For those who were troubled by the wave of airline mergers over the past year, you can stop worrying about whether airfares will go up; airfares have gone up. (We didn’t say you had to be happy about it.)
According to an MIT study featured in this week’s Wall Street Journal, U.S. airlines have joined forces and, in turn, cut flights and raised prices.
What’s more, “mergers between Delta Air Lines Inc. and Northwest Airlines, United Airlines and Continental Airlines, and Southwest Airlines Co. and AirTran Airways have led the combined carriers to rethink their route maps,” the Journal reported. “The planned merger of AMR Corp.’s American Airlines and US Airways Group Inc. is expected to lead to more route restructuring. The deal would leave the four big airlines with control of 85% of domestic capacity.”
Before we go complaining to federal regulators, however, perhaps we should give the airlines a little sympathy. Peter Drucker felt air carriers, along with hospitals, were in a particularly difficult business. These are “inherently highly vulnerable industries or services which combine the worst of both worlds, such as high break-even points and inflexibility of product mix,” Drucker wrote in Management: Tasks, Responsibilities, Practices.
To be an airline of the wrong size can make things even worse. Toughest of all, Drucker indicated, is when a carrier is “too small to have the revenues” of its biggest rivals “and too large to have the economics of the small local lines.”
Although, as we’ve noted, Drucker was a skeptic of mergers as a form of salvation, he did make an exception for businesses of the wrong size. “Indeed, being the wrong size is one of the few cases where serious thought about merger and acquisition is a must,” he allowed. “The problem cannot, to repeat, be cured by growth from within as a rule. It requires a ‘quantum jump.’ And this, of course, merger and acquisition can provide.”
So maybe we’re paying too much. But maybe, alternatively, in the past, we were paying too little—to carriers that were never, until now, the right size. Or at least that’s what might give comfort as we pay an extra $25 to check a bag that American Airlines proceeds to lose.
Based on your personal experience, how do you think airline industry consolidation has affected the consumer?