Each time the financial press reports a new airline takeover rumor, reporters ask me whether the disappearance of another big airline will decrease competition and hurt consumers. My answer is that consumer damage depends more on which airlines might disappear than on now many airlines disappear. As I`m writing this column, there`s a strong possibility that TWA will be absorbed by USAir. And that raises the obvious question about how consumers might be damaged if TWA disappears.
First, a little background. Since deregulation, three airlines-American, Delta and United-have emerged as the ”giants” of the industry. Each blankets the U.S., each operates multiple domestic ”hubs,” and each has extensive routes across the Atlantic and the Pacific. All offer non-stop flights on key transcontinental routes. All will fly you from almost any big or midsize U.S. city to any other with a single stop or connection at a hub. All dominate one or more inland hubs, or share domination with one other line.
The giants don`t compete in terms of fares-whenever any one raises or lowers fares, the others go along or the initiator of the fare change pulls back immediately. All offer the same range of cheap excursion fares, with the same restrictions.
There`s no meaningful competition in service quality, either. All basically offer a poor quality of service in coach-at very low prices if you can live with the advance-purchase and Saturday-night-stay restrictions, at high prices if you can`t. All make it very expensive or difficult for you to move up to a more comfortable product.
Then how do they compete? Mainly in terms of image-per the old marketing chestnut, ”the sizzle, not the steak.” And they rely on frequent-flier programs to build brand loyalty.
How do the midsize lines fit into that system? Northwest and USAir are strictly ”me, too” lines. Neither offers a substantive advantage over-nor alternative to-any of the giants, except in the hubs they dominate and in their government-controlled international routes. However, both have kicked off one or more industrywide fare wars over the last two years, providing substantial-if short-lived-consumer benefits.
Continental and TWA go a bit beyond ”me, too” competition. Continental`s most important unique product is the travel-all-you-want senior pass; should Continental disappear, it would be sorely missed. TWA is a major source of discount trans-Atlantic tickets; it`s also the only line to sell a companion option for senior coupons.
If you`re looking for real alternatives, you have to look at the smaller lines. Southwest is the leading example of the great hope of deregulation: It offers no-frills flights at very low fares, even for tickets without restrictions. America West is emulating that strategy, with somewhat less success. At the other end of the spectrum, Alaska and Midwest Express are the only larger lines genuinely trying to offer a better coach-class product than the giants.
It`s easy to see how the extent of consumer damage depends on which airlines might disappear. Loss of any one of the true innovators-Alaska, America West, Midwest Express, Southwest-would be a heavy blow to consumers. Real competitive choices would be cut.
Loss of TWA would be damaging. Even though some of TWA`s recent innovations came out of desperation rather than a coherent long-term strategy, it does offer some products that the giants don`t. Its absorption by a ”me, too” line would damage competition-and consumers.
But you can`t blame the giants for this sad state of affairs. The financial wounds suffered by the midsize lines are largely self-inflicted:
”Me, too” is not a viable strategy for competing with American, Delta and United. For consumers, the saddest development is that the midsize lines copy the giants rather than Alaska, Midwest Express or Southwest.
