American Airlines deal shouldn't be bad for consumers

True, the merged airlines have figured out how to nickel-and-dime us with annoying fees for checked bags or for sitting in a more desirable seat. According to the government’s Consumer Price Index, however, the cost of air travel has just about matched the overall rate of inflation over the past dozen years.

During that period, the airlines absorbed a tremendous rise in fuel costs. Jet fuel prices have risen 250 percent since the end of 2000, while airfares are up just 31 percent.

The gap between those numbers sent the industry through a series of bankruptcies in the past decade, followed by some big mergers. The last of those deals, announced last week, will combine American Airlines with US Airways to create the world’s largest air carrier.

It will leave U.S. air traffic dominated by four big players: American, United, Delta and Southwest. And it will complete a remarkable business turnaround for an industry in which, it is often said, investors should have paid Wilbur and Orville Wright to keep their plane grounded.

For the first time since airfares were deregulated in 1978, the U.S. will have no large, financially troubled airline. The four big carriers have all used bankruptcy to reduce their labor costs and get rid of unneeded capacity.

The mergers have mostly been about operating efficiencies, not gaining more power over consumers. Daniel Rust, assistant director of the Center for Transportation Studies at the University of Missouri-St. Louis, doesn’t think the latest deal will be bad for the flying public.

“There might be a slight bump in fares, but I don’t think it will make much of a difference to consumers,” Rust said. “You still have pretty healthy competition, especially by Southwest.”

David Swierenga, an airline consultant with AeroEcon in Round Rock, Texas, says that the industry’s current profitability is remarkable only by historical airline-industry standards. Airline profit margins of 2 percent or less would look slim in most other industries.

Those thin margins are a sign of a competitive industry, Swierenga argues. “I think you’d be hard pressed to find a market that isn’t competitive, even in the smaller cities. What you have are competing networks, and a network is a very efficient way to keep costs down.”

Swierenga notes that other network industries, such as railroads and telecommunications, also became highly concentrated in the last couple of decades.

Now that the airline industry has been whittled down to four big carriers, Rust expects it to make a clean break from its financially unstable past. “I’m hopeful that this industry has turned a corner,” he says. “Barring a major spike in fuel prices, I think they’ll be able to enjoy sustained profitability.”

Swierenga, though, sees organized labor as a possible gate-crasher at the industry’s profit party. The bigger an airline gets, the more it has to lose if disgruntled workers threaten to strike.

“With consolidation in the industry, there is a fair amount of power that shifts to labor groups,” he says. “Labor has endured a lot of pain over the years, but maybe that’s going to shift now.”

For the time being, at least, the airlines have figured out how to make a little money with the Wright Brothers’ invention. It’s a little early to say whether they’ve discarded their old money-losing ways for good.