Thursday, April 29, 2010

When airlines merge, consumers usually lose

For weeks now, even the European ash cloud hasn't kept aviation-holics from blogging and speculating about the on-again/off-again potential mergers between major U.S. airlines. Is a deal between United and US Airways really dead? Was it just a negotiating ploy to get Continental to the table with United? Or maybe, as Dan Reed reported last week, all three will combine into a mega-mega-carrier? No doubt we haven't heard the last of Airline Mergers 2010.

The arguments concerning such consolidation are well-documented. Airline executives and financial analysts claim such mergers lead to greater efficiency and service. Labor officials claim they lead to job cuts. And consumer advocates claim they lead to fewer flights and higher fares.

The U.S. General Accounting Office, a non-partisan research service, has reported on airline consolidation and identified several potential threats to consumers, including:

• a decrease in vigorous competition in certain markets

• a greater threat of travel disruptions due to labor or financial crises (imagine the nationwide effects of a strike or shutdown)

• a loss of service in certain communities

• additional barriers for new-entrant airlines

A 2008 report from the GAO concluded: "Mergers and acquisitions can also be used to generate greater revenues through increased market share and fares on some routes."

So what actually transpired after the most recent mega-mergers were implemented?

A closer look

Over the last decade, three major domestic carriers were completely absorbed by their merger partners: TWA with American, America West with US Airways (actually a "reverse merger" in which America West did the acquiring) and Northwest with Delta. From a labor perspective, this consolidation led to thousands of lost jobs while a handful of executives received hefty compensation packages. But what effect did these mergers have on the flying public? Here's a closer look at how passengers have been affected, particularly at former hubs.

Service cutbacks

Shortly after American acquired TWA's assets in 2001, the airline began reducing service in certain markets, particularly at TWA's former hub in St. Louis. According to the latest DOT statistics, total passenger traffic in STL fell from 23 million in 2002 to 12 million last year. This surprised no one, since analysts predicted the demise of that hub nearly a decade ago. In fact, it represents a pattern.

American gradually cut daily departures out of St. Louis from a peak of nearly 500 by implementing more regional flights and shifting service to its existing hubs in Chicago and Dallas. Things worsened last year, when American announced further reductions—from 83 daily flights down to just 36—prompting St. Louis Mayor Francis Slay to blog: "I think American Airlines is making a mistake today." The mayor claimed that last round of cutbacks came about even though American's passenger loads out of St. Louis were high. The only good news for local travelers is that Southwest has been increasing its presence in that market.

Meanwhile, just a few years after aligning with America West, the new US Airways dramatically reduced service in Las Vegas last October, cutting daily departures from 64 to 26 (down from a peak of about 140 as an America West hub). This prompted Sen. Harry Reid (D-Nev.) to write to Chairman Doug Parker of US Airways earlier this year, calling the decision "shortsighted."

Slashing these flight schedules has affected entire communities. A total of 12 cities lost nonstop service from St. Louis this year, while 10 cities are no longer served by nonstops from Las Vegas. Overall, the Airports Council International reports that among the busiest facilities in the world for passenger traffic, Las Vegas ranked 12th and St. Louis ranked 25th in 2000; this year Las Vegas ranks 23rd and St. Louis is no longer in the Top 30.

As for Delta and Northwest—which melded operations in January—it's not hard to predict the near future. Currently the airline's website lists seven domestic cities as hubs but the relative proximity of five of those airports—Minneapolis/St. Paul, Detroit, Cincinnati, Memphis and Atlanta—has already led to downsizing. This February headline from the Consumer Traveler website says it all: "Delta Reneges on 'No Hub Closure' Promise, Closes Cincinnati Base."

The potential match-ups of United and/or US Airways and/or Continental would produce obvious redundancies as well. This is particularly apparent throughout the Northeast corridor, from Newark to Philadelphia to Washington, D.C.

Conclusion: When merger partners' route maps overlap, certain cities will lose service, with fewer flight frequencies and loss of nonstops.

On-time performance

As for efficiency, any improvements obtained by mergers seem to be short-lived and the recent record shows eventually the less punctual partner exerts the greater influence. Back in 2001, the DOT ranked TWA 2nd among all U.S. carriers in on-time performance, while American ranked 7th. One year later, after TWA was absorbed by the larger airline, American shot up to the 2nd spot, but by last year it had sunk to 16th in the rankings.

Similarly, America West ranked 4th in on-time flights in 2005 while future partner US Airways ranked 13th. The following year, US Airways ascended to the 4th spot. However, by last year it had fallen back and was ranked 7th.

It's way too early to predict how Delta will perform now that it has absorbed Northwest, but the initial results are that so far this year it has ranked 11th in on-time flights. That's down from the same period in 2009, when Northwest ranked 7th and Delta ranked 10th.

As for other performance measures, the partner with weaker customer service skills seems to win out as well. In 2005, the last year America West was ranked by the DOT for consumer complaints, that carrier secured the 11th spot, while future partner US Airways was dead last at 19th. A year later, US Airways crept up to 18th place, and by 2009 it had barely budged up to 17th in the rankings. As for American, its acquisition of TWA had little long-term effect on its consumer complaint rankings.

Conclusion: Ignore talk of "synergy" and "efficiencies;" airline mergers don't improve customer service.

Competition and airfares

Airline execs always pledge that fares won't rise after a merger, while many pundits claim the opposite. The truth is the GAO was right—to a point.

I found examining average fares at a given airport doesn't work, because one airline's exit can mean another airline's entrance. Take St. Louis, where the legacy carrier TWA folded into American, which prompted low-cost carrier Southwest to increase its presence and therefore drive down prices. But even the largest of low-fare airlines usually don't offer as comprehensive a route map as a legacy hub-and-spoke carrier. So it makes more sense to examine specific routes where head-to-head competition between the two former rivals suddenly evaporated.

Take St. Louis in the fourth quarter of 2001, at the time TWA merged with American. I dug out the DOT's Domestic Airline Fares Consumer Report to find the routes from St. Louis where these two airlines competed most vigorously prior to becoming partners. My findings are in the chart below.


STL-Dallas $172 TW: 51%; AA: 34%
STL-Washington $215 AA: 49%; TW: 38%
STL-Baltimore $125 TW: 40%; AA: 13%
STL-Boston $271 TW: 50%; AA: 24%
STL-Santa Ana $247 TW: 57%; AA: 24%
STL-Seattle $233 TW: 60%; AA: 17%


STL-Dallas $201 AA: 91% $29
STL-Washington $240 AA: 71% $25
STL-Baltimore $141 Southwest: 56% $16
STL-Boston $264 AA: 64% ($7)
STL-Santa Ana $206 AA: 65% ($41)
STL-Seattle $216 AA: 64% ($17)

Of the six St. Louis routes dominated by both TWA and American prior to their merger, average fares rose on half those city-pairs within three years. In fact, the 34% year-over-year increase on the St. Louis-Dallas route in late 2004 was the seventh-largest fare increase nationwide that quarter. Average fares fell on the remaining routes, primarily because of the increased presence of low-cost carriers such as America West, Frontier and Southwest. Even better news: By late 2006, the average fare on the St. Louis-Dallas route posted a 45% decrease—down to just $95—after Southwest aggressively increased its market share to 36%.

Meanwhile, after the 2007 US Airways-America West merger analysts wondered if ticket prices would rise in Las Vegas and Phoenix, former hubs for low-cost carrier America West. Happily, fares on many Las Vegas routes are kept low by the presence of several discount airlines. Out of Phoenix, however, America West and US Airways jointly dominated two routes, to Washington, D.C., and Colorado Springs. In 2008, one year after the merger, the average fare on the PHX-Washington route had shot up by $51 from $293 to $344, before falling back to $289 last year. But don't bother looking up fare info for PHX-Colorado Springs, since US Airways pulled out of that market entirely.

Conclusion: When one airline suddenly dominates a route where it previously competed with a merger partner, ticket prices are likely to rise—often considerably. If a low-cost carrier begins flying on that route, then fares undoubtedly will drop. But that's a big IF.

Here we go again?

If we've learned from recent history, then the patterns of airline mergers indicate we already know what will occur when the next mega-deal is approved. Let us know what you think of all this consolidation talk.

Friday, April 23, 2010

United Sale - LAX or SFO to Singapore

United initiated a ONE WEEK ONLY SALE to North Pacific from the West Coast only.

Rates start: $540.00 plus taxes/fees, etc.

Travel outbound Now - May 15.
(up to a 90 day maximum stay allowed)

Purchase the ticket by April 30

This represents almost $150 off the lowest published SALE fare - so hurry.

Wednesday, April 21, 2010

Exactly why the airlines are nervous.

There are not many news reports out there explaining the deeper nervousness of airlines executives...So we are going to explain it.

In the past 500 years: 1/3 of all of the global lava output has erupted by volcanoes in the tiny island nation of Iceland.

Eyjafjallajokull is the volcano that just erupted in Iceland. We have it listed above. Similar to Eyjafjallajokull: Iceland's other volcano are dormant, ice-capped and are currently glaciers.

Now notice something - Eyjafjallajokull is quite small in comparison when compared to Iceland's other Volcanoes!

The Katla volcano is directly to the right of Eyjafjallajokull. This volcano is significantly larger and more dangerous than Eyjafjallajokull. Katla typically erupts once every 40-80 years - and its last eruption was in 1918.....

Oh - and in the past 1,000 years, all three known eruptions of Eyjafjallajökull have triggered subsequent Katla eruptions.

Needless to say - USA and European airlines do in fact have something very large to worry about.

Tuesday, April 20, 2010

Travel to Europe is starting again!!!

Please check with your carrier BEFORE you go to the airport - but over 1/2 of all scheduled flights to Europe from North America are going to operate today.

AFCNET has been Very Busy at re-protection - and most options at this point are full until April 26/April 27

Wednesday, April 14, 2010

BA sees more Africa routes after Iberia merger

Interesting news from From Reuters:

The merger between British Airways (BA) and Spain's Iberia will result in increased access to African destinations for European and Latin American holidaymakers, BA's chief executive said on Wednesday.

Willie Walsh said BA planned to expand operations into Africa, including taking a delivery of new aircraft in 2012 earmarked for increasing the frequency of flights into the continent.

"(The merger) is an opportunity to provide additional access from the Spanish market into Africa and Kenya will be one of the destinations that will benefit," Walsh told reporters in the Kenyan capital, Nairobi, via video link from London.

Walsh said BA would be able to build on Iberia's existing networks, including a strong presence in Latin America, to open up the African market via Madrid and London.

"Part of the expansion will include new services from Madrid to a number of African destinations ... that is an objective of the combined British Airways and Iberia company," he said.

"We see these (new Boeing 787s) as being an excellent aircraft to serve the African market and to allow us to expand frequencies and look at new destinations in Africa."

Extra flights in coming years will boost the region's crucial tourism sectors, Walsh said, adding east Africa should also expect an influx of tourists both en route and returning from the football world cup in South Africa, beginning in June.

"We are forecasting a 10 percent increase in revenue for Africa this financial year, which ends March 31 2011," said George Mawadri, BA's Kenya commercial manager.

Tourism in Africa has suffered from the global economic downturn and Kenya, where tourism is the third largest foreign exchange earner after horticulture and tea exports, was hard hit by the country's bloody post-election violence in early 2008.

Air France Premium Economy

Air France is adding its new Premium Economy cabin to a growing number of routes. Called Premium Voyageur, this new option for comfort is located between the Business and Economy Class cabins.

As of March 2010, flights to Paris from Houston, Los Angeles and Washington D.C. now offer Premium Voyageur service.

AF Flyer: Click Here

Hotels, Hotels, Hotels!!!

Use AFCNET to book wholesale rates at 35,000 hotels.
Also - AFCNET will be adding more properties and wholesale hotel rates throughout 2010 - so keep checking back!

Tuesday, April 13, 2010

AA Should Season sale for Western Europe:

American Airlines initiated a NET sale fare to Western Europe.

Sample fares:

$344 + fuel/taxes - Omaha - London (lowest published is $442)

$548 + fuel/taxes - Albuquerque - Frankfurt (lowest published is $600)

$399 + fuel/taxes - Dallas - Paris (lowest published is $449)


Delta JFK-NRT or JFK-NGO Special:

Delta initiated a very good net fare to celebrate their 1 year anniversary operating the JFK-NRT route.

Travel: JFK - NRT
Seasons: June 1- July 28: $702.00-T class / $902 - U class

Travel: JFK - NGO
Seasons: June 1- July 28: $812.00-T class / $1012 - U class

Are net rates are over $100.oo LOWER than the lowest published fares from Delta.


Friday, April 9, 2010

2010 British Airways Humanitarian Contract

British Airways released their new 2010-2011 Humanitarian Contract on April 6. Highlights of the contract:

  • 3 BAGS FREE!!! British Airways is still exclusively offering Humanitarian travelers 3 bags checked pieces of luggage free worldwide
  • LOW NETS in 3 cabins: We have airfare in World Traveler, World Travelers Plus, and Club World.
  • No Advance Purchase, minimal change/cancel fees.
Contact AFCNET for Details

Delta PEK special from SEA / PDX:

Today Delta initiated a sale NET fare from Seattle and Portland to Beijing:

These special NET fares are booked in "T" class and must be Ticketed by April 23.

Sample Fares:
July 1 - August 20 $640.00 plus fuel surcharges and taxes

This is almost a $400.00 saving over the normal PEAK season Consolidator Airfare!