If the Politburo and Gosplan down in Washington, D.C., don’t object to the merger of United and Continental, let me suggest a name for the new monster airline: Aeroflot.
How can consumers profit from this change in the industry? Perhaps we should be shorting the stock of Orbitz, Expedia, and other ticket booking sites. When the U.S. has only one airline there won’t be much value in comparison shopping.
Just what we need, a too big to fail airline…
Another way to think about it: competition in the airline industry is so brutal that at this point, no one (except perhaps Southwest) is making any money. Having fewer and larger airlines would provide the American airline market with companies that have better purchasing and pricing power.
Four healthier airlines (Delta, American, Southwest, United) are better than five or more teteering on the verge of bankruptcy and looking to cut every corner there exists. As pricing becomes more stable, one would hope that airlines start competing on other factors (e.g. clean toilets, on-time departures, absence of cockamamie fees) that would reduce the torture flying has become.
Jagadeesh: Your ideas make a lot of sense. When there are many companies in a market, the consumer invariably suffers. Gosplan and the Politburo should pass a law to forbid there being more than four competitors in any market. So we will have Burger King, McDonald’s, Wendy’s, and KFC for restaurants. Fortunately, thanks to the tireless efforts of government regulators, we are already spared the misery of competition in telecommunications. I love the fact that I can choose only between Verizon and Comcast in my neighborhood. The only problem is that both are such consumer-friendly companies and their prices are so low that it is tough to choose.
Think of it another way: with one legacy airline as good as gone makes room for another more efficient startup. (or existing minor regional to expand)
Jagadeesh: as Philip alludes to, your proposal does not work. Fewer airlines will not be profitable. Even when there was tighter regulation and less competition, most airlines still did not make money. Only Southwest, BA and Singapore are consistently profitable. See Pilarski’s, Why Can’t We Make Money in Aviation?. This is a bad deal for passengers, investors, employees, and everyone else except the executives and investment bankers. Long live the U.S.A.
The government should approve the merger, but require that the new, merged airline set aside a number of seats (about the size of the front cabin) for government officials. This would reduce our taxes: for example, the Speaker of the House would no longer need to take an Air Force jet to work. And there would be no more hijackings if terrorists couldn’t get seats close to the cockpit.
Also, the government should cap ticket prices. The airlines would simply wait until enough tickets had been sold before a flight would take off from one city to another. (If the price of oil goes up we might have to scoot together a little, but that’s OK because the government will make sure young people are not so fat in the future.) Economists might guess that this would lead to long delays, but they are wrong: delays of more than three hours are already banned!
Merger partner Continental is well prepared for these changes with, for example, its Allentown and Wilmington services. It would be a minor matter to expand its use of similar regional carriers to other routes.