Bad News for Fliers This Fall

Expect high fares and scarce seats, despite U.S. push for competition. Plus a map of the hardest-hit American airports

  • Share
  • Read Later

Correction appended: Sept. 1, 2013, 11:55 p.m. E.T.

The Department of Justice’s somewhat surprising lawsuit to stop the merger of American Airlines with US Airways may not offer much help for passengers hoping that competition among the majors will keep a ceiling on airfares. Like any commodity, airfares are a function of supply and demand — and carriers have been removing supply from the market. Some 13 million departing seats have been vanished from the system in the past year, according to Aviation DataMiner.

It’s crowded up there, and it’s going to stay that way.

Which is to say, don’t expect much in the way of bargains over the next peak period, the Thanksgiving holiday. “Fares will be up slightly, but not a lot,” says George Hobica, president of His advice is to keep checking on prices until you see one you like. Conversely, if you have the travel bug, one of the cheaper times to fly is right about now: September is a slow period of the airlines.

The airline industry has made a round trip. As Oliver Wyman aviation expert Blair Pomeroy notes, the legacy carriers that have already merged — United and Continental and Delta and Northwest — now hold market share close to what the majors had 20 years ago. US Airways’ 8.3% share, whether it’s part of a merged American or not, didn’t seem likely to do much to change the competitive set, according to most analysts. And it would save the combined companies $1.4 billion in costs, as the two companies touted in their merger announcement. But DOJ’s analysis of ticket data also showed that combining the two would effectively remove one competitor from the market in 1,665 city or airport pairs. That was one too many as far as the government was concerned.

Perversely, DOJ’s case to preserve competition could conceivably reduce it in some areas. So fares might actually increase for fliers in places such as Charlotte, N.C., or Washington Reagan if the merged airline has to give up precious slots to get the deal done. At slot-restricted airports like Reagan, you can’t simply add flights or airlines.

Not unreasonably, DOJ is worried that the newly combined carrier, which would operate as American Airlines, would have about 70% of the takeoff and landing slots at Reagan. That’s lots of slots, but as the Aspire Aviation consultancy points out, when you look at the three-airport Washington, D.C., market that includes Dulles and Baltimore-Washington International, the dominance isn’t as great. People will still have options. Yet if US/AA is forced to give up slots, it will be smaller cities like Akron, Ohio, or Savannah, Ga., that will likely suffer, as the carriers that both gain and lose must focus assets on their more productive routes. Similarly, if US/AA has to give up slots in the current US Airways fortress of Charlotte, do you think it’s going to give up a flight to Dallas or one to Fort Walton Beach, Fla.?

Without a merger, analysts have pointed out that a postbankruptcy, standalone American Airlines is going to be a trimmed-down version of its earlier self. According to Helane Becker of Cowen & Co., American “would need to address its issues on the standalone basis, likely through capacity and head-count reductions. AMR [America’s parent company] needs to address its operations in LA and the overall network, which would result in capacity reductions and higher ticket fares.” That’s good for stockholders but not necessarily passengers.

So this much is true: airlines are lushly profitable right now and it’s a status they haven’t enjoyed in, oh, forever. Only a surge in capacity — new flights — can alter that scenario. Don’t expect it anytime soon, whatever the trustbusters do.

An earlier version of this article misstated the name of George Hobica’s website. It is, not