The proposal put forth by American Airlines to buy TWA and some assets of US Air seems to answer many of the antitrust objections hanging over United Airlines’ proposed purchase of US Air.
But the deals would create two Goliath airlines–American and United–that would dominate U.S. aviation. Theirs would be a competition of equals with each controlling a quarter of the market. Their reach would be broad and deep. Each would be capable of offering far-reaching and virtually seamless route structures across the continent and the world.
If these acquisitions are approved, though, the two giants would gain a big competitive advantage over the next largest airlines, Delta, Northwest and Continental, and increase pressure for them to consolidate too. Northwest and Continental have already formed an alliance, leaving Delta the odd airline out at the moment.
There are two issues at stake: competition and survival.
Passengers benefit when airlines must compete for their business. It keeps fares competitive and means the airlines must deliver good service.
Keep in mind, though, that the status quo is not an option. US Air has said it can’t stay in business without a merger. TWA, which hasn’t made an annual profit since 1988, has filed for bankruptcy for the third time since 1990. One way or another, these airlines will cease to exist. Some of their more than 65,000 jobs, planes, gates and other assets ultimately will be scooped up by stronger airlines.
In the last two decades, airline deregulation overall has lowered fares and increased flying options for many Americans. But those benefits have been uneven and, in a distressing number of fortress hub cities, there is virtually no competition. Passengers in those cities are captives of the dominant airline, which can charge pretty much what it wants and offer shoddy service to boot. Customers have no options.
The real obstacles to more competition are no secret. The air-traffic system and airport construction have not kept pace with the growth of air travel. That means even if other airlines wanted to compete in some of these cities–which isn’t at all obvious at times–they can’t get in. There aren’t enough gates and runways. Furthermore, air traffic at many of the nation’s busiest airports is at saturation level.
These deals now are inextricably linked because the American purchase of US Air assets will occur only after United is cleared to buy US Air.
If they can be structured to increase the number of cities served by more than one airline, then they can benefit consumers. It isn’t yet clear that can be done, although American has promised to compete against United on some routes–for example, Philadelphia-Los Angeles, Chicago-Charlotte–that would otherwise be monopolized by United.
United and American have a case to make, but there’s a sales job left to do.
