American Airlines-US Airways Merger -- A Good Thing, or an Anticompetitive Move that's Bad for Consumers?

[Texas Contrarian]

As is no doubt the case with many of you, I travel quite a bit, so I'm interested in this issue. And since my primary residence is in Dallas, I have little choice other than to go with American if I want a decent selection of departure and arrival times.

There's been quite a bit of consolidation in the airline industry over the past few years. After the United-Continental and Delta-Northwest mergers, American found itself in a weaker competitive position, and its management felt that it needed to file for reorganization in late 2011.

Since management-labor relations have always been terrible at American Airlines, it's not surprising that its unions cozied up to US Air's management. The outlines of a potential deal began to form.

But a number of pundits and consumer groups don't like the idea, noting that it would be virtually certain to increase fares over the next few years.

I'm generally sympathetic to that view in cases where an industry seems to be moving toward oligarchy. However, since deregulation in the late 1970s, the airline industry has been badly wounded by wave after wave of startups biting the dust or being folded into financially stronger operators. Yes, they always increased capacity and drove down fares, but every time the mildest of recessions rolled around, a major carrier would file an 11 to get out of some crushing cost burdens. What kind of a way is that to run an industry?

Over the last three decades, unintentionally generous shareholders and lenders have heavily subsidized the traveling public. But at this point, their appetite for continuing to do so must certainly have declined to near zero.

It seems to me that the public would be better served by a few strong, stable airlines that can afford to finance new-generation aircraft and that have the wherewithal to forge alliances with strong international carriers.

Blogger Matthew Yglesias weighed in on the issue, and I think he made several good points:

http://www.slate.com/articles/busine...nd_higher.html

Any thoughts or comments?

[timpage]

Of course it's bad for consumers. On the other hand, like you, I live in the metroplex and if you want to get anywhere that's not in a contiguous state, our choices have been pretty much AA for many years.

My opinion is that both USAir and AA are an abysmal business model. They don't run on time, their employees treat you like sheep to be herded around and their prices have skyrocketed, and AA at least is still unable to avoid a once a decade bankrutpcy filing. I've refused to fly with USAir ever since I was put in a seat missing the buckle side of the seat-belt after waiting two hours to board their late-ariving plane.

I fly Southwest whenever possible. Cheaper, always on time, friendlier people.

[WTF]

The merger between United and Continental airlines has not been good for the people I know that fly out of Houston. Prices are up and service is down. I fly much less but all my flying was done for pleasure. Continental airlines seemed to cater to my type of traveler.

In regards to your question...less competition will result in higher prices, usually. IDK, maybe they can do the Wal-Mart model.

[Guest032516]

Originally Posted by timpage

Of course it's bad for consumers. On the other hand, like you, I live in the metroplex and if you want to get anywhere that's not in a contiguous state, our choices have been pretty much AA for many years.

My opinion is that both USAir and AA are an abysmal business model. They don't run on time, their employees treat you like sheep to be herded around and their prices have skyrocketed, and AA at least is still unable to avoid a once a decade bankrutpcy filing. I've refused to fly with USAir ever since I was put in a seat missing the buckle side of the seat-belt after waiting two hours to board their late-ariving plane.

What do you mean "AA ... is unable to avoid a once a decade bankruptcy filing"?

I believe this is the first time AA ever filed for bankruptcy. I thought they were unique in that regard among major airlines.

I think the merger is a necessary evil. The industry is cutthroat and has suffered from excess capacity for far too long. In the past, every time an airline was able to stiff its creditors in bankruptcy court, the reorganized airline had lower costs and was able to cut its prices. This allowed the reorganized airline to steal customers from the healthy airline, which resulted in the healthy airline going into bankruptcy a few years later. And the cycle repeated over and over and over.

Years ago the courts should have let the airlines be taken over by their creditors and sold in pieces. That would have eliminated the excess capacity years ago.

A whole bunch of airlines that I remember from my youth no longer exist. They either ceased operating or were absorbed in bankruptcy by another airline: Pan Am, TWA, Eastern, Braniff, Northwest, Skybus, and others.

That's not good for consumers either. If we narrow it down to four majors and they are all profitable, then perhaps all of them can provide friendlier service.

I like Southwest for flights within Texas, but they are a pain in the ass if you are trying to fly anywhere far away. Every flight to New York or West Coast requires at least one stop, plus checking your bags. The Wright Amendment still kills them. I'm sure they could compete profitably if they were in DFW, but they won't because it would reduce profits. So they are not overly concerned about the customers either.

[Jewish Lawyer]

Between the overpaid pilots, generous pensions, lousy unions (got that from Gordon Gekko) the only hope they have is a monopoly, or near monopoly, so they can dictate prices and terms. That is the point of all mergers, lower costs, raise prices. Hence, the need for anti-monopoly government oversight.
If only three girls were allowed to sell blow jobs, the price would skyrocket.

[timpage]

I was thinking it would be unique if a major airline hadn't filed bankruptcy. I thought maybe AA had filed in the early 2000's? Or at least was talking about it.....maybe not. And you mention the others....all were major carriers or close to it at some point, Delta, Braniff, TWA, Eastern....all bankrupt and most sold off. Maybe it was Delta that filed twice?

Originally Posted by ExNYer

What do you mean "AA ... is unable to avoid a once a decade bankruptcy filing"?

I believe this is the first time AA ever filed for bankruptcy. I thought they were unique in that regard among major airlines.

I think the merger is a necessary evil. The industry is cutthroat and has suffered from excess capacity for far too long. In the past, every time an airline was able to stiff its creditors in bankruptcy court, the reorganized airline had lower costs and was able to cut its prices. This allowed the reorganized airline to steal customers from the healthy airline, which resulted in the healthy airline going into bankruptcy a few years later. And the cycle repeated over and over and over.

Years ago the courts should have let the airlines be taken over by their creditors and sold in pieces. That would have eliminated the excess capacity years ago.

A whole bunch of airlines that I remember from my youth no longer exist. They either ceased operating or were absorbed in bankruptcy by another airline: Pan Am, TWA, Eastern, Braniff, Northwest, Skybus, and others.

That's not good for consumers either. If we narrow it down to four majors and they are all profitable, then perhaps all of them can provide friendlier service.

I like Southwest for flights within Texas, but they are a pain in the ass if you are trying to fly anywhere far away. Every flight to New York or West Coast requires at least one stop, plus checking your bags. The Wright Amendment still kills them. I'm sure they could compete profitably if they were in DFW, but they won't because it would reduce profits. So they are not overly concerned about the customers either.

[Guest032516]

This is a sad list:

http://en.wikipedia.org/wiki/Airline..._United_States

Looks like US Airways is the one that did Chapter 11 twice.

[Texas Contrarian]

Originally Posted by timpage

I was thinking it would be unique if a major airline hadn't filed bankruptcy. I thought maybe AA had filed in the early 2000's? Or at least was talking about it.....maybe not...

I suppose only insiders know for sure whether AMR's management was seriously thinking about it, but there certainly was a lot of analyst speculation back in the early '00s that they might file any day. Instead, they used the implicit threat of doing so as a bludgeon to wring large concessions from the unions. It seemd to give American something of a reprieve for a while, but apparently was not quite enough to place the company on a competitive footing with other major carriers.

Originally Posted by ExNYer

This is a sad list:


http://en.wikipedia.org/wiki/Airline_bankruptcies_in_the_Un ited_States


Looks like US Airways is the one that did Chapter 11 twice.

Yes, that certainly is a sad state of affairs.

Although I don't have any idea what the number might be, I've heard or read that if you figure in all the failures, an aggregation of the airline industry's P&Ls -- from its inception to date -- would show a very large negative number. Very sad indeed.

It would be wonderful if this were a nice, clean industry where players with adequate capital could compete on a fair playing field. But there are some difficult logistical barriers to entry. Gates and slots are in short supply, and it's hard to determine a fair way to allocate them. I won't be surprised if we eventually go back to something that looks more like the pre-1978 days when the industry was tightly regulated, and that certainly implies less excess capacity and significantly higher fares. But at least a lot of older, inefficient airliners would be more quickly offloaded to developing countries.

If there's anything unambiguously good that could come from all this, I think it's that declining capacity and fleet upgrades would slightly reduce the demand for imported oil. That would be of benefit for all of us.

[jbravo_123]

I also fly Southwest as much as possible. I find their prices and service great. Since I tend to travel light / do one day or overnight trips, I generally don't even have to check any bags anyways.

I've heard quite a few complaints regarding the United + Continental merger as well, which doesn't surprise me.

As others have stated previously in this thread, as the companies continue to merge together, you're going to get closer and closer to having a monopoly which means worse service and higher prices for the consumer.

[timpage]

Southwest is a terrific carrier if you're flying out of Love in Dallas and if you're trying to get somewhere from Texas that is in Texas or a contiguous state, Otherwise, ExNYer is correct. Expect multiple plane changes and significant waits at your connecting airport. Even then, your cost savings may be significant, if you have the time to absorb it.

The Wright Amendment is a mystery to me. Put in place solely to benefit the "major" carriers flying out of DFW and still in place today. Southwest has an airline carrier business model that is second to none. In addition to never having had a major aviation accident.

[Guest032516]

Originally Posted by timpage

The Wright Amendment is a mystery to me.

There's no real mystery to it. It was introduced by Jim Wright, Democratic congressman from Fort Worth and former Speaker of the House. It wasn't for the benefit of the major carriers so much as for the benefit of Fort Worth citizens. DFW was supposed to put both Love Field and Greater Southwest International Airport in Fort Worth out of business.

But Southwest wasn't bound by the 1960s agreement between the two cities and the existing airlines (since SW didn't exist yet) and it sued to stay in Love Field and operate within Texas. They won in court against the Civilian Aeronautic Board (CAB).

After deregulation in 1978, Southwest started operating bigger planes on interstate route and this caused FW to go ballistic. MORE flights out of Love Field meant LESS flights out of DFW as SW stole business from AA, Delta, United and all the others at DFW. So, folks in Fort Worth would have less flight available to them or would have to drive all the way to Love Field.

And that's when Jim Wright rode to the rescue. The Wright Amendment limited service on regular mid-sized and large planes to and from Love Field only to locations within Texas and the four neighboring states. It handicapped SW's plan for interstate travel and stopped any other airline from opening gates in Love Field to any remote cities.

I love this excerpt from Wiki:
-----------------------------------------------------------------
While the law deterred other major airlines from starting service out of Love Field, Southwest continued to expand as it used multiple short-haul flights to build its Love Field operation....
Some people managed to ... get around the Wright Amendment's restrictions. For example, a person could fly from Dallas to Houston or New Orleans, change planes, and then fly to any city Southwest served — although he or she had to do so on two tickets in each direction, as the Wright Amendment specifically barred airlines from issuing tickets that violated the law's provisions, or from informing customers that they could purchase multiple tickets that would enable this.
-------------------------------------------------------------------
That last part floored me. SW was BANNED from telling people they could buy a ticket for the second leg of a flight. Hello? First Amendment? I don't think they could get away with that today.

More recent court decisions have stopped the government from forbidding companies from making truthful statements about their products and services that may nonetheless run afoul of government policy. Companies were more deferential back then.

[Guest040616]

For years I flew Continental out of Houston. I suspect I had 10+ consecutive years of earning Elite status. At the time I had very few problems with Continental and quite frankly, I had no reason to look elsewhere, even though I lived closer to Hobby than Intercontinental Airport.

When Southwest changed their boarding standards, I started flying them more and the few times I now fly Continental it is obvious to me it is not the same. I believe the United/Continental merger did not serve the loyal Houston based, Continental passengers well. At least that is my opinion.

I now almost always fly Southwest and hopefully that will not change in the near future!

[timpage]

Originally Posted by ExNYer

There's no real mystery to it. It was introduced by Jim Wright, Democratic congressman from Fort Worth and former Speaker of the House. It wasn't for the benefit of the major carriers so much as for the benefit of Fort Worth citizens. DFW was supposed to put both Love Field and Greater Southwest International Airport in Fort Worth out of business.

But Southwest wasn't bound by the 1960s agreement between the two cities and the existing airlines (since SW didn't exist yet) and it sued to stay in Love Field and operate within Texas. They won in court against the Civilian Aeronautic Board (CAB).

After deregulation in 1978, Southwest started operating bigger planes on interstate route and this caused FW to go ballistic. MORE flights out of Love Field meant LESS flights out of DFW as SW stole business from AA, Delta, United and all the others at DFW. So, folks in Fort Worth would have less flight available to them or would have to drive all the way to Love Field.

And that's when Jim Wright rode to the rescue. The Wright Amendment limited service on regular mid-sized and large planes to and from Love Field only to locations within Texas and the four neighboring states. It handicapped SW's plan for interstate travel and stopped any other airline from opening gates in Love Field to any remote cities.

I love this excerpt from Wiki:
-----------------------------------------------------------------
While the law deterred other major airlines from starting service out of Love Field, Southwest continued to expand as it used multiple short-haul flights to build its Love Field operation....
Some people managed to ... get around the Wright Amendment's restrictions. For example, a person could fly from Dallas to Houston or New Orleans, change planes, and then fly to any city Southwest served — although he or she had to do so on two tickets in each direction, as the Wright Amendment specifically barred airlines from issuing tickets that violated the law's provisions, or from informing customers that they could purchase multiple tickets that would enable this.
-------------------------------------------------------------------
That last part floored me. SW was BANNED from telling people they could buy a ticket for the second leg of a flight. Hello? First Amendment? I don't think they could get away with that today.

More recent court decisions have stopped the government from forbidding companies from making truthful statements about their products and services that may nonetheless run afoul of government policy. Companies were more deferential back then.

Hence, the mystery. I get who it was named after but the rationale for it defies explanation. It's stupid because it's designed to fuck consumers. Southwest could fly anywhere they want out of Love and would offer the same on-time high quality service they offer now presumably. The only reason they don't is Wright. Absurd.

[Guest032516]

Originally Posted by timpage

It's stupid because it's designed to fuck consumers.

Not all consumers. Just the ones in Dallas who prefer Love Field. It was a good deal for Wright's constituents. By keeping more flights in DFW, the Cowtown crowd has more options easily available.

Sure, the flights from Love might be a little cheaper than from DFW, but not cheap enough to make up for the extra drive around DFW airport and then through hideous rush hour traffic to get to Love Field. So Wright knee-capped them.

This is what politics is all about. Taking care of your own. Not protecting the free market.

Congress loosened the strings on the Wright Amendment in the mid-2000s due to pressure from politicians in other states - not just from Texas. And the Cowtown politicians STILL fought it - 30 years later. Like DFW airport - 1 of the 3 biggest in the country - somehow STILL needs the protection

Originally Posted by timpage

Southwest could fly anywhere they want out of Love and would offer the same on-time high quality service they offer now presumably. The only reason they don't is Wright. Absurd.

The Wright Amendment restriction on non-stops outside the "Wright zone" is supposed to expire in 2014.

However, it looks like Love Field is still restricted to 20 gates instead of 32 gates even after 2014. SW will have 16 gates, AA gets 2 and Continental gets 2. And NO international flights.

I don't think they will ever allow full operations at Love unless and until DFW airport builds the sixth terminal and all terminals and all gates are operating at or near full capacity. Only then will FW relent and allow more flights out of Love field.

[jbravo_123]

I know when the new terminal at Hobby was announced (Southwest will start doing flights to Mexico and South America from it), one of the bigger airlines (can't remember if it was Delta or United) pitched a huge fit about it and threatened to close up shop in Houston.