A place were I can write...

My simple blog of pictures of travel, friends, activities and the Universe we live in as we go slowly around the Sun.



July 14, 2015

Airlines..

Airlines carve US into markets dominated by 1 or 2 carriers

By David Koenig and Scott Mayerowitz

The wave of consolidation that swept the U.S. airline industry has markedly reduced competition at many of the nation's major airports, and passengers appear to be paying the price in higher fares and fees, an Associated Press analysis has found.

Over the past decade, mega-mergers reduced nine large U.S. airlines to four — American, United, Delta and Southwest — with the result that travelers are increasingly finding their home airport dominated by just one or two players.

Over the same period, domestic airfares rose faster than inflation, and analysts believe one leading factor is the decline in competitive pressure.

"Airlines aren't going at each other like they used to," said Mike Boyd, an aviation consultant frequently hired by airports. "They have their turf, and they very rarely go to the mattresses with one another."

At 40 of the 100 largest U.S. airports, a single airline controls a majority of the market, as measured by the number of seats for sale, up from 34 airports a decade earlier. At 93 of the top 100, one or two airlines control a majority of the seats, an increase from 78 airports, according to AP's analysis of data from Diio, an airline-schedule tracking service.

Overall, domestic fares climbed 5 percent over the past 10 years, after adjusting for inflation. And that doesn't include the $25 checked bag fee and other add-on charges that many fliers now pay.

To be sure, other factors have contributed to higher fares, among them a stronger economy, longer average flight distances and, for most of the past few years, some of the highest fuel prices in history. However, analysts believe consolidation freed airlines to charge more.

The strategy is paying off: In the past two years, U.S. airlines made a record $19.7 billion in profits, even though air travel is growing only modestly.

The airlines' main trade group, Airlines for America, said the fare increases reflect stronger demand for travel and are not solely a result of the mergers. The group noted that airlines have used their profits to buy new jets and update airport facilities.

American Airlines CEO Doug Parker rejected the notion that consolidation has hurt travelers.

"We have increased flying out of each of our hubs," Parker said. "We want to expand. That's good for consumers, not bad."

The Justice Department notified the four largest airlines on June 30 that it is investigating whether they are colluding to drive up fares by limiting the availability of flights and seats. Those four control more than 80 percent of the U.S. market.

There was a time — before deregulation in 1978 — when fliers had even fewer choices and paid higher fares than they do now. Back then, the U.S. government controlled which airlines flew to which cities and how much they could charge.
Competition intensified in the 1980s. As new airlines entered the market, fares dropped precipitously.

After 9/11 and the recession that hit immediately afterward, major airlines were in financial shambles. Several restructured through bankruptcy, and a wave of deals starting in 2008 led to the combinations of Delta and Northwest, United and Continental, Southwest and AirTran, and American and US Airways.

Justice Department antitrust regulators let the deals go through but forced airlines in a few cases to give up some of their spots at key airports to try to encourage competition.

Still, "the airline industry is less competitive now than it used to be," said Seth Kaplan, managing partner of industry newsletter Airline Weekly. "Some of us used to have eight or nine airlines to choose from. Now we have maybe four or five, just as we have four or five cellphone companies to choose from."

The mergers have altered the competitive landscape at airports big and small.

— In Indianapolis, the two leading airlines controlled just 37 percent of the seats a decade ago, and domestic fares were 9 percent below the national average. Then the city's main airline, ATA, went bankrupt and was bought by Southwest, and its No. 2 carrier, Northwest, was absorbed by Delta. Now two airlines control 56 percent of the seats, and airfares are 6 percent above the national average.

— The Dayton, Ohio, airport was served by 10 airlines in 2005, and fares were 5 percent below average. Today, just four airlines fly there and prices are almost 10 percent above average.

— Big hub airports aren't immune. In 2005, US Airways controlled nearly 66 percent of the seats in Philadelphia. Now that US Airways has merged with American, the combined airline has 77 percent of the seats. Airfare has gone from 4 percent below average to 10 percent above it.

— Delta's hold on Atlanta, the world's busiest airport, increased during that same period from 78 percent of seats to just over 80 percent. At the same time, low-cost AirTran merged into Southwest and reduced flights there. Domestic airfares at the airport went from nearly 6 percent below average to 11 percent above.

— Some cities are actually seeing lower fares than they did a decade ago. Prices in Denver were once 5.6 percent higher than the national average. Now that United's market share there has dropped to 41 percent from 56 percent, fares are almost 15 percent lower than the rest of the country.

Recent deals indicate the big airlines intend to stick to a strategy of dominating one airport and forgoing marginal service elsewhere.

For instance, United announced in June that it will abandon Kennedy Airport and move its dwindling number of JFK flights to New Jersey's Newark airport, where it already controls 68 percent of the seats. At the same time, if regulators go along, Delta will further shrink its small presence at Newark and take over United's share at JFK, where Delta is already top dog.

One of the few competitive battles is taking place in Seattle, where Delta is mounting a fierce challenge to longtime No. 1 Alaska Airlines. Delta is building Seattle into a gateway to Asia and adding flights on domestic routes long dominated by Alaska. Seattle-based Alaska has responded by adding service.

The average fare at Seattle-Tacoma International Airport was $377 in the third quarter of 2014, $18 below the national average.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.