Airline Survival Plan: Crazy Fees, Merger Madness

April 14, 2010 — -- Did you hear the joke about how the airlines will soon be removing all their seats and charging us for "standing room only"?

Well quit laughing. One airline -- Shanghai-based Spring Airlines -- actually considered SRO seating last summer (though it does not appear they followed through). Sound crazy? There's a lot of crazy stuff going on these days.

Just look at Spirit Airlines, now charging you a fee to bring a carry-on bag aboard its flights -- to the vast disapproval of the flying public, including Transportation Secretary Ray LaHood, who harrumphed, "I think it's ridiculous."

Even notorious tightwad Ryanair doesn't do this, or do they? The Ireland-based discounter claims you get one free carry-on on its flights, but if you also have a purse, or a shopping bag, or even a camera, you're over the limit. Get your credit card ready.

And let's not even get into Ryanair's dreadful "pay to pee" proposal, with coin-operated toilets onboard. Anything to make a buck, huh?

All of this makes the survival tactic of merging airlines look pretty good. But is it?

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You probably heard that United Airlines and US Airways are discussing a merger. There are, on the face of it, a lot of benefits to merging. Assuming things go smoothly, which history shows is rarely the case, mergers can be very good for the airlines and their investors.

Corporations love to throw the term "synergies" around, and this is one of those instances. In other words, mergers can mean creating one big company that can do what two smaller ones used to do, thereby saving money on the work force and, naturally, eliminating some of the competition.

That gives merged airlines more pricing power, which is why they're not so great for passengers.

And they're not so hot for airline employees, either. Just take a look at Cincinnati's once mighty and now downsized Delta hub. As for passengers, any time you make airlines less competitive, that means fewer outlets for fliers and fewer cheap tickets available.

Airline Mergers Are Good News, Bad News

Mergers are still good for passengers in at least one sense: they can help to keep an airline alive. And a surviving airline is a lot more useful to a flier than a dead or bankrupt one, since it a functioning carrier can still get you from point A to B, which cannot be said for Aloha, Skybus, ATA and Skyway (in fact, those four died in a single, hideous week during April of 2008).

Some mergers work better than others. For example, when Delta and Northwest merged, creating a sort of "super Delta" -- the nation's largest airline (by scheduled passengers carried) -- it all went pretty well.

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Here's why: The Delta/Northwest marriage had an advantage when it came to their respective route systems, which were for the most part complimentary.

This is what I wrote a little more than two years ago when merger plans were still new: "I was surprised by the small number of 'overlapping cities' on Delta and Northwest routes -- only 10 city-pairs had overlap and only seven of those had significant overlap."

But when it comes to a United-US Airways match, there are a couple of areas that may be problematic, including in the nation's capital: United is big at Washington Dulles Airport, whereas US Airways is entrenched at nearby Reagan National (with Baltimore also in the mix with several low cost airlines).

United-US Airways Merger Presents Labor Problem

Another potential problem for any merger is labor, which is especially true for the integration of airline work forces and their various and sundry unions. As the New York Times reported, the Delta-Northwest merger was actually put on hold for awhile in 2008 so the pilots of the two airlines "could work out an agreement on combining their ranks." Smart.

And it's especially smart when you consider that one of the current potential merger partners, US Airways, has still not fully integrated pilot seniority issues since it merged with America West, and that happened five years ago!

Why now? Well, merger talk always heats up when oil prices do, and lately oil has been cresting at $85 a barrel. But don't look for anything to happen too soon. Mergers can and do take years, although some felt that the Delta/Northwest deal was hurried (in merger terms) so it could get underway during the Bush administration, which was deemed more business-friendly. In the meantime, there are indications that the United-US Airways talks are very serious indeed.

But haven't we been here before? We sure have. United and US Airways have had consolidation conversations at one time or another in the past decade, and there was even one failed attempt to merge back in May 2000. So who knows what will happen?

On the other hand, take a look at British Airways and Spain's Iberia. The two airlines have signed a merger agreement (that still must get government approval) but they could seal the deal by this fall; each would keep its own name and brand.

In other words, merger fever is out there.

And on the whole, I find "merger mania" a heck of a lot more interesting a topic than which airline is going to follow Spirit into the realm of carryon fees. By the way, my guess is that none of them will. We shall see.

This work is the opinion of the columnist and does not reflect the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations including ABC News, the New York Times, the Wall Street Journal, Reuters, the Associated Press and Bloomberg. His Web site, FareCompare.com, offers consumers free, new-generation software, combined with expert insider tips to find the best airline ticket deals.