World’s largest airline merger: bumpy ride for passengers?

The US Airways-United deal fell through but Continental-United managed to find agreement to create the world’s largest airline in a USD$3 billion deal. So what does it mean for passengers?
 

There is serious disagreement here.
 

Consumer advocates say: fewer flights and higher fares.
 

Wrong, greater efficiency and better service and dare consumers believe it: cheaper fares, according to airline executives.
 

There are no definite answers. But a non-partisan US government source, the US General Accounting Office, identified several potential threats to consumers in past mergers:
 

• Less competition in some markets.
 

• An even greater threat of travel disruptions because of labor or financial crises.
 

• A loss of service in some cities.
 

• New barriers for start-up airlines.
 

There are still many hurdles to overcome before the deal is final, including government approval and union acceptance, but the scope of the merger is mind-boggling. The new airline, for example, will handle about 21 percent of domestic capacity (compared to 20 percent for Delta).
 

The airlines’ merger site claims several benefits for consumers, including a massive route network reaching 370 destinations in 59 countries. Few, if any, of these are new destinations, however, but are the result of bringing each airline’s routes under one roof.
 

In the past decade, three major domestic carriers were absorbed by merger partners. TWA with American, America West with US Airways (actually called a reverse merger), and Northwest with Delta.
 

Those experiences offers clues of what to expect from the latest merger.
 

In the American-TWA case, the new airline began reducing service in markets such as St. Louis, a former TWA hub. American gradually cut daily departures out of St. Louis from a peak of nearly 500 by implementing more regional flights.
 

And improved service?
 

“As for efficiency, any improvements obtained by mergers seem to be short-lived and the recent record shows eventually the less punctual partner exerts the greater influence,” reports Bill McGee, a contributing editor with Consumer Reports, writing in USA Today.
 

In the case of Continental and United, the reduction of service may be lessened because they have little overlap in their markets, analysts say.
 

Airline execs always pledge that fares won’t rise after a merger, while many observers claim the opposite.
 

“When one airline suddenly dominates a route where it previously competed with a merger partner, ticket prices are likely to rise — often considerably. If a low-cost carrier begins flying on that route, then fares undoubtedly will drop. But that’s a big IF,” says McGee.
 

"You’re going to pay a premium for this merger," said Tom Parsons, CEO of Bestfares. Com. "The only way you’re going to have lower airfares in 2011 is if a lower-cost airline comes to your city. If not, expect to pay more. It’s sad for the consumer."
 

Not everyone agrees there will be fare increases.
 

For travelers, the merger “will probably be neutral in terms of the effect on domestic fares” because of competition from Southwest and other low-fare carriers, said David Stempler, president of the Air Travelers Association, an advocacy group based in Potomac, Maryland.
 

When do the changes start?
 

Reservations and frequent-flier points won’t be affected, and customers won’t see any operational changes until after the deal closes near the end of this year, United and Houston-based Continental said on a website about the tie-up.
 

Here’s a footnote that may not surprise experienced airline passengers: overall, according to McGee, his conclusion is that airline mergers don’t improve customer service.
 

Whatever their impact, one thing is certainly agreed upon: airline mergers will continue throughout 2010.
 

By David Wilkening