As Continental Disappears, Higher Ticket Prices Return

What is the “World’s Biggest Airline”, you ask? Hmm, let’s see – what day is this?

Yes, it changes – especially lately. After all, just a couple of years ago, American Airlines was far and away the biggest, until Delta took the crown – after its merger with Northwest, of course – and then along came another merger, and suddenly the “new” United is king.

And wither Continental?

Don’t worry, that brand won’t fade away entirely – not like the dear, departed smiles of those old PSA planes (yes, Pacific Southwest Airlines used to plaster “smiles” on its planes – seriously – right under the “nose” of the aircraft).

In the case of Continental, its memory will live on, in its colors and logo – that stylized globe – all part of the designer-look of the new merged-airline, although make no mistake, the name will be “United”. And they will have a new slogan: Let’s Fly Together. Sort of a Kumbaya for the jet age, no?

But on to weightier matters – what about airfare prices? Sorry, but it’s not looking so hot for us penny pinchers – but that doesn’t really have much to do with the merger, frankly (which is still a year away from completion, assuming it passes anti-trust scrutiny). As a political insider once said during a 1990’s presidential election, “It’s the economy, stupid.” Fortunately, you’re not stupid; you know airfares have been rising, but does the merger have anything to do with it?

United CEO Glenn Tilton and Continental CEO Jeff Smisek (the latter will run the new United) say, oh no – to them, merging their companies was “profoundly pro-competitive” and they claim no airfare increases were built into their expectations of what is called the benefits of synergy.

And that means? According to these execs, the newly-merged United Airlines will simply be responsive to market demand, and we shouldn’t worry that airline ticket costs will be “appropriate.” After all, they note, they don’t set airfares, that’s what the marketplace does.

True, but the marketplace just lost some of its competition with the loss of Continental – not a good sign. But the real point, as I noted earlier is the economy is changing.

The economy is changing for the better, actually – so more of us can afford to fly, but back when the economy was truly dismal (such as late Spring of 2009), airfares were at decade lows. For example, you could find plenty of roundtrip deals to Europe for under 500 bucks, and some for less than $400 (those were the days).

Naturally, now that the economy is doing better, international airfares are – surprise, surprise – heading upwards: flights to some worldwide destinations have jumped 30, 40, and even 50% since last summer. This summer, a good roundtrip price to Europe is just under 1,000 bucks – if you can find such a price.

Of course, airfares within the U.S. are moving up too, just not so high – but here we may well see some of the effects of the latest merger, at least in the long-run. First, consider that about 100 cities have service from low cost carriers (airlines like Southwest, JetBlue, AirTran and more); such low cost carriers help keep prices down in the short-term, despite the merger.

Ah, but there are another 500 cities that don’t have such service, and they will probably see much higher airfare prices in the long-term. It’s kind of a no-brainer: as mega-airlines attempt to hike prices system-wide which has been done more than a few time this year, there’s little competition to force prices down.

We haven’t even gotten around to talking fees yet, but you better believe that if United and Continental have differing fees on services, trust me, the newly merged airline will go with the higher price every time (by the way, both charge the same for checked-bags, so that won’t change).

Finally, look for prices to rise on those coveted nonstop flights that road warriors love so much. Big carriers, especially in their hubs, will probably not fear to lay on sizeable premiums to those routes. Count on it.

What about frequent flier clubs? The picture is a little more uncertain, but when the two are combined, you can pretty much expect some members will not be happy (unless they’re lucky enough to belong to both programs).

And what about the remaining “single” legacy carriers? Ã? United’s previous suitor – US Airways – believes it can survive alone, while investors keep pestering American Airlines with the question, “When are you going to get hitched?” Time will tell, I suppose.

In the meantime, let’s see how long United-Continental can hang onto the crown of the planet’s largest airline.


Published: May 5, 2010