US Air-Delta merger could ignite fare war: experts

[Itestwell]

Nothing, as long as you're not on the paying end....

You'll notice the word I kept repeating - average. Some markets, mostly those with lots of LCC competition, would see little or no fare increases.

Others would see larger fare increases. Care to guess which ones? Primarily those with little or no other competition, like AVL.

It's no different than what exists in PHL & CLT now. At PHL, US has something like 50% market share (and a fair amount of LCC competition) while at CLT it's more like 80% (and little LCC competition). Average fares at CLT are quite a bit higher than at PHL.

That seems to be the primary revenue case for this merger - absorb a competitor, thus increasing market share, thus allowing for higher average fares. As you have so aptly pointed out, other partners (like NW) are more attractive from the standpoint of increasing our reach into new markets.

Jim

One thing I dont get: Wouldn't the fact that there is no traditional LCC competition (WN, FL, etc) in places like AVL have to be taken into consideration? I don't think prices are lower today in markets like AVL because DL and US keep each other "in check." If DL raises prices on ATL- AVL, US probably follows suit on CLT- AVL. Neither of the two lower the bar and force the other to follow suit. Thus, US+DL= DL, and I just dont see those prices skyrocketing. 3-3.5%? Maybe. Skyrocketing? No. (And I use the term skyrocketing because it has been used in so many overly dramatic articles on the subject... )

Quote from todays USA Today:

"Typically capacity reductions mean less supply and higher fares. But US Airways noted that since its 2005 merger with America West, it has cut fares between 10% and 83% on 400 business routes and 350 leisure routes."

I realize that the difference is that many of DL/US routes overlap, but the above is the ultimate goal of the new DL, and you can be sure they would be held to this if the merger proceeds.

 

[Bear96]

This is the largest load of bovine fecal matter I've seen on point yet.

Of course fares are going to go up--Kirby and Doogie all but admit that's the entire point of the merger. B6 is not going to fly to AVL anytime soon.

Yup. Airlines don't go through the drama and expense of a major merger or acquisition in the hopes of lowering yield or RSM.

 

[Bear96]

"Typically capacity reductions mean less supply and higher fares. But US Airways noted that since its 2005 merger with America West, it has cut fares between 10% and 83% on 400 business routes and 350 leisure routes."

Mmmm hmmm.

They pointed out which routes fares were lowered on. Were they lowered because of competition or other external factors, or simply out of the goodness of LCC execs' hearts? If simply out of the goodness of their hearts, why not just slash fares on 100% of the routes? If simply out of the goodness of their hearts, the shareholders need to get the BOD to elect new officers.

And on how many routes have fares gone up?

I realize that the difference is that many of DL/US routes overlap, but the above is the ultimate goal of the new DL, and you can be sure they would be held to this if the merger proceeds.

"Held" to it? How? By whom? What consequences if they don't meet this "ultimate goal" you think they have?

Where do you get the idea that there is some sort of moral obligation to keep fares low for the sake of being "nice" or something? Does that mean airline employees get to look forward to more rounds of compensation cuts to support these arbitrarily lower fares, when there is no market or business reason to do so?

You're not making sense.

 

[Itestwell]

Mmmm hmmm.

They pointed out which routes fares were lowered on. Were they lowered because of competition or other external factors, or simply out of the goodness of LCC execs' hearts? If simply out of the goodness of their hearts, why not just slash fares on 100% of the routes? If simply out of the goodness of their hearts, the shareholders need to get the BOD to elect new officers.

And on how many routes have fares gone up?
"Held" to it? How? By whom? What consequences if they don't meet this "ultimate goal" you think they have?

Where do you get the idea that there is some sort of moral obligation to keep fares low for the sake of being "nice" or something? Does that mean airline employees get to look forward to more rounds of compensation cuts to support these arbitrarily lower fares, when there is no market or business reason to do so?

You're not making sense.

Sorry if I am not making sense. The article does not say specifically what routes fares were lowered on; it mentions 400 business and 350 leisure routes. The new pricing structure has been implemented on the East in stages. Has nothing to do with BOD or "goodness of their hearts," it has to do with rational pricing and the fact they can coax more people to fly, while still maintaining profitability. Now, that said, its obvious that fares everywhere have not come down.

Never said they had a "moral obligation" to do anything at all. If airlines worked off of morals, WN would not have just raised its max one way fare to $329. (It should be $39, like all the ads say!! ) Taking the example of AVL (and beating it to death), fares will not be raised much more than they already are with only DL instead of US/DL in the market. They are already high. The doomsday articles about skyrocketing fares are hype and propaganda, pure and simple.

 

[Bear96]

The doomsday articles about skyrocketing fares are hype and propaganda, pure and simple.

"Skyrocketing" fares? Maybe not. Higher, most likely. Lower, probably not.

Airlines, like all businesses, will try to get the most revenue they can in a given market. As competition decreases (i.e., as the number of suppliers of a product decreases), prices tend to rise. Therefore as the industry consolidates into fewer carriers, it is likelier that fares will rise than decrease, all else being equal.

Or are you rejecting that basic economic concept?

For the record, I am not saying this is a bad thing. I think air fares need to rise (on average; please note I am not fixating on an extreme example like AVL, though others here might be) to have a long-term healthy industry. But to suggest that reduced competition will lead to lower fares is not realistic (or it means you are promoting a pro-merger agenda for one reason or another, which is fine too, as long as you are honest about it).

 

[DLFlyer31]

Fares won't skyrocket nationwide. In larger markets with LCC competition, you will see minimal change. However, small markets like AVL will take a hit, because capacity will be reduced. Instead of flying both AVL-CLT and AVL-ATL as exists today, they'll only fly AVL-ATL. Less seats and much higher fares. I know they say they'll keep all destinations from each hub, but don't hold your breath.

If this merger doesn't lead to higher fares, then there's really no point.

 

[Rico]

I think you are all kinda missing the point.

The point is that this move is the most "return for the trouble" of any merger out there that the guys running LCC think they could pull off.

It comes down to comparing DAL, or NWA, or some other airline that's not in BK..., And in Tempe's opinion DAL is the best choice.

Because anyone out of BK can put up more of a fight, and NWA's union issues alone have made them a distant second choice.

They feel they HAVE to merge with someone otherwise they will be left behind in the next decade. And DAL is just easier than NWA...

That's the only reason they are doing this.

 

[Itestwell]

I think you are all kinda missing the point.

The point is that this move is the most "return for the trouble" of any merger out there that the guys running LCC think they could pull off.

It comes down to comparing DAL, or NWA, or some other airline that's not in BK..., And in Tempe's opinion DAL is the best choice.

Because anyone out of BK can put up more of a fight, and NWA's union issues alone have made them a distant second choice.

They feel they HAVE to merge with someone otherwise they will be left behind in the next decade. And DAL is just easier than NWA...

That's the only reason they are doing this.

Agreed. Supposedly, this merger will lead to a more secure future. Its out of our hands, so I just have to believe that DP knows what he is doing, and is adding value to the company.

Quote:

"Typically capacity reductions mean less supply and higher fares. But US Airways noted that since its 2005 merger with America West, it has cut fares between 10% and 83% on 400 business routes and 350 leisure routes."


Now, reading this quote, this pricing system that US (DL) would use going forward, should be dismissed as a lie? Now, all of a sudden, people on here are saying prices won't "skyrocket." A week ago, thats all you read on here and in the newspaper. Now, people feel that they may be raised a little, or maybe 3-3.5%, etc... The whole idea of HP's "rational" pricing system has been brought to many markets in the East since the merger. Why would they not continue that trend?

Someone above said that they don't just lower fares out of the goodness of their heart. Well, isn't that what they have been doing on these business/ leisure routes on the east? Not all of the routes lowered are saturated with LCC competition....

Skyrocketing fares with the new DL? Raised due to variables such as fuel, maybe. The rest is all over dramatized hype.

 

[ClueByFour]

Skyrocketing fares with the new DL? Raised due to variables such as fuel, maybe. The rest is all over dramatized hype.

No, it's not.

Doogie admits they are doing the merger to dominate the east coast (or "consolidation" if you want) and to permit them to reduce capacity and raise fares. It's really black and white.

 

[Itestwell]

No, it's not.

Doogie admits they are doing the merger to dominate the east coast (or "consolidation" if you want) and to permit them to reduce capacity and raise fares. It's really black and white.

Please show me the quote where DP says he wants to "dominate" the east coast. Also, please show me where he says he wants to "raise fares."

Further, can you explain this quote?

"Typically capacity reductions mean less supply and higher fares. But US Airways noted that since its 2005 merger with America West, it has cut fares between 10% and 83% on 400 business routes and 350 leisure routes."

Is it all a lie?

 

[BoeingBoy]

"Lie" is such a harsh word - how about spin?

So tell us, exactly how many of those routes seeing fare cuts didn't have low cost competition? And how many of the routes that didn't have low cost competition had DL as competition - remember the SimpliFares that DL rolled out nationwide?

Doug and company are doing everything they can to spin this proposed merger as a win for everyone concerned - no cities will lose service, no hubs will be cut, no employees furloughed and pay going to the highest of the three carriers, competition will keep fares in line, etc.

Yet there's supposed to be nearly $1 Billion in extra revenue generated. Is that a "lie"? If not, just where do you think that $1 Billion is going to come from?

Jim

 

[Charlie_Tuna]

just where do you think that $1 Billion is going to come from?

Jim

Well thats simple, Doug told us.....synergies

 

[Itestwell]

"Lie" is such a harsh word - how about spin?

So tell us, exactly how many of those routes seeing fare cuts didn't have low cost competition? And how many of the routes that didn't have low cost competition had DL as competition - remember the SimpliFares that DL rolled out nationwide?

Doug and company are doing everything they can to spin this proposed merger as a win for everyone concerned - no cities will lose service, no hubs will be cut, no employees furloughed and pay going to the highest of the three carriers, competition will keep fares in line, etc.

Yet there's supposed to be nearly $1 Billion in extra revenue generated. Is that a "lie"? If not, just where do you think that $1 Billion is going to come from?

Jim

Jim,

I agree that DP is putting a lot of spin on to push this merger thru, that is obvious. I am still confused about the fare issue, especially that quote where they claim they lowered all these fares here on the East since the HP/US merger. Obviously, not all of those routes had LCC competition. You are saying that they lowered many fares to compete with DL and their Simplifares? Was US always much higher in many of these markets than DL? I just don't understand how they can make such a bold statement and have it simply be "spin."

Also, DP keeps talkin about synergies. Didn't he state that the HP/US synergies realized thus far are well above the number that DP and his crew were shootin' for? If so, pretty impressive. Is this just spin? Financially, I think this guy knows what he's talking about. No?

 

[BoeingBoy]

I think it's just a matter of generalizing vs talking about specific markets....

Yes, there's been fare reductions in the east - mostly where lower cost competition exists - and US is still the high cost provider of the industry so everyone else is lower cost competition. But saying that's there's been reductions in some markets doesn't mean that there'll no passenger will pay more post-merger than pre-merger.

On the revenue side, the US/HP merger "filled the gaps" in each others route map. Doug's favorite example was DFW, where neither airline could conveniently transport a passenger to both the east and west coast pre-merger but could post-merger. The merger made US a viable alternative for that type of passenger. Likewise, there were large portions of the west that pre-merger US didn't serve and large portions of the east that pre-merger HP didn't serve. We became a viable choice for passengers in those markets thanks to the merger. Thus the revenue synergy - we could sell tickets to folks that wouldn't have given either of us a second thought before.

Contrast that to a US/DL merger. Where can the post-merger airline take a passenger that one of the pre-merger carriers couldn't, especially DL? Very few places. Thus the revenue synergy can only come from one place - reduced competition, which allows raising averagefares in markets that would become relatively non-competitive. So some of the people that would have paid $129 for their flight might have to pay $159 or whatever because there weren't as many of the $129 seats available. US could legimitely argue that they didn't raise fares - the various fare levels might still be the same. But some people would pay higher fares post-merger than they would have without the merger with US and DL competing for their business.

Jim

 

[ringmaruf]

Further, can you explain this quote?

"Typically capacity reductions mean less supply and higher fares. But US Airways noted that since its 2005 merger with America West, it has cut fares between 10% and 83% on 400 business routes and 350 leisure routes."

Is it all a lie?

The whole purpose of the fare cuts is to increase revenue. And with load factors this high, that can only be done by increasing average fare.

So, yes, the nominal fares have decreased, and they make a big deal of that. (And yet again, I'll note that HTS and AGS fares were dropped *specifically* to earn support for the DL merger.) But although the nominal fares have been lowered, they're not putting as many seats for sale in the cheapest buckets, so average fares have in fact likely increased even in the markets where US claims to have lowered fares.

"Lie" is such a harsh word - how about spin?

So tell us, exactly how many of those routes seeing fare cuts didn't have low cost competition? And how many of the routes that didn't have low cost competition had DL as competition - remember the SimpliFares that DL rolled out nationwide?

So, Jim, how long before the Tempe folk start calling you a "disgruntled former employee"?