Post-Merger Airfares: Up, Up and Away?

Someday, not so far in the future, planning for air travel may be very simple: You want to go see your aunt in Kansas City on June 4? Punch it in and your computer will spit out an itinerary and charge your credit card. No messy choices, no annoying price comparisons — because there will be only one mega-airline that flies to Kansas City.

Sound like post-millennial paranoia? Don't be so sure. According to some industry experts, the latest airline news — that less than a year after United Airlines declared its intentions to swallow competitor USAirways, American is reportedly in talks to buy floundering TWA — points to a looming oligopoly and the disappearance of consumer options.

Fears of a monopoly situation

The proposed American Airlines deal is complex and far-reaching; if the buyout succeeds, it will benefit United as well. American has agreed to buy a 20 percent share in USAirways — a move designed to quell Justice Department fears that the United-USAirways deal is monopolistic. Some experts are unimpressed by this move. "United is throwing Justice a bone," says Richard Gritta, professor of finance at the University of Portland's R. B. Pamplin School of Business. That bone — and an incoming business-friendly administration — could be enough; analysts predict relatively laissez-faire antitrust efforts at Justice.

So what can consumers expect from all this reshuffling? "If these mergers go through, we're going to see ever-higher fares," says Gritta. "It's just a continuation of what we've seen in the past 10 years — a dramatic increase in concentration within the airline industry and a decrease in competition."

Bad news for the little guys

It's not all grim news: Gritta predicts the buyouts will provide a few benefits to consumers in the form of "seamless international travel and more frequent flyer miles." But, he warns, the cons will far outweigh the pros in the long run. "And just try using any of those frequent flyer miles," Gritta says.

In addition, the emergence of the megacarriers, who between them will control more than 50 percent of the American market, is likely to stymie the growth of regional carriers like Southwest and, more recently, Jet Blue, which serves the Northeast. In past few years, the presence and reemergence of these low-cost airlines has given consumers reason to hope that enough competition was present in the system to maintain pressure for reasonable fares and better service. But the looming mergers promise bad news for the little guys as well, says Gritta. The market gargantuans, he says, will smother smaller carriers, like Jet Blue, whose businesses depend on finding economical niches in crowded airports.