From the 1970s until the early 2000s, as many as 10 major US carriers regularly slugged it out in the skies. But they were also bleeding money, forcing many into bankruptcy — and into mergers with competitors.
But if the latest merger between American Airlines and US Airways is completed this fall as expected, it could usher in a new era for the industry, and for travelers. Just four carriers would control 85 percent of the domestic market, culminating a period of consolidation that analysts say has helped transform a “chronically sick industry” into a profitable one.
For many travelers, counterintuitively, the trend could mean more choices as the bigger airlines fly to more major destinations and compete on more domestic routes, instead of concentrating on certain regions of the country, analysts said. In addition, as the big four airlines cut back service in some markets, it could provide openings for smaller carriers.
In Boston, for example, American and US Airways reduced their flightsat Logan International Airport, with their combined market share of passengers shrinking to 24 percent last year from 33 percent in 2007. In the meantime, low-cost carrier JetBlue Airways moved in and became Logan’s largest carrier.
William Swelbar, an airline researcher at MIT, said passengers in major markets will often have three or four airlines to choose from instead of one or two.
“Today these four carriers compete in all four corners of the contiguous 48,” he said. “There’s more choice to more places.”
A federal bankruptcy court in New York last week approved the merger between American and US Airways, removing one of the last remaining hurdles to creating a combined airline that would operate under the name American Airlines. The merger still needs approval from antitrust regulators at the Department of Justice and by US Airways shareholders.
The American-US Airways merger would be the fourth among major airlines in six years. Delta Air Lines acquired Northwest in 2008, United Airlines merged with Continental in 2010, and Southwest Airlines bought AirTran in 2011.
The nation’s oldest airlines, the so-called legacy carriers, have been in turmoil for more than a decade, following the terrorist attacks of 2001 that left them with empty planes and massive losses. Jet fuel prices soared, and the growth of low-cost airlines such as JetBlue and Southwest put further pressure on legacy carriers.
With fewer airlines pressuring one another to keep prices low, fares could rise, analysts said, but the merger mania could also help improve the flying experience. The new mega-carriers are making money, allowing them to buy new planes and upgrade services.
“If you look at the US industry versus the rest of the world seven years ago, it literally has done a total flip in that the US region is now the most profitable in the world,” said John Thomas, a Boston-based aviation specialist at L.E.K. Consulting. “If you’ve said that to someone a few years ago, they would have thought you were crazy.”
For consumers, the major concern when the number of competitors go down is prices going up. When an airline announces its intention to raise fares, all it takes is one or two carriers not matching the price increase to force the airline to roll back the increase. With fewer carriers, said George Hoffer, an aviation analyst and adjunct economics professor at the University of Richmond, “You’re less likely to have a renegade.”
But so far, concerns about soaring fares have not come to pass, said Daniel Kasper, a Boston-based aviation analyst at the consulting firm Compass Lexecon, noting that ticket prices have not climbed dramatically. Adjusted for inflation, airfare has risen less than 2 percent since 2008, according to the Department of Transportation. Since 1995, ticket prices have dropped nearly 15 percent, adjusted for inflation — although that does not account for the cost of checked bags, meals, and other fees added in recent years.
Airlines become more efficient when they join forces, which helps keeps airfares down, noted L.E.K. analyst Thomas.
A decade ago, airlines operated out of about 20 domestic hub cities scattered around the country; today, as carriers cut back operations in smaller markets such as Cincinnati, Memphis, and Cleveland, there are half that number. That means fewer choices for Cincinnati travelers, but by connecting through fewer cities, airlines can concentrate passengers on bigger aircraft and cut operating costs.
“Taking hubs out of the system is actually good for the efficiency of the system,” Thomas said. “It’s not as if the airlines are going to charge you more because there are less choices. They’ll charge you the same because their costs have come down.”Continued...