A merger at 30,000 feet, US Airways and American Airlines, two of the biggest airlines in the country, announced that they will merge sometime this coming fall. It is all too reminiscent of the last big airline merger between Continental and United Airlines. Today, two years later, it seems that merger is still struggling. Alhough with American and US, it seems like this is the only option. The merger comes from a mutual need from both American, who is in bankruptcy reorganization, and US, who is looking for a better network of flights to offer, in order to survive.
The reality of the situation is there can’t be a merger of this size without impacting the majority of air travelers. Let’s look at ticket prices to see where the market is headed:
This chart, made with data from the Bureau of Transportation Statistics, shows ticket prices from the past ten years. The steady decrease from the 2001 attacks, the sharp decline in 2009 from the Great Recession, and the bounce back in 2010 from the struggling airlines all show a volatile, or what economists would call elastic, market. A market such as air travel, that shows such response to change, will undoubtedly see a price change in response to this merger. By this standard, a reduction in competition will most likely drive prices higher. How much higher may depend on a variety of factors such as regional location, specific airport, airline airline traveled, and how soon employment gets back to normal.
One unintended consequence of this merger is that there will be gaps left in airports from consolidation. These gaps will be open opportunities for smaller and low cost airlines to come in and provide lower prices, such as Southwest.
The most important issue to take away from this merger is that the big airlines in the U.S. are going from five to four. The bottom line: there will probably be higher prices for air travel in America.