“President Obama promised to fight corporate concentration,” says public interest journalist Justin Elliott. “Eight years later, the airline industry is dominated by just four companies.” It’s true that what were seven major airlines in 2008 have merged into four today. The Antiplanner isn’t sure, however, that this is a bad thing.
According to Wikipedia, in 2008, those seven major airlines (American, Continental, Delta, Northwest, Southwest, U.S. Air, and United) had 88.0 percent of the domestic air market. As of fiscal 2016, that’s dropped to 84.5 percent.
Meanwhile, Alaska has increased its market share by 65 percent and JetBlue has increased its share by 43 percent. Hawaiian’s share has increased by 15 percent. Two major new airlines have appeared, Allegiant and Spirit, giving travelers more choices particularly since they have different pricing models.
Of the seven largest airlines in 2008, Southwest was the only one that didn’t merge and it saw its market share increase by 20 percent. Meanwhile, the three companies that emerged from mergers–American, Delta, and United–all saw their market shares (when combined with their merger partners) fall. The biggest drop was the first to merge in 2009, United-Continental, which lost 24 percent. Delta/Northwest, which merged in 2010, managed to lose just 3 percent. American/US Air, which didn’t formally merge until 2015, has lost just 1.4 percent–so far.
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Elliott was mainly critical of the Obama administration for not protecting air travelers by blocking these mergers, but it isn’t clear how air travelers have been harmed. The reality is that the barriers to entry in the airline industry are much smaller than in the auto or railroad industries. This means mergers are less threatening to consumers that if, say, BNSF and Union Pacific or CSX and Norfolk Southern proposed to merge.
At the time the merger movement began, the major airlines (except Southwest) were all losing money. They thought that the mergers were needed to end those losses. Maybe they were wrong, but they are all making money today. Would it have been better if some of them had simply gone out of business?
According to the Bureau of Transportation Statistics, airfares averaged 13.1 cents per passenger mile in 2007 and 14.2 cents in 2013, the latest year available. That sounds like an increase, but after adjusting for inflation, it’s a 1.4 percent decrease. (If I had used 2008 numbers, the decrease would have been even greater.) It doesn’t sound to me like consumers have been hurt by the mergers.
The Antiplanner can see where antitrust regulation might be needed in some extremely concentrated industries. The airline industry isn’t one of them. So perhaps the Obama administration was right to break its promise, if it ever made one, to stop airline mergers.
“in 2008, Southwest was the only one that didn’t merge and it saw its market share increase by 20 percent.” ~anti-planner
I’m not sure exactly what this means. Do you mean a merger didn’t occur in 2008? If not, Southwest made a BIG move when they bought Air Tran a few years ago.
The core issue is that Mr. Elliot has the puerile notion that number of companies = corporate concentration. Compared to the days of CAB, consumers have many more choices. Compared to just 10-20 years ago consumers have many more choices.
Thanks to regional jets, pay only for what you need ( aka $20 for checked in luggage, $25 for more leg room ) , inefficiencies brought about by fleet modernization ( wide bodies with 2 person crews, not the old 3-4 in the cabin; ETOPS + better engines allowing capable airlines to fly 737s from North America to Europe, etc ) and other incremental improvements, anyone flying to any decent sized city has 4 – 6 airlines to choose from or even more.
You can easily see this for yourself with tools like Google Flights. In Seattle and need a break from the hipsters and hobosters? Fly from there to Nashville and you have 2 airlines competing on non-stop flights. You can also fly SEA-BNA w/ a connection using United, Delta, Jetblue, Frontier and American. That’s 7 airlines to choose from.
Some routes aren’t quite as blessed like Oklahoma City and Detroit. Delta offers a non-stop and Southwest, United, American. You have 4 good choices. But guess what? They’re all competitive in pricing! Delta maybe gets a $10-$20 premium for the non-stop roundtrip. Considering it saves you at least a couple hours, many would argue the best flight is the cheapest.
Pick a pairing of cities in the top 50 largest and the US and you’ll find plenty of choices at good prices. There isn’t a PROBLEM. Of course, the lack of problem doesn’t matter to some. They’ll employ any sort of baseless rhetoric ( aka a LIE ) to advance their pet cause.
Yeah, you forgot to mention the Southwest-AirTran merger a few years back. They implemented it very slowly so you might have fallen asleep.
Elliot has an excellent column about the odious practice of codesharing http://www.usatoday.com/story/travel/advice/2016/10/16/airline-codesharing/92049528/
This practice should be outlawed on the grounds that it is fundamentally deceptive.
I also disagree with airlines nickel and diming passengers for items formerly included in the fare. Time was you paid an honest price and airlines didn’t nickel-and-dime you to death. I hate flying now.
Mr. Jardonn, if you can get US corporations to start paying for Y class fares like they did in the 1980s and 1990s, the nickel and diming will go away. One of those fares was like having 3 or even half a dozen low end passengers. They technically weren’t first class tickets; they were coach but they were a FULL priced coach ticket.
Essentially, those Y class fares subsidized those low priced fares that included 2 50-lb suitcases + carry-on, et al. Without them, they’re looking to find ways of making sure every passengers costs are covered. Flying may be more abrasive — — hell, some flights resemble hanging out in a trailer park compared to the flying era portrayed in Mad Men — –buuuuuuuuuuuuuuuuuuuuuuuuuut, on the other hand, I’ve been able to fly roundtrip for a long weekend in Ft. Lauderdale for as much money as I spend on my blue jeans.
“I also disagree with airlines nickel and diming passengers for items formerly included in the fare.”
Obviously, your fellow passengers disagree. Otherwise, airlines would still be including in their fares a charge for services/options whether or not passengers used or wanted them.
The core issue is evaluating overall market share, overall number of airlines, etc. What matter are where are people travelling and what are their options. That is where the real competition and pricing comes into play.
In 1970 just because there were something like 50 – 80+ scheduled commercial airlines serving major cities didn’t mean travellers had good options nor competition. Today there’s a dozen yet every decent sized route market is well served.
Fares before Carter and other Democrats lead the deregulation charge and canned CAB weren’t just higher because the Feds set rates, it was because hardly anyone flew anywhere direct. It was a very inefficient system.
BTW – CAB & other federal regulations were like Urban Growth Boundaries. An entrepreneur couldn’t raise capital and roll the dice that a certain route – or in housing terms a certain location – that there is demand for it, it’s just that no one’s doing it yet. You couldn’t just start flying non-stops from Indianapolis to Vegas and Orlando with an old MD-80. You had to go through the CAB process. And if you were lucky enough to get a license, you may have gotten permission to fly from Indianapolis to Birmingham, Birmingham to Savannah and then Savannah to Orlando. Or chances were, you got bupkiss.
In the spirit of the recent blog comparing houses, some route maps should impress upon a person how there were many more airllines, but most any route had little to no competition. If you wanted to fly from Indianpolis to Orlando or Pittsburgh to Knoxville, you’d have to fly two or three airlines with 2 – 4 stops or connections. Pure craziness considering most of those have at least one non-stop option with multiple competitors offering a single stop / connection.
And of course, for 40-80% less than what it cost in constant dollars back then.
1970s route maps:
American Airlines – http://airwaysnews.com/galleries/4736.jpg
Southern Airlines, the reason that fictional airline above didn’t at least get to fly Birmingham – Orlando, Southern already had the route — YES they HAD the route. There wasn’t a choice for consumers nor providers. — http://www.sunshineskies.com/southern.html
Allegheny Airlines, which became US Airlways ( recently bought by AMR ) after deregulation – https://worldairlinenews.files.wordpress.com/2015/08/allegheny-1966-route-map.jpg
Branniff Airlines – http://www.timetableimages.com/i-bc/bn6801i.jpg
TWA Airlines – http://1.bp.blogspot.com/-yR3C1Vf1CMw/TlFYPpG7ygI/AAAAAAAAAEs/TUZ4u2Vmt1U/s1600/TWA+Route+Map+1977.jpg
I could go on. As you can, airlines back then weren’t just tiny fleas compared to airlines today, they barely flew anywhere. it required multiple airlines and even more connections for most city pairs.
There were lots and lots and lots and lots of airlines in the country but there was, compared to today, nearly nothing for competition on most any route. The number of airlines does not determine the level of competition.
Again, in the spirit of comparing homes and Seatlle to bring home something tangible in the differences, check out some of these modern airline maps. As you can see, most everyone flies most everywhere. You’re chances were much higher of getting direct flight – a better product – than the old days. And if that price wasn’t acceptable, chances are you’ll have 2 – 6 other airlines you’ll be able to fly.
America West – https://s-media-cache-ak0.pinimg.com/originals/6b/94/72/6b9472640907f8c63d02792c6caa57ee.jpg
Delta ( domestic ) – http://cdn2.vox-cdn.com/uploads/chorus_asset/file/677910/Screen_Shot_2014-09-02_at_1.02.50_PM.0.png
Delta ( international ) http://airchive.com/blog/wp-content/uploads/2013/09/klm-0311-intl-rm-combined_23282.jpg
American airlines ( domestic ) – http://upgrd.com/images/upload/image/doublewidesfly/AA/routes/us_aa-overlap.PNG
United – http://images.airlineroutemaps.com/maps/United_Airlines.gif
Southwest Airilnes, 1996 – http://airwaysnews.com/photos/2008/12/1996-october-27-southwest-airlines-timetables-route-maps-and-history_7161.jpg
Southwest just before Air Tran merger – https://static1.squarespace.com/static/539fad18e4b07b2ee71bbc07/t/56f1fe7e7da24fd2594d6fc7/1458699974482/
See the difference between these? Regulating where airlines can go or whom can merge or wherever will not make life better for consumers in the lon run, just like CAB did a great job of maintaing a high number of airlines but also very little service and very, very, very high ticket prices.