US Air-Delta merger could ignite fare war: experts

[BoeingBoy]

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

LOL - hardly disgruntled - I've been too fortunate in my career for that though I was basically accused of being just that today in a PM from "a LGA based pilot"......

I just figure US is exemplified by the "Everything Counts" promo - pay close attention because what's not said is what's really important.

Jim

 

[Itestwell]

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

So in these markets where fares would be "raised", we are talking about a sum of $30 - $50, let's say? Hardly "skyrocketing", as so many naysayers have been shouting....

Why can revenue synergies ONLY come from reduced competition? What about less congested hub structures (ie shifting some capacity from hub to hub)? Less overhead (mgmt combination) etc? Less RJ's, larger a/c flying? Just thinking.....

 

[BoeingBoy]

So in these markets where fares would be "raised", we are talking about a sum of $30 - $50, let's say? Hardly "skyrocketing", as so many naysayers have been shouting....

Now we're talking semantics. what percentage more makes for "skyrocketing" - 10%? 25%? 50%? Each individual could have a different answer - the grandmother on a fixed income might consider $10 on a e-saver ticket "skyrocketing" if it meant taking a trip or not. The businessman on the company dime might not notice $200 difference on his $900 walk-up fare.

Why can revenue synergies ONLY come from reduced competition? What about less congested hub structures (ie shifting some capacity from hub to hub)? Less overhead (mgmt combination) etc? Less RJ's, larger a/c flying? Just thinking.....

Because every one of those things, if they happen, go to reducing expenses, not increasing revenue. That's where roughly $700 million of the $1.6+ billion in total synergies is supposed to come from.

Jim

 

[hp_fa]

If you run into someone with a chip on their shoulder you should knock it off for them.

 

[brokenwrench]

Myth: The Delta/US Airways Merger Could Create A Fare War

Yes. And rubbing two sticks together will create a refrigerator, too

http://www.amfadelta.com/documents/FunAndGames.doc