Every single time you make a merger, someone is losing his identity. And saying something different is just rubbish.¨
Introduction to Travel Industry and Airline Consolidation
This is the first part of a two-part blog on travel industry consolidations. The second part talks about car rentals, hotels, online travel agency consolidation.
The number of major players throughout the travel industry keeps getting smaller. Companies continually buy up competitors for the economies of scale and to reduce competition.
Many times, consumers believe that they are buying products from many different companies. Instead, they discover what they thought was a different brand is owned by one large company.
Airline Consolidation: The US and Canada
Consolidation has had the most significant effect on airlines than any other part of the travel industry. (Particularly in the US and Canada).
Over the last decade, the US airline industry has undergone the most dramatic consolidation in its history. Today, just four airlines control over 80% of all domestic flights. Three of these airlines are large, hub-spoke-oriented, global legacy carriers (American, United, Delta). The other is a substantial, point-to-point, ‘low-cost carrier (Southwest).
The Rest of the Airline Industry
The remaining 20% or so of the airline market is in six much smaller carriers, each with less than 5% of the market.
These airlines include:
- Three smaller, primarily regional carriers (Alaska, JetBlue, Hawaiian).
- Three so-called ‘ultra-low-cost carriers’ or ‘ULCCs’ (Spirit, Frontier, Allegiant).
- Two Canadian carriers; AirTransat and West Jet.
Airline mergers differ from other travel mergers. In other travel businesses, the acquired brands usually retain the same names as before the merger. They also provide similar services as before the merger. However, when airlines merge, the weaker name is retired, and the larger company contracts flights, routes, and hubs.
How Does Airline Consolidation Effect Consumers?
Kevin Mitchell, chairman of the business travel coalition, notes: “Most consumers cannot get all their needs met by one of these airlines. In fact, there are thousands of monopoly markets, and as such, imperfect competition, and no true product substitution for many trips.” The ¨imperfect competition¨ generally allows airlines to reduce the number of flights and increase the costs to consumers.
Consolidation is particularly bad for customers in discontinued hubs, like Saint Louis. For example, after its merger with TWA, American Airlines severely reduced service in Saint Louis and moved many flights into its Dallas hub.
Most analysts conclude that the four large remaining carriers cannot merge with any of the remaining six carriers for antitrust reasons.
Does This Mean Consolidation is Over?
At first glance, it seems that airline consolidation should subside in the future because:
- Each of the remaining six smaller carriers has a successful niche.
- None are financially troubled.
- Many are profitably taking advantage of the existing large carriers’ reluctance to go into new untapped, smaller markets. (For example, Allegiant Airlines provides numerous, non-stop flights between small, regional airports, like Peoria, Illinois, and Las Vegas).
That said, we should anticipate the following consolidations in the US and Canada:
- A possible merger between Spirit, Frontier, and Allegiant. Each airline shares similarity in business models (ULCC), fleet commonality, and a heavy reliance on ancillary fees.
- Air Canada has announced its intention to buy Air Transat in July 2019. (Subject to shareholder and Canadian government approval). Air Transat specialized in providing leisure travel services from major Canadian cities (especially Montreal).
Consolidation in Europe’s Airline Industry
While there is much more competition in the European airline industry, consumers should expect more consolidation of a European airline in the future. (There were 38 European airlines in 2016). Why? Because of the low profitably of many national airlines and competition from low-cost airlines and high-service Middle Eastern and Asian carriers. However, the consolidation will probably occur less quickly than in North America because of the high degree of European airline regulation.
Want to Learn More About Airline Consolidations Effect on Consumers?
For more information on airline consolidations and consumers, look at this article from 2014 by NBC News
The Travel Economics 101 Posts
Here are several posts designed to give Fifty-Plus Nomads a basic idea of how Travel Economics works. Being armed with a better economics education should make you a better travel consumer. (You can read the posts in any order) .
- Why Alliances are Essential to Travel Providers. Are they Good or Bad for Consumers?Travel industry alliances are essential to the business´s survival. However, alliances have both good and bad implications for consumers
- Extra Fees: What are Ancillary (Extra) Fees and Why Are They Increasingly Becoming A Travel Industry Lifeline?More and more the travel industry depends on the sale of other products to expand and maintain its profitability. Expect to be bombarded with hints to buy other things (ancillaries) on your next cruise, flight, etc.
- The Internet Has Changed the Face of the Travel Industry More than Any Other Major IndustryThe internet has changed the travel industry probably more than another industry. This article discusses how these changes affect the consumer.
- Travel Industry Cost Saving Techniques: The Good, the Bad, and the UglyThe travel industry has made several changes to save costs in recent times. Some like using more fuel-efficient planes do not affect consumers that much. Others like reducing staff have made the experience worse for consumers.
- Business Travelers Versus Leisure TravelersThe travel industry gets most of its clients from leisure travelers. However, it makes more money from business than leisure passengers. The airlines put up with us leisure travelers because they couldn’t survive without us. However, they don’t hide their preference for business travelers.
- Why Are There So Many Connecting Flights? A Discussion of Why Airlines Love the Hub-Spoke Model More than ConsumersUnbeknownst to most consumers, the cause of most of our airline-related complaints is the hub-spoke model. Unfortunately, however, the hub-spoke model is also essential to the airline industry’s financial viability.
- Airline Schedule Changes: Why Don’t Airlines Keep their Promises?Learn why airlines change their schedules after you buy your tickets and what you can do about it.
- How Many Taxes, Fees, and Other Charges Do Consumers Pay For Airfare, Hotels, and Other Travel Services?The amount and number of travel taxes, fees, and other charges added to your bill will probably surprise you. Many are hidden and like everything else, taxes keep going up.
- Airline Consolidation: What Are the Disadvantages and Advantages For the Consumer?The airlines have consolidated so fast in the USA and Canada that only 5 players dominate the market. Learn what this means for consumers.
- Travel Industry Consolidations (Non-Airlines): The Effect on Consumers (Negative or Positive)?Probably the most significant change in the travel industry in the past couple of decades has been the industry’s rapid consolidation. Read this post to discover how few travel players really exist in the market today. and how this rapid consolidation has affected consumers.
- Why the Sharing Economy Has Become So Popular in the Travel Industry?The sharing economy like Uber and Airbnb has made a major influence on the travel industry and will continue to affect the industry far into the future.
- Third World and Chinese Travelers: The Biggest Future Travel TrendThe biggest change affecting the travel industry is the gigantic increase in emerging countries and Chinese travelers. These travelers will change the future face of tourism more than anything else.
- The 3 Reasons Travel Prices Are So Radically Different than Other Products: Perishability, Capital Costs, and Yield ManagementHave you ever wondered why travel products seem to be priced so crazily? Learn the three economic factors that contribute to the pricing of travel products: perishability, high capital costs, and yield management.
- Travel Economics 101: Learn How the Industry Works and Save Yourself Money and HeadachesPaul Heller, the Fifty-Plus Nomad founder, has developed a series of posts about travel economics. Reading these posts will help Fifty-Plus Nomads deal with some of the problems with the travel industry they are likely to encounter during their long-term, round-the-world journeys.