Travel News & Views

Airline Competition in a Free Market

Corporate Travel Agents

I think there may be hope after all my fellow Americans. Earlier this week the Department of Justice filed suit to block the proposed merger of American Airlines and US Airways. Predictably, the forces that stand to capitalize on the combined company have their marketing departments going full throttle to say how great it will be if the merger is approved. I’m not so sure.

Leaving our country with only four major airlines is a problem. I base this on my experience owning and operating a travel agency for 25 years. During this time it was painfully obvious that the airlines move in financial lockstep. When one carrier made a move to reduce travel agency commissions, raise fares or initiate passenger fees, they all followed suit within a days. By reducing the number of airlines even further allows a situation to exist that may foster collusion at the traveling public’s detriment.

Before you start calculating your combined frequent flyer miles, consider the barrier of entry for new airlines. This can be illuminated by how corporations buy travel. An airline corporate sales representative makes contact with a corporate purchasing or travel manager to arrange a preferred vendor agreement which stipulates a certain high percentage of travel go on that airline. New airlines have little chance of breaking into this invitation only party.

Now consider how the prime landing slots during the early morning and later afternoon, evening at the most highly traveled airports are next to impossible to secure for new entrants. Thus, the major carriers have another decided advantage.

With less competition you can expect fewer flights which will breed higher fares as the economic principle of supply and demand and scarcity drive higher ticket prices for precious air transportation.

Fewer flights also mean fewer jobs. I am amazed that the unions have come out so strong in support for this merger. I think this is a case where if follow the money, it may make more sense. The combined airline will operate fewer flights than they would as separate entities. The simple math on that says that either all will still be employed working fewer hours or less jobs will exist. America needs more jobs and more 40-hour work weeks.

What I see is an oligopoly of four major players featuring less competition, fewer flights, fewer jobs, higher fares and passenger fees. Am I wrong?

avatar George Oberle (27 Posts)

George Oberle is Founder and Editor of Review Resorts. He is a former travel agency owner and operator as well as an established webmaster and online marketing professional.

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