United Snags $1b In Loans, Buys Time To Reorganize

[mweiss]

Given that a pretty close to nationwide lower fare structure is probably not that far away, I think the monopolisitic concerns will greatly diminish.

Eventually, yes. But a merger of, say, UA and AA would have the potential to halt that shift.

However, market concentration in the retail business is not significantly different from a transportation business to the consumer

On a national level, true. However, on a local level it's very different. Airports have an inherent capacity limitation that is much lower than that of real estate.

would you like to list any steps which you believe need to occur to correct the "imbalance" of power that exists by some of the legacy carriers, potentially allowing combinations of legacy carriers? What is the market share threshold at the city and national level above which carriers should not be allowed to combine?

I'd say that at a given airport the amount of resources held by a single airline should not exceed 40%, and nationally should be no more than 35%. These are rough numbers, but they'll do.

 

[WorldTraveler]

Michael,
Your market share projections are pretty close to what I would say. A nationwide threshold of 35% and no significant increase in share on any route would allow UA to combine with just about any US airline except AA or NW and AA to combine with just about anyone except UA, DL, or CO. There are significant possibilities for combinations in the airline industry without triggering the usual market concentration thresholds used in other industries.
We as a country do tolerate market concentrations as high as 80% when doing so is necessary to support the hub and spoke system – which is an acceptable way to serve small markets throughout the country. In fact, many arguments have been made that cities like CLT and CVG would never have the level of service they have if an airline were not allowed to have such a high percentage of the market.
The corollary is that the most concentrated hubs like CLT, CVG, and DFW (which also happen to have some of the highest average fares) all have plenty of capacity to handle competitors if they choose to serve those markets. There really are very few remaining examples of markets in the US that are highly concentrated, have no low fare competition, AND have no capacity to handle additional service should competitors choose to add it.

For those of you except Michael who could care less about this sidebar, the point is clearly that the industry is capable of consolidating along several lines. As such, I believe the US government is willing to allow market forces to work during this phase of industry restructuring rather than block consolidation or intervene in the industry when competitors are close to failing.

 

[mweiss]

...many arguments have been made that cities like CLT and CVG would never have the level of service they have if an airline were not allowed to have such a high percentage of the market.

...albeit at a very high cost.

The corollary is that the most concentrated hubs like CLT, CVG, and DFW (which also happen to have some of the highest average fares) all have plenty of capacity to handle competitors if they choose to serve those markets.

I can't speak of CLT, since I've only been there once, nor can I speak of CVG, as I understand it has changed quite a bit since 1999, the last time I was there. However, I know DFW well. Right now there is a shortage of gate space, though that will likely change with the addition of the new terminal. Even so, the taxi times at DFW have long been high, due to the layout of the runways. I don't know if AA's depeaking has reduced this, however.

There really are very few remaining examples of markets in the US that are highly concentrated, have no low fare competition, AND have no capacity to handle additional service should competitors choose to add it.

This is true, thanks to the capacity additions of the 1990s.