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Airline mergers: The outlook for airfares

It looks like most of the major U.S. airlines are seriously considering mergers. Many people are worried that consolidation will bring higher fares.
Image: Delta Air Lines and Northwest Airlines
Delta Air Lines and Northwest Airlines are seen as the most likely merger partners among the major U.S. airlines, but any deal requires the consent of their respective pilot unions.Jim Mone / AP file
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It looks like most of the major U.S. airlines are seriously considering mergers. Many people are worried that consolidation will bring higher fares. If mergers happen, basic fares might not increase as much as people expect, but the many extra fees that the airlines charge nowadays could rise significantly, in's opinion.

Will mergers cause a huge spike in airfares?
I’m not so sure this will happen. First, let’s admit that adjusted for inflation, airfares are incredibly cheap. Twenty years ago, you would pay more to fly in inflation-adjusted dollars than you do now. According to the Air Transport Association of America, admittedly an industry trade group, the inflation-adjusted cost of domestic air travel has dropped by 50 percent since deregulation, from 8 cents per mile to 4 cents per mile today, in 1978 dollars.

When American bought TWA, fares increased for a while on certain routes, but then we saw the creation and expansion of discount carriers, such as AirTran, Skybus, ATA, JetBlue, Spirit, Frontier, Virgin America, and Southwest. The same thing probably will happen again.

If there is a Delta-Northwest merger, Atlanta fares will be kept low as long as AirTran keeps flying. Fares into and out of Minneapolis/St. Paul (MSP) probably won’t go much higher: They are already high since that airport is a Northwest Airlines “fortress hub” with little low-cost-carrier competition. What competition there is comes mainly from AirTran.

Detroit is also a Northwest hub, but perhaps the combined airline will close hubs (for example, it may not want to keep both Cincinnati and Detroit) and that might open the way for a discount airline such as Southwest to take over gates and landing slots in the closed hub(s). Although it’s a small carrier, Sun Country keeps Northwest on its toes in MSP, and in the event of a Northwest-Delta merger it's just possible Delta might have to give up its (admittedly few) gates and landing slots in MSP and hand them over to a discount carrier.

What we won’t see any more are those crazy retaliatory, tit-for-tat, unadvertised hub-airport fare wars. That’s when Delta would lower fares out of Northwest’s hubs to ridiculously low levels and then Northwest would return the favor out of Delta’s hubs a few hours later. This sort of irrational behavior may be history, so we’re not going to see as many unadvertised fare wars.

What about other costs associated with flying, such as extra fees?
Airline fees may indeed increase. For example, United is one of the few airlines that refunds, without charging a fee, when you buy a fare and it goes down in price before you fly. The refund is in the form of a voucher good for future travel within a year.

Continental, however, charges a $100 fee in such a scenario.

So, should the two airlines merge, I wouldn’t be surprised if the Continental fee prevails. Conversely, Continental would probably adopt United's $25 second-bag fee. Airline fees, for everything from bringing a pet into the cabin to re-banking frequent flyer miles, just keep on going up and up, and often add a surprising amount to the cost of flying. If there are fewer large airlines around, it will also be easier for them to push through fuel surcharges as oil prices continue to increase.

What about international fares?
Luckily, there isn’t much overlap between Delta’s and Northwest’s international routes. Delta flies mostly to Europe, and Northwest is big on trans-Pacific routes. In fact, the two airlines don’t compete all that much domestically, either. Plus, the new “open skies” agreements, which allow foreign airlines more leeway to fly between the U.S. and foreign airports, may keep fares from spiking too terribly, and may also keep service levels from plunging.

Will other airlines merge if Northwest and Delta combine?
Most likely. We might see Continental merge with United, and perhaps US Air would buy a smaller carrier such as AirTran or Frontier. American, which bought Midway and TWA at the end of the last century, might also buy another small carrier, but anti-trust concerns would probably preclude it from swallowing up a larger player.

What will happen to my frequent flyer miles?
If you have 10,000 miles on Northwest, and 15,000 on Delta, you’ll have 25,000 combined on Delta (assuming that the new airline is named Delta, which is most likely). No miles will be lost.