Airline Mergers’ Impact: Hubs Disappear, Fares Rise

Following a wave of consolidation U.S. for airlines, government watchdogs may take a close look this year at how mega-mergers and flight cutbacks are affecting air fares and service — especially as domestic carriers are posting record load factors and profits.

Any such review could directly affect travel agents, particularly agents based near smaller or mid-sized airport hubs that have withstood drastic cuts in service in recent years.  

In fact, the negative effects of consolidation have fallen disproportionately upon certain communities.

While everyone who flies has been hit by rising fares and packed planes, the effects are amplified in you live in a city that is at the mercy of a single mega-carrier.

“We’re in Death Valley here,” said Vicki Rush, CEO of A & I Travel, a travel management company in Memphis, a city often cited as a classic victim of airline consolidation.

“We went from being this plum for Northwest Airlines to an airline wasteland,” she said, after Northwest merged with Delta in 2008.

Sequestered in Memphis
At the time, Delta assured local civic leaders that it would preserve convenient service out of the Tennessee hub, a promise that was viewed with some skepticism given Delta’s massive hub in Atlanta a few hundred miles away.

And those concerns proved to be well-founded when, after the merger, flights dropped sharply — from a peak of 240 daily departures to fewer than 40 now, culminating in Delta’s decision to “de-hub” there in late 2013.

The city lost some key routes that connected it to the rest of the country and the world — including a nonstop to Amsterdam.

While some other airlines, like Southwest, have expressed interest in picking up some of the slack, overall Memphis’ air traffic remains significantly below pre-merger levels.

“We had three active terminals, now we’re down to one,” said Rush. “It makes it difficult to attract conventions, to attract new corporations. And it makes the life of a business traveler a lot more difficult.”

Profit over people
Delta, for its part, said it is simply eliminating unprofitable routes.

Fares at Memphis are, unsurprisingly, among the highest in the nation, but in that it’s not alone: agents in several other cities that lost their hub status due to mergers said they’re hearing a lot of complaints from clients about prices.

“People can get sticker shock when you tell them the price,” said Dan Lanser, of A Plus Travel, in Uniontown, Ohio, near Cleveland.  “It used to cost about $300 for a ticket to Florida,  now it’s $500.”

Lanser noted that after United merged with Continental, the combined carrier slashed flights at Cleveland Hopkins International, which lost more than 25% of its total departures as a result.

“With the United cutbacks, there are fewer nonstops, and you have to add time to any airport layover,” he said.  

These days, with full flights, “if you miss your connection, you’ll have little chance of making your [ongoing] flight.”

Consolidation in slow motion
Similar scenarios are playing out around the country.

A decade ago, the U.S. had roughly 20 sizable hubs, usually defined as an airport where several major players offer at least 75 daily departures.

Now there are about ten of these “fortress” airports, and at many of them a single airline controls more than two-thirds of the market, according to data presented to a House judiciary subcommittee just as American Airlines was tying the knot with USAirways — the last of the big carrier unions.

American’s merger bid was at first opposed by the Justice Department, and the carrier had to make some significant concessions to get the marriage blessed by Uncle Sam. The airline also pledged not to desert key USAirways hubs like Philadelphia or Phoenix.

A painful legacy
But in St. Louis, American is remembered for having dismantled a once-thriving hub after a merger.

Formerly a TWA stronghold, St. Louis lost a significant percentage of its service after American took over the bankrupt carrier in 2001 – and began slashing flight frequencies after pledging to maintain a strong presence.

“American made promises when they bought TWA, and they did not fulfill them,” said Nora Faifer, of Altair International Travel in St. Louis, who is also an officer of the ASTA Missouri Valley chapter.

“Fares are much higher than they used to be, which is aggravating to a lot of people; if they haven’t been to Europe in the last two or three years, then it is really a huge shock.”

One bright spot is that Southwest is now the dominant carrier at St. Louis, she said, with about 60% of the total traffic there. The carrier recently added nonstops to a number of destinations.

“Things are coming back,” she said, although air service is still well below what it used to be.

Too big to fail?
Just what the government can do about all this is unclear, but several consumer groups recently urged the Department of Transportation (DOT) to investigate airline competition and pricing.  

A DOT panel composed of several consumer rights groups as well as the Airlines for America trade group, Consumers Union, called last fall for the DOT to undertake a detailed study on post-merger conditions, including prices and services.

Consumers union travel and aviation consultant William McGee told the DOT panel that consolidation has produced an industry dominated by a few companies “that are too big to fail.”

The largest carriers already hold 87% of the market, he claimed, including just three legacy network airlines: American, Delta and United.

Southwest, after its own recent merger with AirTran, is also in this club of airline behemoths.

McGee said mergers have led to sharp reductions in service in some cities and regions, followed by a rise in airfares, saying that this is what happens without real competition.

“Many airport hubs have been eliminated despite assurances that this would not happen’,” he said.