Time to shed a tear into your tiny plastic cups of tomato juice, because the merger between US Airways and American Airlines announced last week marks the end of the era of cheap domestic airfares. Thanks to Northwest’s takeover by Delta, Continental’s takeover by United, and AirTran’s takeover by Southwest, and now this, four giant airlines will soon control about 70 percent of the American market.* That’s not exact a monopoly situation, but it does mean that the 30-plus year run of robust competition and ever-falling airfares is almost certainly over.
American Airlines is a much larger company than US Airways, yet it’s in effect being acquired by the smaller company. That’s because the larger company was bankrupt. The new firm will be owned by a blend of US Airways shareholders and American Airlines creditors, and run primarily by US Airways’ top management. US Airways itself was the product of a similar merger back in 2005. It had filed for bankruptcy in 2002 and then again in 2004, and found itself de facto taken over by the smaller America West Airlines. That merger saw America West’s brand subsumed under the better-known US Airways, but it was America West’s CEO Doug Parker who ran the merged entity and who now, with the American merger, will be CEO of the country’s largest airline.
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A key stated goal of this merger—as in the Delta/Northwest and United/Continental deals—is to reduce “excess capacity” in domestic passenger aviation. That’s a polite way of saying less competition and less service. This will take a few forms. There are currently a half dozen US Airways flights from its hub in Philadelphia to Dallas. Dallas is a key American hub, so American also flies six times a day from Philadelphia to Dallas. The combined entity probably won’t need 12 flights a day to serve the route and definitely will have more power to raise prices than either airline would separately. Smaller cities will also see the pinch. Right now, US Airways and American both serve Tallahassee, the former seeking to route passengers through its Charlotte hubs and the latter through its Dallas and Miami hubs. A merged airline might cut that Charlotte service, figuring that network access through Dallas and Miami is ample to compete with Delta’s service through Atlanta. By the same token, when airlines merge the smallest hubs in the new larger airline tend to lose out and shrink.