Is it wrong to thing think that someone who is the assistant managing editor of TIME and directs the magazine’s coverage of business, the economy, personal finance and sports might actually understand something about business? Or at least if he is going to write about the airline business that he might understand it? Because apparently Bill Saporito is writing about the impact of airline mergers on customers and doesn’t seem to know much about the industry at all.
Under the headline “The Sky-High Price You’ll Pay for Airline Mergers” Saporito addresses the potential impact of the merger on consumers. Sortof. His base claim – mergers lead to higher fares and that is bad for consumers – is arguably valid. Certainly higher fares are more likely though I’m not necessarily going to concede the part where that is bad for the general public. But much of the “story” he filed on the topic is somewhere between ridiculous and outright false. From the very beginning he misses badly:
The Motor City once harbored hub dreams and built a new Detroit Metro airport to fulfill that desire. Then, you know, the U.S. auto industry wrecked along with the rest of the economy. And airlines went bust before autos, sending Northwest, Detroit’s home team, into the arms of Delta, another bankrupt. Detroit Metro got downgraded to a spoke rather than a hub and lost a ton of flights.
Except that DTW is not a spoke for Delta. It is a major hub in the carrier’s operations with nearly 500 daily flights to more than 130 destinations. So, yeah, not really with the being downgraded to a spoke.
Saporito continues on to complain that there are no competitive fares for a trip from New York to Detroit with less than one week’s notice. Spirit actually has decent fares but he doesn’t like their schedule. Somehow that is the fault of mergers, I guess?? There are cheaper options with one stop; it is not clear if he took the connection or paid extra for the flight.
He also seems to ignore history. More than a decade ago I used to commute between NYC and Minneapolis for work. The tickets cost $1400 round trip. And that was with several more airlines competing in the market. Today a similar trip is pricing around $1000 for the non-stop flights despite the fact that there are fewer carriers in the market. Detroit isn’t even one of the worst airports for average fares in the USA, not by a long way. Oh, and earlier this year he was happy to suggest that allowing the merger wouldn’t really make things worse.
Yes, airfares have gone up a bit lately in real world dollars but to blame that exclusively on mergers is to do a very, very, very bad job of telling the whole story.
Less competition does mean generally higher fares. But that’s not the whole story. It is not the only reason fares go up and it is not the only metric by which value to the traveling public should be measured.
Lots of things about the in-flight experience are getting better, both in economy (better meal & IFE options, even though some are paid) and in premium cabins (just look at the transcon products on the horizon). But none of that matters because a fare which has always been high remains high and that’s something serious enough to touch off a rant from someone who has been around long enough to know a lot better. At least he should.
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There’s a typo in your first sentence. [/Pedant]
ORLY?
Yup, “thing”
Good post! I wish major media outlets would consult with industry experts and get their facts straight before going on a rant.
We’re going to call that my accent. :p
Oopsie.
Also, “sortof” is not a word. It’s two words: “sort of”. This happens in many of your posts. HTH!
Seems to me there’s some ignorance on the airline industry from this blogger. I care far more about leg room than meal and entertainment options. The latter two I can BYO, leg room I can’t. Also, why compare historical air fares, they’re no longer comparable. Food, baggage, seat assignments, and decent frequent flyer benefits used to be included in air fares, now they’re all separated out or not even provided. The all-in cost of flying is going up quite a bit, even if fares aren’t rising so much.
Interesting that you mention legroom. There are far more seats with 35″ or more of pitch available today on domestic carriers than there were 10 years ago, even as consolidation has happened. Carriers are competing for business. Yes. you’ll pay extra for that legroom. But 10 years ago the options were 31-32″ pitch or paying for first class. And if you fly enough the extra leg room is cheap/free.
Quite frankly, I’d say you’re doing better on that front today than you were before the consolidation started.
And even if you add $50 for checked bags the fares are still lower than 10-15 years ago.
I think revenue per passenger segment or per passenger mile would be a far more relevant metric than simple fare amount, in order to account for newly separated fees that have increased as consolidation has increased. I’m still skeptical that the number of high pitch seats has increased with consolidation – AA MRTC is gone, UA is reducing Economy+ seats, WN and UA are adding more rows of seats thereby reducing pitch, US has never added economy plus type seating, many airlines have significantly reduced the number of high pitch first class seats that also used to be free or cheap if you flew enough. Consolidation has also brought reductions in frequent flyer benefits, and I believe a great reduction in the “rebate” frequent flyers have been receiving (for example – SkyPesos, WN RR 1.0 to 2.0 to points system, UA devaluation and TOD instead of free upgrades, etc.). Change/cancellation fees are significantly higher, about $200 now, nearly 50% of the domestic fare value listed in the graph you provided. Taking all this into account, regardless of pure historical fare comparisons, I still believe the all in cost has risen steadily and significantly with consolidation.
@Deon. I have no doubt that the cost of flying has risen in the last 5 years in absolute and relative terms. Likewise it has fallen in the last 50 years. Also, it is a much less pleasant experience now than 5 years ago. But the point glossed over by that article is that the position 5 years ago was both unusual and unsustainable. Airlines were bankrupt and losing money hand over fist – that cannot go on. We were in recession so planes were empty (and an empty plane is far more enjoyable than a full one) – recessions do not go on forever. And oil prices were significantly lower – and they have now gone up.
As it happens, the reduction in competition has been only one of the factors that has led to greater profitability for the airlines – a level of profitability they need to survive and we, the passengers, need to have an airplane to fly on. The other factors have also been instrumental in producing that profitability. So, it’s clear that the mergers have not yet been shown to produce monopoly or quasi-monopoly pricing except in very limited and specific markets (which, by their nature, are also insignificant).
Whether the reduction in competition will result in inflated air fares is a far more difficult question and is way too difficult to call at the moment. We still have three (assuming AA/US happens) major network carriers who are still competing aggressively, we still have various LCC type operations with national scale and we still have a handful of outliers such as Alaska and Hawaiian, for example. More importantly, we have a very efficient market, with transparent pricing, and a public determined to obtain the lowest price.
The conditions are not right at all for monopoly pricing to flourish except in limited markets – but those are markets which are generally artificially subsidised at the moment.
You have to keep it in context. Time is a news source like MSNBC is a “news” source. Time is an anti corporation liberal rag that’s why most people don’t read it anymore. It’s like reading USA Today Instead of the Wall Street Journal. Sure you’ll get “news” “stories” but only to push an agenda. Any argument they can form against private business or capitalism is perfect for Time.