Legacy Airline Mergers are pro-competitive (says researchers)

kitplane01 · Fri Nov 04, 2016 4:53 am

Recent mergers have reduced the number of legacy airlines in the United States
from six to three. We examine the effect of these legacy airline mergers on fares
and output to determine whether the mergers have had an overall pro-competitive
or anti-competitive effect. We focus on routes most likely to have been adversely
affected by a reduction in competition. Our difference-in-differences regression
analysis shows that those routes experienced no significant adverse effect on fares
and significant increases in passenger traffic as well as capacity. These results
indicate that the recent legacy mergers were pro-competitive.
https://papers.ssrn.com/sol3/papers.cfm ... id=2851954

LAX772LR · Fri Nov 04, 2016 4:59 am

Get ready for the "But but but, there's no more competition; even though more people are flying than ever before, to more places, while paying lower fares relative to the previous decades preceding current consolidation!!!" crowd.

In three... two.. one...

TWA772LR · Fri Nov 04, 2016 5:21 am

LAX772LR wrote:
Get ready for the "But but but, there's no more competition; even though more people are flying than ever before, to more places, while paying lower fares relative to the previous decades preceding current consolidation!!!" crowd.

In three... two.. one...

Don't forget everyone with an armchair Ph.D. in Economics...

YZF101 · Fri Nov 04, 2016 6:09 am

TWA772LR wrote:
LAX772LR wrote:
Get ready for the "But but but, there's no more competition; even though more people are flying than ever before, to more places, while paying lower fares relative to the previous decades preceding current consolidation!!!" crowd.

In three... two.. one...

Don't forget everyone with an armchair Ph.D. in Economics...

I slept at a Holiday Inn Express last night.....count for anything?

CARST · Fri Nov 04, 2016 6:37 am

Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study? I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.

It was the great Winston S. Churchill who said Winston S. Churchill “I only believe in statistics that I doctored myself”.

While I love statistics and could sometimes look at charts and diagrams forever, I always try to remind myself to look into the background of the statistics and who put them together.

Airlines always say: "We are the safest medium of transport."
Trains companies always say: "We are the safest medium of transport."
And both are right, because airlines refer to the mileage taken by their passengers, while train companies refer to the time spend by the passenger on trains. In the end both ways of transporation are much safer than walking or driving, but still, who is behind these statistics? That example is similar to the one which comes up here on a.net a lot about "which airline is the biggest" or "which airport is the largest". By what definition? Just saying...

The statistic we are talking about here is made up by a guy from a university (they get a lot of donations) and three guys from a company named "Compass Lexecon". That company, Compass Lexecon says about themselves: "Based in the US, provides its law firm and corporate clients with analysis of complex economic issues in connection with legal and regulatory proceedings, ..."

Now I ask you, who was the corporate client who paid Compass Lexecon for this statistic? They are a profit-organisaion, a company. They don't make this up for the goodwill. It is at least very suspicious.

See:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2851954
https://www.google.com/search?q=Compass+Lexecon&ie=utf-8&oe=utf-8&client=firefox-b&gfe_rd=cr&ei=eiscWM_vA8WEaLHzr6gG&gws_rd=cr
http://www.compasslexecon.com/about-us/

Abeam79 · Fri Nov 04, 2016 6:50 am

Queue the "united to buy JetBlue" case.

CARST · Fri Nov 04, 2016 6:54 am

And to add something totally diffent to my last post...

DL-NW merger: 2008-2010
UA-CO merger: 2012
AA-US merger: 2013-2015

That is what happened to the oil price, in the same time-frame, from late 2007 to late 2016:

Source: http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=9y

It dropped from 140 USD/barrel to 44 USD/barrel. Of course ticket prices have dropped! But IMHO they would have dropped much more with six legacy airlines instead of three. Even if one or two would have gone out of business in the end (which would not have happened). The mergers just saved the airlines a ton of money, lowered competition at the same time and thus procuded way higher profits. But from a customer perspective they should not have happened!

BobPatterson · Fri Nov 04, 2016 10:33 am

CARST wrote:
The mergers just saved the airlines a ton of money, lowered competition at the same time and thus procuded way higher profits. But from a customer perspective they should not have happened!

Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

CARST · Fri Nov 04, 2016 12:10 pm

BobPatterson wrote:
Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

The customer is paying higher prices. The airline market for non-ULCCs in the USA basically has transformed from a competitive market to an oligopoly. See: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Now the airlines can charge a higher price. IMO the US government should have stopped all these mergers or at least should have set higher restrictions, e.g. on fares in relation to the oil price. The whole topic is very difficult. But for the customers it was a bad thing, that is for sure.

Of course could also look at the other side of the book. The first merger (DL-NW) started in 2008, seven years after 9/11, the airline market was still very weak, AA went into chapter 11 a few years later. The airlines argued that they are not making enough profits to survive and that mergers needed to happen. The government believed them or was bribed. In the end the merger was allowed and thus a example was set in stone. After that merger was allowed, they basically had to allow the next two mergers, too. So 9/11 and the weak airlines afterwards were contributers for this merger-mania and some of the reasons were valid. But still, my answer would have been, very simplified: "As the US DOT we can not allow a competitive market to turn into an oligopoly. That some contenders on a free market somestimes don't manage to make a profit is natural and price wars are something we don't like, but they are part of each capitalistic, free and competitive market. Merger not granted."

BobPatterson · Fri Nov 04, 2016 3:17 pm

CARST wrote:
BobPatterson wrote:
Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

The customer is paying higher prices. The airline market for non-ULCCs in the USA basically has transformed from a competitive market to an oligopoly. See: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Now the airlines can charge a higher price. IMO the US government should have stopped all these mergers or at least should have set higher restrictions, e.g. on fares in relation to the oil price. The whole topic is very difficult. But for the customers it was a bad thing, that is for sure.

Of course could also look at the other side of the book. The first merger (DL-NW) started in 2008, seven years after 9/11, the airline market was still very weak, AA went into chapter 11 a few years later. The airlines argued that they are not making enough profits to survive and that mergers needed to happen. The government believed them or was bribed. In the end the merger was allowed and thus a example was set in stone. After that merger was allowed, they basically had to allow the next two mergers, too. So 9/11 and the weak airlines afterwards were contributers for this merger-mania and some of the reasons were valid. But still, my answer would have been, very simplified: "As the US DOT we can not allow a competitive market to turn into an oligopoly. That some contenders on a free market somestimes don't manage to make a profit is natural and price wars are something we don't like, but they are part of each capitalistic, free and competitive market. Merger not granted."

Thank you for responding so fully.

I'm not an economist, but I wonder whether anyone could predict, with fair chance of accuracy, what would be the result today if no mergers had been permitted. I'd suggest that rather than having six healthy airlines (the big US 6) we might instead have the same (or similar) big US 3, the others having gone bankrupt. Perhaps the mergers permitted a more orderly transition from ruinous competition to a somewhat more healthy competition. Without mergers the bones of the failed carriers would have been picked clean at bankruptcy prices.

In any event, I don't think economists would have an easy time making predictions without taking into consideration the ULCC or LCC carriers which are, of course, a part of the competitive landscape. At my nearest airport (BWI - Baltimore) the great majority of flights are offered by LCCs and ULCCs (some might object to including Southwest in the LCC category). While my wife and I are not really frequent fliers, when we do fly we seem to have no problem obtaining reasonably priced air fares. I suspect this is also true for most (but not all) of the country.

TW870 · Fri Nov 04, 2016 3:50 pm

CARST raises a good question above about who paid Compass Lexecon for the study. The first author on the study is a University of Chicago economist, so it looks like this article went through peer review, which gives it much more credibility. But the fact that the second, third, and fourth author are business consultants troubles me greatly.

With that being said I think there are competitive dynamics in the industry that we haven't seen in a while. The fact that a carrier opened a new domestic hub (DL-SEA) had been unheard of in the past, and the competitive battle for the US-Asia market (the LAX competition between AA-DL, the AA DFW buildup, DL-SEA, the wide use of 787s to new markets by AA and UA) has been far more robust than in the past. Also, fares going up in some markets is not necessarily a sign of anti-competitiveness, as one could say fares were artificially subsidized in the past by 30 years of concessions by labor (pension terminations, RJs, real-dollar paycuts at the majors).

MIflyer12 · Fri Nov 04, 2016 4:21 pm

CARST wrote:
Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study? I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.
...

The statistic we are talking about here is made up by a guy from a university (they get a lot of donations) and three guys from a company named "Compass Lexecon". That company, Compass Lexecon says about themselves: "Based in the US, provides its law firm and corporate clients with analysis of complex economic issues in connection with legal and regulatory proceedings, ..."

Now I ask you, who was the corporate client who paid Compass Lexecon for this statistic? They are a profit-organisaion, a company. They don't make this up for the goodwill. It is at least very suspicious.

Your argument is so cynical and baseless to be utterly ridiculous. We can't believe university publications because universities get donations? We can't believe for-profit organizations because they have paying clients? You're being anti-intellectual! The academic reputations of the authors (1 current Chicago, 2 former Northwestern) speak for themselves. Demonstrate some decent intellectual heft and read the paper, then criticize the argument in specific, substantive ways.

(BTW, this doesn't appear to be a formally peer-reviewed paper, for the poster who brought that up.)

mjoelnir · Fri Nov 04, 2016 5:35 pm

MIflyer12 wrote:
CARST wrote:
Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study? I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.
...

The statistic we are talking about here is made up by a guy from a university (they get a lot of donations) and three guys from a company named "Compass Lexecon". That company, Compass Lexecon says about themselves: "Based in the US, provides its law firm and corporate clients with analysis of complex economic issues in connection with legal and regulatory proceedings, ..."

Now I ask you, who was the corporate client who paid Compass Lexecon for this statistic? They are a profit-organisaion, a company. They don't make this up for the goodwill. It is at least very suspicious.

Your argument is so cynical and baseless to be utterly ridiculous. We can't believe university publications because universities get donations? We can't believe for-profit organizations because they have paying clients? You're being anti-intellectual! The academic reputations of the authors (1 current Chicago, 2 former Northwestern) speak for themselves. Demonstrate some decent intellectual heft and read the paper, then criticize the argument in specific, substantive ways.

(BTW, this doesn't appear to be a formally peer-reviewed paper, for the poster who brought that up.)

There are indeed quite a few examples of results of "research" being influenced by who payed the bill.

ScottB · Fri Nov 04, 2016 5:45 pm

TW870 wrote:
CARST raises a good question above about who paid Compass Lexecon for the study. The first author on the study is a University of Chicago economist, so it looks like this article went through peer review, which gives it much more credibility. But the fact that the second, third, and fourth author are business consultants troubles me greatly.

The fact that an author on the paper was affiliated with a university says nothing about whether peer review occurred, and it also may intentionally convey a veneer of academic independence. However, many for-profit companies sponsor research at universities and some university faculty make far more from outside consulting/research grants than they do from their academic chair.

CARST wrote:
Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study? I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.

That reminds me of the "study" that was done by that idiot at MIT which purported to show that the first part of the phase-out of the Wright Amendment restrictions (when non-stops outside the perimeter were still prohibited but ticketing to destinations outside the perimeter was finally allowed) was anti-competitive at DAL because the average fare charged, in absolute terms, had increased. Oh, and for whatever reason (academic bias based on his funding sources was my guess) he neglected to adjust for the distance traveled. Of course fares were going to go up -- the average passenger trip length increased thanks to the relaxation of the ticketing restrictions! I guess he expected people to pay less for DAL-ABQ-LAX than they were paying for DAL-ABQ?

BobPatterson · Fri Nov 04, 2016 6:08 pm

CARST wrote:
Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study?
I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.

The statistic we are talking about here is made up by a guy from a university (they get a lot of donations) and three guys from a company named "Compass Lexecon". That company, Compass Lexecon says about themselves: "Based in the US, provides its law firm and corporate clients with analysis of complex economic issues in connection with legal and regulatory proceedings, ..."

Now I ask you, who was the corporate client who paid Compass Lexecon for this statistic? They are a profit-organisaion, a company. They don't make this up for the goodwill. It is at least very suspicious.

You can accept what they say or not, as you wish. From their paper:

" The authors have worked through Compass Lexecon as economic experts sometimes in opposition to and sometimes in
support of previous airline mergers; they worked for the merging parties in each of the three mergers analyzed in this paper.
Among many projects, that consulting work addressed research questions similar to the ones analyzed in this paper.
The authors received no funding for the writing and work on this paper which builds on that previous work. The authors
are currently serving as experts for several airlines. The views in this paper are those of the authors alone and do not
necessarily reflect the views of any airline. This paper was not subject to the review of any airline or attorney for any airline.
We encourage other researchers to continue to examine the effects of the mergers and confirm or refute our results. "

Underscored emphasis is by me.

FlyPNS1 · Fri Nov 04, 2016 6:17 pm

Ignoring for a moment who paid the bills, let's compare airline passenger growth to economic growth. I'm focusing on 2007 as a starting point as it's right before merger mania got underway and before the economy tanked in the recession so that we are comparing peak to peak, not trough to peak. I'm also only using domestic numbers as domestic air travel is far more likely stifled by consolidation since only U.S. carriers can fly domestically.

In July 2007, the United States had approximately 63.6 million domestic enplanements. In July 2016, the United States had approximately 66.3 million domestic enplanements. So, over nine years, domestic passenger enplanements grew 4.2%. In that same time, U.S. real annual GDP grew from 14.874 trillion to 16.397 trillion or a growth of 10.2% over nine years.

Looking at these metrics, you'll note that domestic airline passenger growth is underperforming the economy as a whole. It's even underperforming basic population growth as the U.S. population has grown by over 7% during that same time.

Now, there's a lot of reason domestic growth may be stunted (e.g. security hassles killing short-haul flying), however those who claim that these mergers are stimulating lots of traffic growth are providing a misleading story.

b6sea · Fri Nov 04, 2016 6:19 pm

MIflyer12 wrote:
CARST wrote:
Did one of the big airlines or the North American Airlines Association (or whatever such a organisation is called) pay for that study? I mean studies always get paid by someone. Sometimes the taxpayer, sometimes a non-profit organisation, but who knows where they get their donations from, etc.
...

The statistic we are talking about here is made up by a guy from a university (they get a lot of donations) and three guys from a company named "Compass Lexecon". That company, Compass Lexecon says about themselves: "Based in the US, provides its law firm and corporate clients with analysis of complex economic issues in connection with legal and regulatory proceedings, ..."

Now I ask you, who was the corporate client who paid Compass Lexecon for this statistic? They are a profit-organisaion, a company. They don't make this up for the goodwill. It is at least very suspicious.

Your argument is so cynical and baseless to be utterly ridiculous. We can't believe university publications because universities get donations? We can't believe for-profit organizations because they have paying clients? You're being anti-intellectual! The academic reputations of the authors (1 current Chicago, 2 former Northwestern) speak for themselves. Demonstrate some decent intellectual heft and read the paper, then criticize the argument in specific, substantive ways.

(BTW, this doesn't appear to be a formally peer-reviewed paper, for the poster who brought that up.)

Are you suggesting that bias doesn't exist in academia?

I'm not saying that the author of this paper is necessarily biased or misinformed, I have no reason or evidence to believe or support that, but I think the idea that someone who works at UChicago or Northwestern can't be biased in favor (or against) airline mergers is extremely problematic. I had a Marxist economics professor in college, who was extremely biased, openly so, that's why I liked his classes, despite the fact that I disagreed with him, as did much of the rest of the economics faculty at my school, but he definitely had a point of view he subscribed to. I don't think there's necessarily anything wrong with that, but I don't think it's outrageous to ask what the author of a paper's underlying biases or opinions might be before reading their work. I agree the work should speak for itself, but asking if bias may play a role in a conclusion is not, in itself, an unfair question.

commavia · Fri Nov 04, 2016 6:30 pm

FlyPNS1 wrote:
Now, there's a lot of reason domestic growth may be stunted (e.g. security hassles killing short-haul flying), however those who claim that these mergers are stimulating lots of traffic growth are providing a misleading story.

I don't really think anyone is claiming that consolidation has led to "lots of traffic growth." Rather, I think a far more persuasive and compelling argument - setting aside the other valid confounding variables like security hassles that you rightly mention - is that consolidation has led to a more balanced industry structure. I'm not necessarily referring to balance among the airlines themselves, but instead to balance among the contributors to the system.

While net capacity may be growing at a slower rate relative to the macro economy as compared to years ago, that has happened concurrently with all the other stakeholders in the domestic air transportation system other than passengers starting to finally realize economic value from said system. Arguably the most important outcome of the history of unbalanced competition in the pre-consolidation era was that virtually 100% of the economic value of the U.S. domestic air transportation system accrued to passengers - in the form of fares that, overall, were not sufficient to satisfy the costs (direct and opportunity) of the industry. U.S. domestic airline consumers had a three-decade "free" (not literally, obviously) ride where shareholders and employees effectively subsidized uneconomically low fares. This created a horribly unstable and capital-destroying system that was demonstrably not sustainable forever.

We've finally now arrived at an industry structure where that subsidization has largely stopped, and shareholders and employees are now receiving economic returns in exchange for their inputs (capital and labor, respectively) that are more commensurate with the risks they're taking.

frmrCapCadet · Fri Nov 04, 2016 6:52 pm

Did they include the newer fees that airlines have imposed on customers? Did they include the poorer service, and the ever more crowded seating? Flying is a far poorer experience for those of us flying in Y than even 10 years ago, let alone 35 years.

commavia · Fri Nov 04, 2016 7:00 pm

frmrCapCadet wrote:
Did they include the newer fees that airlines have imposed on customers? Did they include the poorer service, and the ever more crowded seating? Flying is a far poorer experience for those of us flying in Y than even 10 years ago, let alone 35 years.

As many of us have said countless times, it all depends on what you value.

As a regular (multiple times per month) domestic Y passenger - both business and personally paid - I think air travel is better than it's been in years, possibly ever. I love that I have multiple options to virtually everywhere I fly, that I don't need to pay extra for elements of service (like phone reservations and checked baggage) that I don't need or want, and that I can count on multiple large, strong, financially healthy airlines that aren't constantly on the brink of bankruptcy and are capable of not only investing in upgraded products/services but also improving reliability.

If someone, unlike me, cares - "cares" defined not by what they say but rather by what they're actually willing to pay for - strictly about price and nothing else, then obviously the above value system doesn't apply. And that's fine - everyone places different value on different things. The good news is that one of the most dramatic changes in the last decade has been the advent and proliferation of U.S. domestic carriers whose business models are tailor-made to cater to those customers who care about price and nothing else.

Rdh3e · Fri Nov 04, 2016 7:28 pm

FlyPNS1 wrote:
In July 2007, the United States had approximately 63.6 million domestic enplanements. In July 2016, the United States had approximately 66.3 million domestic enplanements. So, over nine years, domestic passenger enplanements grew 4.2%. In that same time, U.S. real annual GDP grew from 14.874 trillion to 16.397 trillion or a growth of 10.2% over nine years.

Looking at these metrics, you'll note that domestic airline passenger growth is underperforming the economy as a whole. It's even underperforming basic population growth as the U.S. population has grown by over 7% during that same time.

Now, there's a lot of reason domestic growth may be stunted (e.g. security hassles killing short-haul flying), however those who claim that these mergers are stimulating lots of traffic growth are providing a misleading story.

I would like to point out that passenger enplanments =/= passengers. If one passenger flies ORD-ABQ they count as one enplanement. If one passenger flies ORD-PHX-ABQ they count as two enplanements.

The the extent that ULCCs and WN have grown their share of total passengers that would skew towards fewer enplanements per passenger and distort your figures. From a quick back of the envelop it looks like the big three (incl precursors) went from 63.3% of enplanments to 60.6% of enplanements. That could be worth a couple points on the "actual O&D passenger" volume.

MSPNWA · Fri Nov 04, 2016 7:31 pm

Oh boy, I'd love to dig into this one. They have a lot of explaining to do by rejecting basic economic theory and observational realities. There's so many macro and micro variables that need to be accounted for. Empirical data without theory is just useless numbers. Numbers can be warped into proving anything. That's why sound theory is essential.

The fact that the authors are currently working as experts for the airlines reveals a high probability of bias as well.

commavia wrote:
As many of us have said countless times, it all depends on what you value.

I've never seen "many" people claim this. It's been few and far between. I know what I've received when I buy a ticket and all the fixin's now is decidedly worse than a decade ago. And the objective features (space, amenities, comfort, perks, etc.) points that way.

flyingclrs727 · Fri Nov 04, 2016 7:32 pm

It's great if you fly in and out of major airports that have flights to major destinations and hubs. It's not so great if you want to fly in or out of smaller market airports. Flying out of CRP can be much more expensive depending on the destination. Flying to the east coast can be less than $50 more each way than flying from SAT, AUS, or IAH. Flying to the west coast can be $100-$150 more each way.

It used to be I could find reasonably priced iteneraries on Priceline or Orbitz that let me connect to any airline at IAH or DFW. Now AA Eagle or United Express only offer iteneraries that connect to their parent airlines or carefully selected alliance partners. I can't even get the same intra-alliance connections to foreign airlines though IAH that are available from SAT or AUS through IAH.

FlyPNS1 · Fri Nov 04, 2016 7:34 pm

commavia wrote:
I love that I have multiple options to virtually everywhere I fly,

You had that ten years ago before the mergers.

that I don't need to pay extra for elements of service (like phone reservations and checked baggage) that I don't need or want

You didn't pay for those things in the past either. Airline fares have absolutely no correlation to these services. The airlines have never priced these services into their fares.

I can count on multiple large, strong, financially healthy airlines that aren't constantly on the brink of bankruptcy and are capable of not only investing in upgraded products/services but also improving reliability.

Airlines aren't really that much more reliable today than ten years ago. They've gotten better at padding block times, but overall reliability hasn't improved. Plus, IRROPS recovery is getting harder and harder as high-loadfactors and less interlining means fewer options. To be fair, this isn't totally the airlines fault (the FAA has fault too!).

commavia · Fri Nov 04, 2016 8:35 pm

FlyPNS1 wrote:
You had that ten years ago before the mergers.

No I didn't. Ten years ago AA couldn't fly a passenger from BTR to BOI or YUM to GRU, Delta couldn't get you from MNL to CAE, United couldn't get you from GEG to LIS, and on and on. I'm obviously using the extreme illustrative examples that are typically focused on smaller markets that were only served by one of the merger partners pre-merger. But even as a longtime AA flyer based at AA's largest hub, I today have a far greater ability to conduct a larger share of my business with a single carrier with which I have personal FF loyalty and/or preferential corporate pricing, to a vastly wider array of both domestic and global destinations. And I know I'm not the only flyer who feels this way - even among alleged "captives" of network airline hubs.

FlyPNS1 wrote:
You didn't pay for those things in the past either. Airline fares have absolutely no correlation to these services. The airlines have never priced these services into their fares.

Well I would argue that I did pay for them, and always have, as it's absolutely was included in the price of every airline ticket I've ever purchased. And so now, if airlines are unbundling the price of the product they provide so that the cost - or at least a greater share of the cost - of these services is borne by those who actually use them, that is fine by me. As someone who has happily paid for TSA PreCheck, avails myself of every form of mobile and electronic technology possible to minimize the amount of interaction required with airport staff, and never checks a bag, I generally find air travel today - other than delays - to be effortlessly easy and remarkably good value.

FlyPNS1 wrote:
Airlines aren't really that much more reliable today than ten years ago. They've gotten better at padding block times, but overall reliability hasn't improved. Plus, IRROPS recovery is getting harder and harder as high-loadfactors and less interlining means fewer options. To be fair, this isn't totally the airlines fault (the FAA has fault too!).

My perception and experience is that things are improving. For the network carriers, Delta has set a generally high bar for reliability and I have no doubt that AA and United will catch up - as they've both said they're actively doing. And investments have been made in plenty of things besides reliability. New technology is simplifying the purchase and flying experience, on the ground and in the air. Entertainment is more plentiful and increasingly free. Food still costs extra, but the quality is steadily getting better. And in premium cabins, particularly longhaul, the hard and soft product improvements are demonstrable and undeniable.

kitplane01 · Fri Nov 04, 2016 8:38 pm

FlyPNS1 wrote:
Now, there's a lot of reason domestic growth may be stunted (e.g. security hassles killing short-haul flying), however those who claim that these mergers are stimulating lots of traffic growth are providing a misleading story.

This is incorrect logic. There are many reasons the traffic might not have grown: increased security hassle, a very large recession, people traveling less, etc.

From simple traffic stats, we don't know if the mergers were a factor at all. There are too many confounding variables.

kitplane01 · Fri Nov 04, 2016 8:44 pm

frmrCapCadet wrote:
Did they include the newer fees that airlines have imposed on customers? Did they include the poorer service, and the ever more crowded seating? Flying is a far poorer experience for those of us flying in Y than even 10 years ago, let alone 35 years.

Flying 35 years ago was much more expensive, and much more comfortable. If you want that now you can have it, just don't buy the cheapest economy ticket on the cheapest airline.

What's gotten better is that those people who want the cheapest fair possible now can do so, and at a cheaper price.

A fair comparison would be to compare a 35 years ago ticket and seat with what the same amount of money could buy now (all inflation adjusted, of course).

I will totally admit that the security theatre has gotten terrible, but I don't think that's because of mergers.

BobPatterson · Fri Nov 04, 2016 8:48 pm

FlyPNS1 wrote:
commavia wrote:

..... I don't need to pay extra for elements of service (like phone reservations and checked baggage) that I don't need or want

You didn't pay for those things in the past either. Airline fares have absolutely no correlation to these services. The airlines have never priced these services into their fares.

Since I began flying in 1962 and up until almost 2000, checked baggage was always included in air fares, subject to weight limitations. You only paid for excess baggage. I always carried checked baggage and never paid separately for it.

Since about 2000 I have flown exclusively with Southwest. Always have taken TWO bags (I think the limit is about 49 lbs per bag), and never paid separately for them. I realize that the cost of flying baggage is built into their price and always has been, but "Bags Fly Free Here" really does mean something to me.

kitplane01 · Fri Nov 04, 2016 8:50 pm

The US market has four major airlines. Is there any other airline market in the world with so many?

Canada has 1.5 major airlines.
Europe has 4 major airlines.
China has 3 major airlines.
India has (maybe) 3 major airlines

How many would you like?

frmrCapCadet · Fri Nov 04, 2016 10:54 pm

There is no moderately priced upgrade to miserable Y for the most part. I don't boycott flying, I just prefer almost any vacation money spending that does not include flying. And if I fly it is preferably by WN or B6. When I get a motel while traveling I can choose a 3 star motel for about $40 more than a 1 or 2 star. Economy plus is typically 100% more.

mjoelnir · Sat Nov 05, 2016 2:30 am

kitplane01 wrote:
The US market has four major airlines. Is there any other airline market in the world with so many?

Canada has 1.5 major airlines.
Europe has 4 major airlines.
China has 3 major airlines.
India has (maybe) 3 major airlines

How many would you like?

Number of major airlines is a bit dicey. What do you count as major and were do you stop. Is IAG with BA and Iberia one or two. Is RyanAir a major and how about Easy Jet. Is the number of major airlines significant or the whole number of airlines.
If I look at European airports the number of airlines I can chose from to fly inter Europa clearly beats the number of airlines at North American airports that I can choose to fly inside North America.

NYCRuss · Sat Nov 05, 2016 2:56 am

mjoelnir wrote:
kitplane01 wrote:
The US market has four major airlines. Is there any other airline market in the world with so many?

Canada has 1.5 major airlines.
Europe has 4 major airlines.
China has 3 major airlines.
India has (maybe) 3 major airlines

How many would you like?

Number of major airlines is a bit dicey. What do you count as major and were do you stop. Is IAG with BA and Iberia one or two. Is RyanAir a major and how about Easy Jet. Is the number of major airlines significant or the whole number of airlines.
If I look at European airports the number of airlines I can chose from to fly inter Europa clearly beats the number of airlines at North American airports that I can choose to fly inside North America.

Most of those European airlines are not competing from point A to point B. That's what matters... to a point. When you get enough competition, adding or removing the number of airlines by one or two doesn't really matter.

blacksoviet · Sat Nov 05, 2016 5:07 am

Which aircraft replaced the MD-80 at Alaska?

grbauc · Sat Nov 05, 2016 6:09 am

kitplane01 wrote:
Recent mergers have reduced the number of legacy airlines in the United States
from six to three. We examine the effect of these legacy airline mergers on fares
and output to determine whether the mergers have had an overall pro-competitive
or anti-competitive effect. We focus on routes most likely to have been adversely
affected by a reduction in competition. Our difference-in-differences regression
analysis shows that those routes experienced no significant adverse effect on fares
and significant increases in passenger traffic as well as capacity. These results
indicate that the recent legacy mergers were pro-competitive.
https://papers.ssrn.com/sol3/papers.cfm ... id=2851954

Ive been saying this for a while along with some others. Airfares and the cost to travel is very affordable and in line with airfares 20yrs ago. Now the lack of raises in this country is a problem but airfares for now have not been a problem imop.. and a few others.

grbauc · Sat Nov 05, 2016 6:13 am

CARST wrote:
And to add something totally diffent to my last post...

DL-NW merger: 2008-2010
UA-CO merger: 2012
AA-US merger: 2013-2015

That is what happened to the oil price, in the same time-frame, from late 2007 to late 2016:

Source: http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=9y

It dropped from 140 USD/barrel to 44 USD/barrel. Of course ticket prices have dropped! But IMHO they would have dropped much more with six legacy airlines instead of three. Even if one or two would have gone out of business in the end (which would not have happened). The mergers just saved the airlines a ton of money, lowered competition at the same time and thus procuded way higher profits. But from a customer perspective they should not have happened!

Time will tell but your really believe that the boom and bust cycle that was occurring with the fragmented airlines is/was healthy and should still be? Instead of mergers we would of had more TWA and the likes. It's crazy people can't see that.

grbauc · Sat Nov 05, 2016 6:16 am

CARST wrote:
BobPatterson wrote:
Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

The customer is paying higher prices. The airline market for non-ULCCs in the USA basically has transformed from a competitive market to an oligopoly. See: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Now the airlines can charge a higher price. IMO the US government should have stopped all these mergers or at least should have set higher restrictions, e.g. on fares in relation to the oil price. The whole topic is very difficult. But for the customers it was a bad thing, that is for sure.

wow I really am trying to grasp that anyone would believe and think this way.

grbauc · Sat Nov 05, 2016 6:30 am

frmrCapCadet wrote:
Did they include the newer fees that airlines have imposed on customers? Did they include the poorer service, and the ever more crowded seating? Flying is a far poorer experience for those of us flying in Y than even 10 years ago, let alone 35 years.

Because flying was unprofitable 10yrs ago let alone 35 yrs ago. The airline model with the regional sized airlines that had all fragmented routs structures were flying planes half empty just because they had to due to the rout fragmentation and to be competitive. Like it was said up tread this consolidation was either going to happen tru mergers or bankruptcy. I personally believe mergers were the right way to get balance in stead of bail outs that would of been needed if all the anti merger people would of gotten there way. For gods sake i miss the NW/CO/US,HP but they could of gone the way fo EA/TWA etc.. Pick your poison. I think we got it right.

grbauc · Sat Nov 05, 2016 6:43 am

kitplane01 wrote:
The US market has four major airlines. Is there any other airline market in the world with so many?

Canada has 1.5 major airlines.
Europe has 4 major airlines.
China has 3 major airlines.
India has (maybe) 3 major airlines

How many would you like?

preach the word here Kit.. I fly Domestic fc today for less then what i use to have to pay for coach 15-20 yrs ago. UA back when UA was the king of the west coast lax-oak I was paying $300 to $600. I get FC nowa day's for less then $500 all day long.

michman · Sat Nov 05, 2016 7:12 am

CARST wrote:

It dropped from 140 USD/barrel to 44 USD/barrel. Of course ticket prices have dropped! But IMHO they would have dropped much more with six legacy airlines instead of three. Even if one or two would have gone out of business in the end (which would not have happened). The mergers just saved the airlines a ton of money, lowered competition at the same time and thus procuded way higher profits. But from a customer perspective they should not have happened!

Sorry, but any way you slice or dice it, the "sick six" days were numbered. Between the LCC's and ULCC's, there's only so much room left for the legacy carriers. Sure, there's still a role for them. Just not six of them. So you can either argue for a cage-match style death to the finish. Or a more orderly and less dramatic consolidation process. I happen to favor the latter. Some pine for the old days of old airplanes, low employ pay and morale, hostile employ relations, limited services and amenities, and constant teetering in and out of bankruptcy. I sure don't. I still remember the NW days when they ripped out the IFE out of all their domestic aircraft and dropped all complimentary snacks. And somehow I'm supposed to believe that was "consumer friendly".

kitplane01 · Sat Nov 05, 2016 7:36 am

mjoelnir wrote:
kitplane01 wrote:
The US market has four major airlines. Is there any other airline market in the world with so many?

Canada has 1.5 major airlines.
Europe has 4 major airlines.
China has 3 major airlines.
India has (maybe) 3 major airlines

How many would you like?

Number of major airlines is a bit dicey. What do you count as major and were do you stop. Is IAG with BA and Iberia one or two. Is RyanAir a major and how about Easy Jet. Is the number of major airlines significant or the whole number of airlines.
If I look at European airports the number of airlines I can chose from to fly inter Europa clearly beats the number of airlines at North American airports that I can choose to fly inside North America.

BA and Iberia don't compete, so there is that.

Looking at all traffic: In order of size by seats in summer 2016, they are the Lufthansa Group (11% of seats), Ryanair (10%), IAG (10%), Air France-KLM (8%) and easyJet (7%). They are closely followed by sixth ranked Turkish Airlines (6% of seats), but there is then a gap to number seven SAS (3% of seats).

If Turkey is not part of Europe, there are five majors going from 11% down to 7%. SAS is less than 1/2 any of those.

Also, those 5 majors have less than 50% of the total European market . In the US, the top 4 have way more than 50% of the total market. So Europe is a less concentrated airline industry than the US.

Sources:
http://centreforaviation.com/analysis/a ... els-270632
http://www.routesonline.com/news/29/bre ... operators/

Passedv1 · Sat Nov 05, 2016 11:21 am

grbauc wrote:
CARST wrote:
BobPatterson wrote:
Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

The customer is paying higher prices. The airline market for non-ULCCs in the USA basically has transformed from a competitive market to an oligopoly. See: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Now the airlines can charge a higher price. IMO the US government should have stopped all these mergers or at least should have set higher restrictions, e.g. on fares in relation to the oil price. The whole topic is very difficult. But for the customers it was a bad thing, that is for sure.

wow I really am trying to grasp that anyone would believe and think this way.

Wow, talk about the blatant cherry-picking of data.

Why wouldn't you include the ULCC's in a study of the airline market in the US. Spirit et.al are just as much a part of the airline market in the US as the Big-3. A large percentage of Spirit's customers would have been on a bus 20 years ago...or they would have simply stayed home. How do you account for that? It seems that the market is working just fine in spite of the governments best efforts.

frmrCapCadet · Sat Nov 05, 2016 2:05 pm

grbauc wrote:
frmrCapCadet wrote:
Did they include the newer fees that airlines have imposed on customers? Did they include the poorer service, and the ever more crowded seating? Flying is a far poorer experience for those of us flying in Y than even 10 years ago, let alone 35 years.

Because flying was unprofitable 10yrs ago let alone 35 yrs ago. The airline model with the regional sized airlines that had all fragmented routs structures were flying planes half empty just because they had to due to the rout fragmentation and to be competitive. Like it was said up tread this consolidation was either going to happen tru mergers or bankruptcy. I personally believe mergers were the right way to get balance in stead of bail outs that would of been needed if all the anti merger people would of gotten there way. For gods sake i miss the NW/CO/US,HP but they could of gone the way fo EA/TWA etc.. Pick your poison. I think we got it right.

I don't really disagree all that much. But the lesson I take from this is that air travel, much like medical care, does not work all that well as a free and competitive market. The key failures in these cases is that essential parts of the system are monopolistic. And attempts to regulate the monopoly aspect become convoluted and rife with unintended consequences. Or "Pick your poison. I think we got it right". I likely would adjust some doses. LOL

SeaDoo · Sat Nov 05, 2016 4:17 pm

blacksoviet wrote:
Which aircraft replaced the MD-80 at Alaska?

737

william · Sat Nov 05, 2016 4:36 pm

Oh I get it,we could not have capacity discipline at 6 majors we needed to have 3. You mean chasing market share is not sustainable? But we did not know when we had 6 majors? Spare me that we are better now just because the present airline CEOs practiced some capacity discipline.

Airlines today are structured to operate in an environment of $100 barrel oil but pay $50 instead, every body looks like geniuses today.

kitplane01 · Sun Nov 06, 2016 4:12 am

frmrCapCadet wrote:
I don't really disagree all that much. But the lesson I take from this is that air travel ... does not work all that well as a free and competitive market. The key failures in these cases is that essential parts of the system are monopolistic. And attempts to regulate the monopoly aspect become convoluted and rife with unintended consequences. Or "Pick your poison. I think we got it right". I likely would adjust some doses. LOL

Two thoughts.

1) I don't know what you mean by "essential parts of the system are monopolistic". I think you might mean "have network advantages" or "tend toward natural monopolies", using both terms in their economic definition.

2) Did you know that it's possible to have just two competitors, and a very vibrant comparative market? Coke vs Pepsi and iPhone vs Android and Boeing vs Airbus are three obvious examples.

YIMBY · Sun Nov 06, 2016 4:14 pm

MSPNWA wrote:
Oh boy, I'd love to dig into this one. They have a lot of explaining to do by rejecting basic economic theory and observational realities. There's so many macro and micro variables that need to be accounted for. Empirical data without theory is just useless numbers. Numbers can be warped into proving anything. That's why sound theory is essential.

Yes, this is the point: only good theory can tell whether mergers (or any other complex actions) benefit us, and never absolutely sure. As there is no comparison experiment, we cannot know what would have happened without mergers, but probably not 6 independent legacy airlines competing each others. There are not that many routes where you had before the mergers more than 3 legacy airlines and today only 3 legacy airlines and no other decent airline.

For good competition, it is not that important how many competitors there are beyond three. It is much more important how high the entrance barriers for new airlines are. If US government or voters feel that there is not enough competition, there is a simple solution: allow foreign airlines to step in into domestic routes.

Btw, Europe has still more than six legacy airlines, but very few routes see more than three of them - two carriers being the "standard" - although connecting flights add the competition (being often cheaper than the direct flights). Any European airline is allowed to start freely any intra-EU route (slot restrictions being other issue).

blueflyer · Sun Nov 06, 2016 4:42 pm

commavia wrote:
Arguably the most important outcome of the history of unbalanced competition in the pre-consolidation era was that virtually 100% of the economic value of the U.S. domestic air transportation system accrued to passengers - in the form of fares that, overall, were not sufficient to satisfy the costs (direct and opportunity) of the industry. U.S. domestic airline consumers had a three-decade "free" (not literally, obviously) ride where shareholders and employees effectively subsidized uneconomically low fares. This created a horribly unstable and capital-destroying system that was demonstrably not sustainable forever.

I would argue that the linchpin of that situation is an overly generous bankruptcy system that allows failed airlines to wipe off their debt, secure new capital and go about destroying it as before. If more failed airlines had been allowed to disappear à la Eastern, we might have more airlines, more competition, and smaller networks today.

commavia · Sun Nov 06, 2016 4:54 pm

blueflyer wrote:
I would argue that the linchpin of that situation is an overly generous bankruptcy system that allows failed airlines to wipe off their debt, secure new capital and go about destroying it as before. If more failed airlines had been allowed to disappear à la Eastern, we might have more airlines, more competition, and smaller networks today.

I completely agree that U.S. bankruptcy laws have had consequences for this industry that are arguably unintended. Now the whole debate about the ultimate efficacy of those laws, and their original intent, is really a separate discussion altogether that has implications far beyond just the airline industry.

Nonetheless, I don't agree that tighter bankruptcy laws - like those more common in the rest of the world - would likely have led to the outcomes above. Ultimately, what the market has been naturally driving the airline industry towards since deregulation in 1978 is consolidation in order to create a balanced, economically sustainable industry structure. One way or another, that outcome was going to occur - over the long-run, economics required it. The only question was how and when.

Had bankruptcy laws been such that insolvent airlines were more likely to go out of business as opposed to restructure, we would have ended up with fewer, larger competitors sooner. I would personally submit that, in such a situation where bankruptcy essentially meant liquidation, certainly USAirways and quite possibly also United both would have ceased to exist in the period following 9/11. Both airlines' finances were particularly precarious during that period. And how would the industry have responded? The surviving airlines would have swooped in to pick up the pieces and fill the void, and been better off financially as a result. But that didn't happen. Instead, financially failed carriers limped along, using bankruptcy one or multiple times to restructure their finances. And then they merged with each other.

Personally, I still believe that the outcome would have been approximately the same either way - consolidation was inevitable, whether through mergers or liquidations.

Bald1983 · Sun Nov 06, 2016 5:49 pm

CARST wrote:
BobPatterson wrote:
Please explain what "customer perspective" you mean to refer to. What has the customer gained/lost as a result of the mergers that would not have happened without mergers?

Thanks

The customer is paying higher prices. The airline market for non-ULCCs in the USA basically has transformed from a competitive market to an oligopoly. See: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Now the airlines can charge a higher price. IMO the US government should have stopped all these mergers or at least should have set higher restrictions, e.g. on fares in relation to the oil price. The whole topic is very difficult. But for the customers it was a bad thing, that is for sure.

Of course could also look at the other side of the book. The first merger (DL-NW) started in 2008, seven years after 9/11, the airline market was still very weak, AA went into chapter 11 a few years later. The airlines argued that they are not making enough profits to survive and that mergers needed to happen. The government believed them or was bribed. In the end the merger was allowed and thus a example was set in stone. After that merger was allowed, they basically had to allow the next two mergers, too. So 9/11 and the weak airlines afterwards were contributers for this merger-mania and some of the reasons were valid. But still, my answer would have been, very simplified: "As the US DOT we can not allow a competitive market to turn into an oligopoly. That some contenders on a free market somestimes don't manage to make a profit is natural and price wars are something we don't like, but they are part of each capitalistic, free and competitive market. Merger not granted."

Prior to the mergers, the only airline not losing money was SWA and that was in large part due to their advantage from their fuel hedges. Since the mergers, they have made profits. I consider that a good thing. It is still possible to have, in most markets domestically, three to four choices in airlines. I would call that competition.

delimit · Sun Nov 06, 2016 6:28 pm

Btw, Europe has still more than six legacy airlines, but very few routes see more than three of them - two carriers being the "standard" - although connecting flights add the competition (being often cheaper than the direct flights). Any European airline is allowed to start freely any intra-EU route (slot restrictions being other issue).

Europe isn't a true single market. There are far too many bilaterals still at the member state level. The market can't fully rationalize until European carriers can compete with each other without restrictions.

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