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Consumer Advocates : American Airlines, US Airways Merger Likely A Bad Deal For Customers

Air travelers may end up losing big in a deal that would create the largest airline in the U.S., consumer advocates told The Huffington Post, after various leaks this week suggested such a merger was imminent.

Reports in the financial media Thursday and Friday noted that after months of complicated haggling, US Airways and the bankrupt parent company of American Airlines were almost ready to announce a corporate marriage.

The merger would create the largest U.S. airline by revenue, and it has been encouraged by creditors and employees in both airlines as a positive step.

But frequent flyers should be wary of the developments, according to Paul Hudson, a board member at airline consumers’ advocacy group FlyersRights.org. The deal “is unlikely to be good for consumers,” he said.

“It will likely increase airfares, reduce consumer choice and increase overcrowding on aircraft, and result in job losses at both airlines — but especially for US Airways,” Hudson said, adding that he fears “abandonment or downgrading of some hubs like Phoenix.”

Diana Moss, vice president at the consumer advocacy group American Antitrust Institute, said any deal could lead to higher ticket prices “by limiting the power of low-cost carriers to discipline fares.”

Moss said the move is “yet another legacy merger in an increasingly concentrated oligopoly business where you just have a few firms.” Medium and small communities in the Midwest may see service cuts due to decreased competition along those routes, she said.

A white paper co-authored by Moss in August notes that a merger would leave more than 70 percent of the U.S. air travel market in the hands of four companies: Delta, Southwest, United-Continental and the newly merged company, which is likely to take the American brand. Low-cost carriers like JetBlue and Spirit Airlines would hold less than 10 percent of the market, researchers said in the paper.

Having such a large market share gives firms incentives to offer uncompetitive prices, consumer advocates agreed.  “The danger in such concentration is also that airlines, like big banks, will become too big to fail,” said Hudson of FlyersRights.org.

Mark Cooper, director of research at the Consumer Federation of America, was even more pessimistic than his peer consumer advocates. “In the airline industry, the problem is not just the mergers anymore,” he said. “The market structure that has emerged doesn’t support enough competition to limit consumer harm.”

The view of those consumer advocates is being challenged by some who want the deal to move forward.

Tom Hoban, a pilot at American Airlines for the past 22 years who is also a spokesman for the pilots’ union, said a merger will be good news for consumers. It will address “American Airlines’ shortcomings in terms of routes and network size,” he said.

The deal would allow American’s business travelers to access new options in the Northeastern United States, where the airline’s network is less dense, while giving US Airways travelers access to American’s superior Oneworld global travel alliance, Hoban said.

A merger would offer improved service to customers, Hoban said, as it would replace “a very recalcitrant group of senior executives trying to hold on to power” with a management team labor unions feel they can work with.

That last point is particularly significant in the case of American Airlines, where relationships between labor and management have been so toxic they appear to have led to flight cancellations in September after the airline said pilots called in sick en masse (the pilots denied any organization occurred).

However, consumer advocate Moss said she wasn’t buying the supporters’ argument.

“Just because an efficiency occurs over here in this part of the system and they’re better able to serve consumers on this side, that doesn’t mean we should accept higher prices and less service in another part of the system,” Moss said.

Source: Huffington Post

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Posted by on February 11, 2013. Filed under Business News,Slider. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.