across the board.

Last week, US Airways took the first steps toward absorbing beleaguered American Airlines, which filed for Chapter 11 bankruptcy last year. US Airways reached an agreement Friday with American's three unions on what a combined airline would look like, receiving the unions' support for a potential merger.

US Airways is in a position where if it doesn't merge, it's going to die, Joshua Schank, president of the Eno Center for Transportation, told USA Today. They saw this bankruptcy as an opportunity, and they're taking advantage of it.

What does that mean for travelers?

You're likely to see a bump in the cost of travel, Schank warned, particularly on flights between US Airways' and American Airlines' hubs like Chicago, Dallas, Philadelphia, and Phoenix.

If US Airways and American Airlines merge, that would leave the U.S. with just four major airlines. That's down from eight just three years ago before three giant mergers: Delta-Northwest, United-Continental, and Southwest-AirTran.

Just like any other business model: Fewer airlines mean less competition. Less competition means higher prices for the traveling public.

Airfares have jumped dozens of times over the last two years and industry analysts blame airline mergers and high fuel costs for the higher ticket prices. Yet, many analysts note that it's the low-fare airlines like Southwest, JetBlue, Virgin America, Spirit, and Allegiant that provide much of the pricing discipline to the industry.

A merger isn't all bad news. Like a typical flight, there would be ups and downs, higher fees, and additional costs, but you'll land in a better place than where you started.

American Airlines has had trouble courting business travelers but could benefit from being a larger airline. US Airways, as the fifth-largest airline in the U.S., lacks a wealth of international flights. Together, they could help fill in the gaps.

A combined American-US Airways would certainly create some overlapping routes, but it would be stronger on both U.S. coasts, particularly between Washington, D.C. and New York. The combined airline would still lag behind Delta and United in Asia.

Europe is headed in the same direction as the U.S. with three big network airlines -- Lufthansa, Air France, and British Airways -- dominating the industry. On both sides of the pond, low-cost carriers level the playing field.

A merger of the two airline giants is still merely speculation as American's parent company AMR hasn't agreed to any deal yet with US Airways Group. If, however, they did merge, the combined entity would become the world's biggest airline based on miles flown by paying passengers.

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