Stripy

And you act like capacity has no effect on pricing. What happens in a merger where the two airlines have routes in common? Will they continue to fly as many flights on those routes as they did before the merger? What happens to prices if capacity is reduced?

Please get off your high horse and stop labeling people "entitled". This has absolutely noting to do with feeling entitled and has everything to do with wanting to have proper competition in the market place. If you think there's something wrong with that then you probably have skin in the game that you're not revealing. Do you?

FWAAA

Fares get pushed up too high and someone with money to burn (like Neeleman, Soros and Branson) will do it again - they'll form a brand new airline and hire all sorts of young people at much lower wages and that new airline will take revenue away from the legacies. Just like jetBlue and Virgin America.

richarddd

Would you expect there to be much variation in pricing in a perfectly competitive market with numerous participants, none of which have any market power?
Agreed.

Fanjet

How many overlap routes are there? Twelve? Like I've asked before, how many city pairs are there where AA and US are the only airlines listing fares? My guess would be zero. Will there be as many flights post-merger? Of course not. But that is because of duplicity in the combined networks. Does the new airline really need to continue flying 13X daily between LGA and PHL? Does that mean if they go down to 4X daily that fares out of LGA are going to skyrocket? Doubt it, given the amount of competition that will continue to exist there. Will airlines in the future drop unprofitable routes, and thus reduce capacity? Of course. And that makes business sense. Will they start new routes that have profit-potential, and thus increase capacity? Yes. Because that also makes business sense. And this merger gives AA the opportunity to start new routes because of the large market presence of the combined networks that neither carrier would do if they stayed separate. I see this happening at BOS and even LGA. Then there are stations like MHT, PWM, and PVD that currently have no AA presence, but will most likely see service started to ORD and possibly MIA. Is that not being competitive?

As for my skin in the game? It's wanting a carrier that can take care of most of my travel needs. If you haven't noticed, UA and DL (and AA will follow) are having a spend requirement for elite status. And partner travel not issued on their ticket stock does not count. So for those of us who have elite status on more than one carrier, it will be more difficult to continue doing so going forward. So that one primary carrier has to be as "all that" as possible. This merger allows for that possibility.

But why is it that you don't want this merger to go forward? And if you give "competition" as the reason, please be more detailed than that.

Stripy

1) How are you so sure that a decrease in capacity on the LGA-PHL route won't hike prices up? On what basis do you "doubt it"? Isn't it true that reduced capacity, more often than not, results in increased prices? When has anything that became more scarce not gone up in cost?

Also, in my comments, I was referencing mergers in general not just this specific one.

2) So it would seem that you're pro the merger because you're worried about your multiple elite status not being achievable for you going forward and therefore, potentially, reducing the benefits and comfort of your travel....and that's an ok reason in your books....but if someone doesn't want the merger because they don't wish to see their benefits diluted or because they don't want their costs to rise then they're "entitled". Interesting way to look at things.

3) I'm against the idea of a merger for a number of selfish reasons:

I am concerned that my flying costs (100% of of my own pocket) will go up and that I'll lose the LT status that I've been working pretty hard to attain (looks like I'll fall short). It would also be fair to say that the status quo works well for me and I fall into the category of AA elites who don't stand to gain much from the merger (not obviously anyway) - I don't need to use any of the new domestic routes (as proven by the fact that I've never had to set foot on a US Airlines plane) and I see no route expansion overseas that's particularly tempting....so why would I want the status quo to change?

However, what I'm more vociferously against is people painting the merger as a good thing for all (it isn't), attempting to say that competition won't be reduced (a statement made in this thread and yet to be backed up) and telling those of us who aren't completely sold on the idea that we're demonstrating an "entitlement" attitude. It's also pretty maddening when the same people try and get holier than though about the merger.... talking about "good for the industry" and "increased profits for AA" when in most cases they have their own personal reasons for wanting the merger to go through and it has absolutely nothing to to with airline profitability and everything to do with their own needs. It's absolutely fine to be pro the merger, everyone's entitled to an opinion and everyone's needs will be different but there's a lot of people being disingenuous about the whole thing and that strikes me as wrong.

Fanjet

How much O&D traffic do you think is on the LGA-PHL route? My guess would be close to zero. It's all for connecting traffic and slot-holding purposes. So if they drop 9 of the 13 flights, that doesn't mean that 9 flights out of LGA go away. They will be deployed to another destination. Or they will be sold to another carrier, who in turn will fly the routes somewhere. So how is that reduced capacity out of LGA? And reducing flights doesn't always equate into reducing capacity. If there ends up being a net decrease of 300 flights in the combined network for example, but an increase in the amount of seats per plane, how much of a capacity decrease is that? If at all. The 738s will probably go from 150 to 162 seats. That's about an 8% capacity increase per plane. The MD80s will probably see a net increase of 6 seats. Which is maybe a 4.5% capacity increase per plane. What percentage of flights is 300 flights from the combined networks?

People making the claim that this merger will result in prices going sky high are just being hyperbolic. How many airports are only served by AA and US? Because those people would have a legitimate claim that this merger will drive up fare prices for them. People wanting to fly transcons for around $200 RT need to get used to flying Spirit. Because even Southwest doesn't go that low anymore.

Stripy

You're using words like "guess", "if" and "probably" to justify your points - on what basis are you making these predictions? None of this is fact and I can't see where any of it is even based on similar example in the past. I could just as well use those words to back up the exact opposite scenarios...it wouldn't make my points any more valid.

In addition, you're now picking the type of capacity we're discussing to suit your points - I never discussed a particular airport's capacity so I never said LGA's capacity would go down. You brought up the example of the merger resulting in 9 out of 13 flights from LGA-PHL being dropped (which, no matter how you try to spin it, is reduced capacity on that route) and I pointed out that prices would probably go up because that's what's happened in the past when capacity has been cut. Are you seriously trying to claim that AA/US will cut 9 flights but keep capacity the same by refitting and redeploying various aircraft? To use one of your words, that's "probably" unlikely based on the past.

You're also now trying to use the overall network capacity to justify capacity cuts on smaller routes - how does it help a LGA-PHL commuter who's just seen his flights cut from 13 to 4 if overall capacity stays the same? Do you really think he's going to care that LGA-XXX has now got more flights (keeping network capacity the same) when he's seen his route shrink and his costs go up?

You ask about routes that are only served by AA and US...well how about routes that are served by AA, US and UA (for example) - taking out a competitor in a 3 player market is a pretty significant thing and if it also results in capacity reduction then it gets worse.

Lastly, once again we have the idea that if someone wants competition to keep prices in check it must mean that that person wants $200 transcon flights. This is the standard talking point/sound bite that always gets trotted out and it's garbage. No one here has once mentioned the desire for ludicrously low prices...all that I'm arguing is that fewer airlines means less competition which means less too keep the airlines in check when it comes to price hikes.

If you wish to delude yourself that the US/AA merger isn't going to affect prices in a negative way then that's your prerogative but while you're working with hypotheses, "ifs" and "probablys" for which there are few (if any) historical precedents, I'm just going off of what's happened in the past.

Fanjet

I ask about airports whose only service is with AA and US because THAT is exactly the market who will be negatively affected by this merger. You go from two airlines competing with each other for the traffic, to one. But let's use your AA, US, and UA scenario. How many airports are only served specifically by AA, US, and one other carrier?

Stripy

That is not the only type of market that will be affected. Basic economics tells you that if you remove one competitor from a market place the market place changes. Yes, the fewer the competitors in the marketplace the greater the effect when one is removed but the idea that larger markets are not going to be affected by the removal of a competitor is wrong.

I have absolutely no idea. How many? While you're at it, How many are served by 4 airlines that will then see a 25% decrease in competition?

The thing that I just don't get with your argument is this: Do you seriously think that this merger would be going ahead if there weren't synergies to be had? Those synergies are in a number of departments and areas and two of those areas are the routes and the fleets. Where you find synergies in a merger you find cuts - fact. There will be cuts and they're going to affect the market - if they didn't then the merger would be pointless.

Fanjet

Do you seriously think that having 4 carriers in a market is what keeps fares low, but once you go down to 3 then fares go through the roof? If airlines jack up their fares and the market responds by not flying them, they will be bleeding cash as their empty planes take to the sky. If they jack up fares, and their load factors remain the same, then they were charging too low of fares in the first place. As for synergies. Of course part of that will come from flight reductions and flight re-alignments. I've said that many times. I think the new airline will shed about 300 flights system wide. So what? If money was to be made by keeping them, then they would stay. They are not obligated to fly routes at a loss. But those flight reductions will be largely offset with capacity increases. It's already been reported that the MD80s and 738s will be fitted with more seats. The MD80s that are being retired will be replaced in part with 321s. Which will hold about 40 more seats per plane. The 319s that are also replacing them hold only 7 fewer seats. So it appears to be a net increase in seats. Even the 773s (which are being deployed on current 772 routes) hold a lot more seats than the 772s.

MSPeconomist

It's more complicated than just counting the number of competitors. A merger isn't the same as eliminating a competitor because two airlines are replaced by one that's larger.

richarddd

http://en.wikipedia.org/wiki/Herfindahl_index is the standard measure of concentration in the relevant market. Nationwide the airline industry isn't very concentrated, but there are many routes that are not very competitive.

As others have said, the merger will almost certainly be approved with some sales of overlapping routes.

Stripy

Once again you're using extremes to try to make your point. At what stage did I ever say that fares were going to go "through the roof"? - I said prices would increase due to decreased competition. So, yes, in a market that loses 25% of its competition I do expect prices to increase...I'd be interested to know why you think they won't. Let's stick with your original example of LGA-PHL - why won't prices go up on that route?

Another point where you're taking things to an extreme in an attempt to prove a point. Why would the planes be "empty"? You seem to think that flying is a choice for everybody - it isn't. A lot of people have to fly to do their jobs because distances are just to great to do the journey any other way. What happens to them when prices go up? Do you think they they'll just stop doing their job because prices have gone up?

This is now getting silly. Now you're applauding the airlines for finding a better price point! You're typing this stuff like the consumer should care if the airline is charging them the appropriate fare. You've approaching this entire argument from an airline perspective and then trying to make your ideas fit an argument geared to a consumer's perspective. Don't you realize that the overwhelming majority of consumers don't want price increases and really don't care if the airline is maximizing it's profit with it's pricing.

You're agreeing that prices may indeed go up (as a result of the merger) and then justifying it by saying that it's ok because the airline has found a better price point. You're reached a point in your argument where you're justifying an increase in fares to a consumer based on the fact that the airline was charging the wrong price before hand. Do you really think the consumer cares?

Again you're looking at this from an airline perspective and expecting consumers to see things from the same point of view. You're agreeing that there will be flight reductions and flight reassignments and then questioning the reasoning of consumers who aren't waving the flags in anticipation of the merger? Do you see how ridiculous that is?

Your entire argument for the merger appears to be predicated on the one fact "it's good for the airline's bottom line" and you seem to expect that argument to work for the consumer.

So what? Why do I, as a consumer, care about this? The consumer only cares whether he/she can fly their route....which you already admit may disappear.

And now you're back to using overall network capacity to justify cuts on individual routes.

As I've said above, the problem here is very simple - you're looking at the merger from the company's perspective and wondering why the consumers aren't joining you in your celebration.

MiamiAirport Formerly NY George

There is very little route overlap between these two airlines. The only airport that may have routes eliminated in order for the deal to go through is DCA. Airlines are finding raising fares is now dampening demand. WN, B6, VX, NK are all looking for new routes and/or airports to serve. Unless the combined airline is prepared to do some serious shrinking I dont see the merger resulting in higher fares. You don't really need to take the entire family to see Mickey and not all employees need to attend conferences.

radarskiy

No his claim was that the capacity does not need to remain the same as long as there enough capacity for the O&D traffic and the connecting traffic is accommodated with capacity elsewhere.

His guess was that there's almost zero O&D traffic on this route. This is a knowable fact and his guess is pretty close. From the Bureau of Transportation Statistics' O&D survey we find that in 2012 LGA-PHL had 305 PHL-LGA had 369. Let's call that one passenger per day each way. As long as you have enough capacity to get one person from LGA to PHL and another back you can accommodate the connecting passengers in any other fashion, the convenience lost from frequencies notwithstanding.

Or you can buy that one guy a train ticket. ;-)