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The World’s Biggest Airline Is Coming: Now What?

November 13, 2013 by

American AirlinesYes, the inevitable has come. Almost a year after the initial announcement about American Airlines merging with US Airways – effectively creating the biggest airline in the world – followed by a setback in August when the Department of Justice blocked the merger from going forward, the deal has ultimately been given the go-ahead. Many are shocked at the thought of just three airlines (United, Delta, and the “new” American Airlines) controlling over three quarters of the entire US market. Others are focusing on what the implications are for everyday travelers like you and me.

Our first hunch is that the merger will cause American Airlines ticket prices to go up. Traditionally, the strongest and most popular routes operated out of American Airlines’ and US Airways’ main hubs: Chicago O’Hare (American), Dallas/Fort Worth (American), Los Angeles (American), Miami (American), New York (American), Charlotte (US), Philadelphia (US), Phoenix (US), and Washington D.C. (US). Now, as part of the deal, the newly-expanded airline will be forced to drop some of its regular landing “slots” at Washington Reagan National Airport and LaGuardia Airport, which will mean fewer departures from those airports. Scarcity of flights often leads to higher fares.

The flip side to this is that those slots will go directly to the country’s two biggest low-cost carriers, JetBlue and Southwest. As we learned in a report last week, serious growth is happening right now with low-cost carriers, who are actually making more money than their traditional-airline counterparts; naturally, any infrastructure changes that help these budget airlines expand is good news for travelers.

But what happens when smaller carriers become… not so small? Since the low-cost carriers will be gaining a bigger piece of the pie (both physically, in terms of airport gate space, and in market share), they may be looking to raise their own fares to compete with the bigger carriers. Even though the conditions of the merger show consideration for these low-cost airlines, that doesn’t necessarily mean all low-cost airlines will continue to charge low prices. In short, we’ll have to wait and see.

The full merger will be completed this December, at which point we’ll all have a better sense of fluctuations in airfare and flight schedules. Until then, be sure to bid adieu to US Airways. After the merger, all US Airways planes will carry the American Airlines branding, the black-and-white American flag icon will soon become a thing of the past.

One Comment

  • Lonnie Murray says:

    By the same token, shifting the basis of the analysis to a city-pair one dampens these effects. It also increases the number of markets subject to low-cost competition, because low-cost carriers, especially those ultra low-cost carriers (ULCCs) such as Spirit Airlines, Allegiant Air, and Frontier Airlines, tend to operate from alternative airports in major metropolitan areas. In any airline merger, the number of effective competitors on many city pairs will fall, but what matters more is the degree. Of the 1,665 airport pairs, only 30% will have 2 or fewer competitors on the routing post-merger, while more than 70% will retain 3-6 competing airlines with service, hardly a debilitating loss in competition.

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