Airlines 2.0: Crowded Planes, Higher Fares

Perennial money-losing industry is righting itself, but at a cost to passengers.

Fewer people are expected to travel for business in 2013; however, that doesn't mean lower costs.

Fewer people are expected to travel for business in 2013; however, that doesn't mean lower costs.

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"They're really not growing for growth's sake," says Ranson. "They're looking at networks and determining where the most profitable routes are."

That often means fuller flights. When airlines combine, they have more planes to pick from on their routes, allowing them to "put the right-sized aircraft in the right market," says Ranson. A too-large airplane flying regularly from Boston to Detroit, for example, will mean extra seats and fuel—and thus money—being regularly wasted at a time when every dollar counts.

Cutting down on the number of seats, as well as the number of competitors offering those seats, may mean less of a race to the bottom in pricing. As the Inspector General's report points out, this is a marked departure from the 1980s, when airlines sold empty seats at discounts.

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"When you have excess capacity in any industry, it makes it difficult to generate pricing power. It doesn't matter if it's widgets or seats for New York-Chicago," says Mann.

Indeed, though fares are still below where they were just 10 years ago when adjusted for inflation, they have started to bounce back. Average domestic fares grew by 6.5 percent in 2010 and again by 4.9 percent in 2011.

So what lies ahead for customers? Bet on tightly packed flights and fare hikes. More bankruptcies and mergers also could be on the horizon as airlines continue to work for greater profitability.

The outcome of a potential American and U.S. Airways merger, as with any combination, could mean either a more efficient and well-run airline or bumps for both the companies and customers. The immediate aftermath of a merger can be a decline in service, as airlines work out the kinks of integrating two companies' systems into one, says Purdue's Bowen. Longer-term, he adds, mergers can become problematic.

"Sometimes they get better, and sometimes they don't," he says. "A lot of times you just get a bigger, worse airline."

In many ways, there is more than one airline industry. So-called "low-cost carriers" like Airtran and Spirit have as a group been more successful than their larger counterparts, focusing on smaller fleets of economical aircraft and high-traffic routes. Low-cost carriers amassed small profits—$2.1 billion—from 2000 to 2009, in contrast to legacy carriers' $65 billion in losses. So as larger carriers cut routes, smaller carriers can fill in the gaps.

"If you look at U.S. network carriers, everything is centered in their hubs. They have cut out any kind of flying that doesn't touch their hubs," says Ranson. "That in some ways does create opportunities for low-cost carriers and so-called ultra-low-cost carriers."

In other words, even if larger airlines continue to shape and reshape their businesses (and push their fees and prices upward), passengers may yet have ways to travel on the cheap.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.