Airline Mergers Raise Fears of Higher Prices

Airline Mergers Raise Fears of Higher Prices

This may not be the case in the airline industry where competition from low cost airlines has increased at the same time as legacy/traditional airlines have continued to merge and form partnerships. Airfares today, when inflation is taken into account, are cheap when compared to past airfares.

Since the U.S. airline industry was deregulated in 1978 there have been a dozen mergers between legacy network airlines.While not each of these have been successful, it is clear there are huge advantages for the airlines that are able to capitalize on the leverage of being bigger.

Even though airline ticket prices are currently increasing, the average base domestic ticket price in the fourth quarter of '09 was $319 vs. $345 in '08, when airlines increased prices quickly to respond to rising oil prices. Either price was inexpensive once inflation is factored in. If fares had increased at the rate of inflation since '96, the average fare in the four quarter of last year would have been $379.

The latest proposed merger would hasten the trend toward consolidation of traditional carriers. In the U.S. it would reduce the number of competitors to just four, perhaps three, if American responds to the United merger by purchasing US Airways within the next few weeks.

While congressmen have argued that the United merger would result it little choice for passengers, little choice for cities and little choice for competition, United has responded saying "This is a brutally competitive industry. It is today and will be after this merger."

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