Airline Mergers Often Good for Business, Not Everyday Consumers

Airlines often merge to win over big-business clientele.


The intense battle for airline dominance could soon grow even more heated.

U.S. Airways has won the support of American Airlines labor unions for a potential merger with the air carrier. For U.S. Airways, it's one more crucial step toward taking over American, which filed for bankruptcy protection late last year. U.S. Airways has also filed paperwork with the SEC paving the way for a merger.

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Such mergers, especially among large carriers, are often designed not to lure in everyday travelers but to win the favor of large companies who fly their employees worldwide, according to one expert.

"If you're a business-oriented carrier, and typically the [large] network carriers are, they're probably carrying two-thirds of their revenue on business travel, business-purpose travel." says Robert Mann, Jr., an independent airline industry analyst.

He estimates that half of that, or roughly one-third of those large airlines' revenue, is from "preferred-carrier" agreements with businesses. "[That] is a big number, and that's diversified across numerous corporate contracts. It's highly sought-after, and it's tough to hold onto," he says.

If being larger does attract big business clients, the merger could mean a significant advantage in the business travel market for American, the United States' third-largest airline, and U.S. Airways, the fifth-largest, as they take on No. 1 Delta and No. 2 United.

Should the merger take place, it will help the companies reduce costs, but travelers shouldn't expect cheaper tickets.

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To the contrary, airline consolidation in the last three or four years generally "has resulted in increased fares, and the ability to pass through supply cost increases, typically fuel prices, which have been increasing over the period and has had some volatility," says Mann.

And recently released airline quality data show customers should expect a decline in service since there will likely be growing pains as the two airlines with long histories merge.

Of course, that's exactly the kind of deficiency the airlines will want to avoid.

"Corporate travelers won't accommodate being jerked around and having their bags lost, having flights late, rude flight attendants," says Mann.

Should the two companies eventually agree upon a merger, it is still far off, with many intermediate steps to come.

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"To get to an actual merger, many things must happen, including gaining the support of [American Airlines parent] AMR's creditors, its management team and its board of directors," U.S. Airways CEO Doug Parker said in a memo to U.S. Airways employees, as reported by the Wall Street Journal. "But this is obviously an important first step along that path, and we are hopeful we can all work together to make this happen."