Consumer Travel | Competition keeps airfares low, that’s why airlines hate it

Competition is going to be a big issue this coming year. It is already, but the big airlines are making moves that beg for pushback from those who want to keep them in check and keep a competitive marketplace operating.

Here is the basic situation. Competition is losing. Next year, if airlines have their way, competition will suffer even more.

Not enough airlines are competing. We all know that because of mergers four airlines control 87 percent of the domestic market. That wouldn’t be too bad if the airlines all competed on every route. However, they don’t. Many domestic airports only have service from two of the big airlines. Some, at smaller airports, have no meaningful competition. Competition loses.

Internationally, airlines are banding together to stop competition. Three airline alliances that have been granted antitrust immunity from the Department of Transportation (DOT), which must have been delusional at the time, now control more than 80 percent of international flights in and out of the USA. Competition loses.

Only four airlines effectively can control pricing. Any new airfare increases must be matched by the other airlines. Otherwise, where airlines do compete, those with higher airfares will lose market share. So, each airline follows the others. They take turns proposing fare increases. Sometimes these airfare increases are not successful. Don’t be fooled — it is a game the airlines play called, “pretend competition.” Airfares and fees will go up regularly in 2015. When airlines pretend, competition loses.

Only four airlines can effectively control capacity. A little-known fact is that there are fewer total domestic flights today than back in 2000. That is amazing. With more passengers flying, the actual number of flights has not increased.

“Back in the day,” planes flew on average at around 60 percent load factors. Today they are flying at around 90 percent. That means, just based on load factors, airlines have been able to fly 50 percent more passengers than back in the early 2000s. Add the increases in the numbers of seats that have been packed into planes and the airlines have been able to add another 15-20 percent more passengers, all with the same number of planes.

Airlines like it that way. If they could, airlines would stack passengers like cordwood. However, the human body is relatively fixed and the airlines have crammed about as many passengers as they can into their planes. At this point, in a competition market, an airline would add seats that would make the market more competitive. More competition would mean airfares might drop. However, don’t hold your breath. Capacity discipline reduces supply and rising demand means higher prices. Competition loses, again.

Airlines are doing all they can to confuse consumers with undisclosed ancillary fees. For the past almost four years, airlines have been hiding ancillary fees like baggage fees, seat reservation fees, early boarding fees and so on. There is no way that consumers can easily compare prices across airlines. When factors like what credit card is used to purchase the airfare and at what elite level of what frequent flier program travelers belong, the calculations of possible airfare/fee combinations become overwhelming. Then, when adding in airline rules that allow a certain number of passengers flying on the same reservation to share benefits, even airline employees cannot keep track of the permutations. When prices are complex, prices become unfair and deceptive. Competition loses.

Airlines and their unions are working hard to stop any new competition. Once upon a time, unions fought their airline overlords. However, today, union bigwigs and airline executives are chummier than ever. They are working together to stop competition. Airlines make more profits and the unions can rake in higher salaries and benefits as airline profits rise. It is a win-win game for airlines and their unions. It is a loss for competition.

Airlines are actively fighting the expansion of low-cost transatlantic service being proposed by Norwegian Air International (NAI). This low-cost airline already has a bigger European route structure than any American airline. They are already flying transatlantic flights from Orlando, Ft. Lauderdale, Newark and Los Angeles using brand new Boeing 787 aircraft. However, under airline and union pressure, DOT has withheld permission for the airline to expand service, using Ireland as a base.

Competition loses big time. NAI is flying these transatlantic routes to London, Oslo, Copenhagen and Stockholm for airfares ranging from $350 – $550, more or less. The legacy carriers are still soaking hapless American and European tourists 50 to 100 percent more.

And, NAI is not the only airline on the anti-competition target list. Delta, American and United have all come out against upscale service being provided by Middle Eastern airlines such as Emirates, Etihad and Qatar Airways. The growth of these airlines has been astronomical. Not only do they offer far better service than US carriers, but they offer better connections to South Asia and Africa, the fastest growing sector of the world when it comes to a rising middle class.

If the US airlines are allowed to abrogate their open skies treaties that they encouraged DOT to negotiate when they were the top dogs in the airline world, competition will suffer.

Airlines are trying to limit distribution channels to thwart comparison shopping. Not only are the airlines themselves limited to only four major carriers across the country, they want to limit where consumers can purchase airline tickets. Delta Air Lines has removed its prices from metasearch sites like Hipmunk, TripAdvisor, SkyScanner, Mobissimo, Travelzoo and others. This makes it more difficult to comparison shop across airlines. The fewer places travelers can shop for travel, the fewer places that they can comparison shop. Again, competition loses.

Competition is losing. DOT needs to take action. The US airline response that seeks to erase competition is not productive. Competition should be met with better service, a better product and a marketing campaign that highlights an airline’s strengths, not by restricting trade when airline find themselves unable to compete.

View the Article