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OPINION - Airline merger and smaller airports

by Chris Conley

NEWS BLOG (WSAU) The American Airlines-US Airways merger has a green light. The combined airline and the U.S. Justice Department reached a settlement over a lawsuit that would have blocked the deal. A federal judge will likely approve the agreement.

The news reporting on this story is emphasizing the wrong issue. You’ve heard that part of the deal is that American Airlines will have to sell gate space at Reagan-National, LaGuardia, and other major airports. Discount airlines will get a bigger foothold into some big markets. While this is an important issue, the bigger concern is air service to smaller, secondary cities. That isn’t a part of the merger agreement, and it should be.

As a starting point, let’s say something that the traveling public doesn’t realize. Southwest Airlines will never offer service to CWA. Dozens of smaller cities from Toledo to Pocatello to Lexington are not going to get the deep discount airlines to serve their markets. Southwest flies only 737s. One reason their fares are cheap is that they fly the same fleet of planes across their entire routes; pilots don’t have to be cross-certified, maintenance facilities have to stock as many spare parts. They’re only interested in serving markets where they can consistently fill 120 seats on a 737... On some days, that’s more than the total number of boardings for all flights at CWA. Most other deep discount airlines simply don’t fly the smaller 55, 44, and 16-seaters that go into secondary airports. Those planes have much higher per-passenger costs and don’t fit into the discount airline business model.

It’s the legacy carriers that have the large route maps that serve hundreds of smaller markets… and now there are only three of those airlines left. They are: Delta (a merged airline that gobbled up Northwest Airlines), United (which merged with Continental last year), and the soon-to-be-combined American-US Airways. If  your local airport can’t full the big 737s, those three airlines national airlines will be the only choices available. And they are all looking to cut costs, especially in small city operations which tend to be more expensive.

We’re seeing this now at the airport in Mosinee. United and American serve the airport, only with two or three flights a day, and all to Chicago where other connections are made. Delta offers fewer flights than Northwest did to Detroit and Minneapolis, and Delta has been more aggressive than other carriers at wanting to get out of smaller markets.

The three legacy airlines aren’t the only fish in the sea. There are specialty airlines that serve niche markets – Air Jamaica, Samoa Air, Alaska Airlines, etc. And there are charter/vacation airlines that fly only two or three days a week to tourist destinations like Las Vegas or Florida. While these airlines may serve many, many cities, they’re not a replacement for airlines with full route maps with nationwide reach.

The American-US Airways merger has some protections for big markets.  There needed to be more protections for smaller routes, because if the new American pulls out of market they’d be almost impossible to replace.

You can argue that the government should be hands off in situations like airline routes and pricing and let the free market system prevail, but that’s not the right model for this. There's a limited resource in-play: take-off and landing slots. Those slots are partly controlled by the government. The government has already been hands off on airline pricing, where there's soft-collusion in markets where more than one carrier offers non-stops to the same city. (As a side note, US Airways had been bucking the trend on the $40+ cost model for non-stops; the merged American Airlines is already planning to do away with those fares.) The heritage-airline industry also moves in lock-step on fees and terms-of-carriage rules. In exchange for these sweetheart deals, the feds should have sought more protections for small-market airports.

The airline industry is shrinking – TWA, Eastern, Pan Am are lone gone. The regional airlines, like the old Milwaukee-based Midwest Airlines, have also been swallowed up. When one of the big-three drops service to a small town, it’s likely going away for good. That’s the risk for the flying public as this round of airline mergers comes to an end.

Chris Conley
11.13.13