The Dangers of an Airline Merger: Eventual Higher Ticket Prices
Continental's check-in area at Newark-Liberty Airport
Airline industry analysts are gushing over the United/Contintental merger, which isn't exactly a surprise since that's the move that most of them recommended. Apparently it's a win-win-win for everyone involved, with United reaping a bunch of benefits and with you the customer getting "everything you had before." Nonsense. There are certainly going to be losers in this deal, and of course airline passengers—who will almost certainly face eventual higher ticket prices—are potentially among them.
Now it's true that in theory there's no reason ticket prices need to increase. It could be that all of the new post-integration profits will come from cutting waste and route overlaps. But right now all of those "overlaps" come from two separate airlines flying the same route. Another name for that is "competition." Eliminate that and you get less supply for the same demand. All of this is Economics 101, which is part of why all the insider-analyst cheerleading so grating. Ticket prices will most likely spike at least during the initial period of the merger, as the newly redundant routes get merged.
How long it'll take to see major changes isn't really clear yet. Jumping through all the government's anti-trust hoops is going to take around a year. Then the physical integration can begin in earnest, which—if the Delta/Northwest saga is any indication—will also take a while. But then you'll definitely begin to see some changes.
Summer prices are already rising precipitously, with tickets from LAX to Europe up 35% from where they were last year. And that was before the BP oil rig started losing oil, rattling energy markets and driving fuel costs up further. More broadly, the long-promised economic recovery will push up travel demand and spur inflation, both of which will increase prices. So the eventual United and Continental integration might be coming at exactly the wrong time.
[Photo: Jaunted]
Related Stories:
· Airline Mergers [Jaunted]
· Continental [Jaunted]
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