Will Air Mergers Lead to Higher Airfares?

If American Airlines does buy TWA, it will mean higher prices and possibly poorer customer service for airline passengers, say industry observers.

But industry executives say it could also help create more choice and convenience.

“This would clearly reduce competition and increase concentration in the airline industry,” said Paul Hudson, executive director of the Washington-based Aviation Consumer Action Project. “There’s already not enough competition on price.”

Hudson said many routes served by three or four airlines could soon see only two carriers after the wave of consolidation.

Sources Monday confirmed that Fort Worth, Texas-based American planned to buy money-losing Trans World Airlines Inc. after the St. Louis, Mo.-based carrier files for bankruptcy for the third time, perhaps as soon as Wednesday.

The Upside of Consolidation

The airlines have repeatedly said consolidation will allow them to offer more routes and more flights through an expanded national and international network, making one-stop travel more convenient for passengers on major and minor routes.

A source familiar with the negotiations who would only speak on condition of anonymity said American would pay United "slightly less" than $1.4 billion in exchange for 86 jets, joint ownership of the Washington-New York-Boston shuttle now operated by US Airways, and 49 percent of a new airline, DC Air, that would be spun off from US Airways.

Aviation Daily editor Michael Miller says the merger is “a direct response” to the proposed merger between United and US Airways, which is still being reviewed by the Department of Justice over antitrust concerns.

“The TWA merger is not happening in a vacuum,” said Miller. “The merger would help United pass antitrust muster because it includes the nation’s biggest airline [United] divesting some of its assets.” In addition, American would take over TWA’s St. Louis hub, which should help passengers by easing congestion and delays at American’s hubs in Dallas and Chicago.

“The American-TWA deal is too small in terms of its national impact to create a lot of national hysteria,” said Darryl Jenkins, director of George Washington University’s aviation institute and an expert on airline economics. “It’s [United-US Airways] more likely to go through, where before there was a small chance of it going through.”

TWA, the only airline to lose money in 1999, is short of cash, with big debt payments due this week. The merger would no doubt be a boon to the long-struggling airline.

If federal regulators approve, American and United would control more than half the commercial flights in the country.

Lawmakers, Consumer Reports Show Concern

Consumers Union, the nonprofit publisher of Consumer Reports magazine, and the Consumer Federation of America, the nation’s largest consumer organization, urged the Justice Department to conduct a “painstaking review” of the plan to buy TWA.

“This proposed merger clearly violates the merger guidelines and is inconsistent with the intent of the antitrust laws to promote competition in the marketplace,” the groups said in a letter to Douglas Melamed, acting assistant attorney general for the Justice Department’s antitrust division.

“This deal would trigger the airline consolidation we have feared in the wake of a proposed United-US Airways merger,” said U.S. Rep. Louise Slaughter, D-N.Y., a leading congressional opponent of the United deal. “It would be a travesty for the new administration to let this go forward.”

Also, two U.S. senators expressed “serious concerns” and promised hearings if American finalized its proposal.

Donald Baker, chief of the Justice Department’s antitrust division in the 1980s, said he foresaw possible problems with an American acquisition of TWA because other potential buyers might appeal more to the bankruptcy court or antitrust officials.

Baker was skeptical that a new American, despite proposals that help United, would balance antitrust concerns among regulators over the United-US Air plan. “It doesn’t work,” he said. “Here you have the prospect of half the air traffic in the country being in the hands of these two airlines.”

Discounter: 'Bad for Consumers and Prices'

“I think it’s probably going to be bad news,” says Tom Parsons, founder of bestfares.com, a discount travel Web site. “Any time you lose competition in any industry, especially big competition, it’s bad for consumer choice and for prices. For example, right now TWA is running a coast-to-coast sale and American has not exactly been known for its low prices. As a matter of fact I can’t even come up with a major, major sale that American Airlines has done over the last six to eight months.”

Some airlines, including American and United Airlines, announced earlier this year they would try to ease the increasingly unpleasant experience of coach air travel through such measures as increasing leg room and storage space in the cabin.

But those types of overtures would all but end with fewer major competitors in the industry, says William Maloney, vice president and chief operating officer of the American Society of Travel Agents.

On top of that, he says, is the added leverage airline consolidation would give to labor unions. A pilot strike, or even an unofficial work slowdown, could bring travel to a virtual halt at some airports, he says. “The types of travel problems worsened by labor disputes we saw this summer could have a more devastating effect if there are fewer and bigger players,” said Maloney.

“There has been a litany of promises from the airlines to improve service, but they break their promises,” said Maloney. “They are accountable to no one in terms of federal consumer protection. They are beyond the jurisdiction of small claims and even state courts. There should be some form of regulation.”

Passenger Bill of Rights

The U.S. Department of Transportation’s Office of the Inspector General is working on a final report for Congress that will assess how well major airlines have kept their voluntary pledge, made in June 1999, to improve air travel for disgruntled customers.

The report will also examine the increase in flight delays, cancellations, and the impact of the Internet on ticket sales.

Until the report is released (it’s expected later this month) Congress has put on hold legislation concerning a passenger bill of rights.

Still, the Inspector General’s preliminary findings in June 2000 found the airlines had made “a clear and genuine effort at strengthening the attention paid to customer service, but bottom line results were mixed, and the airlines have a long way to go in restoring customer confidence.”

The Association of Travel Agents opposes any major mergers among airlines until Congress passes an air travelers bill of rights that would hold airlines accountable to a federal standard of consumer protection.

No Higher Airfares Just Yet

Still, any fallout — good or bad — would take quite a while to reach consumers wallets.

“There will be no change for consumers for a long time,” said Michael Miller, editor of Aviation Daily. “This type of monster deal is going to take the entire year to work through. There are so many problems to be ironed out and so many questions, including whether airline labor will back the deal.”

Miller says the merger simply means the honeymoon following airline deregulation in 1978 is over.

“Americans have actually paid 35 percent less than they did 22 or 23 years ago. … But yes, the good times may be coming to end.”

The Associated Press and Reuters contributed to this report.