¨Every single time you make a merger, someone is losing his identity. And saying something different is just rubbish.¨
Introduction to the Travel Industry and Airline Consolidation
This blog was written before the COVID Pandemic. The COVID epidemics played havoc on the travel business. In 2022, Fifty Plus Nomad decided to focus on traveling and living in Mexico and language learning posts. We will only update these long-term travel-related posts on a time-permitting basis. We would appreciate your comments and updates on these posts.
This is the first part of a two-part blog on travel industry consolidations. The second part discusses car rentals, hotels, and online travel agency consolidation.
The number of significant players throughout the travel industry keeps getting smaller. Companies continually buy up competitors for economies of scale and to reduce competition.
Consumers often believe that they are buying products from many 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 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% of the airline market is in six much smaller carriers, 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 more significant 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. 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 consumer costs.
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 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 profitably take advantage of the existing large carriers’ reluctance to enter 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 similar 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 European airlines 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