Mergers Could Help Airlines, But What About Consumers?

Talk persists of possible mergers in the U.S. airline industry. Delta, United, and Northwest are companies among those mentioned as possible parties to a merger (esp. Delta-United and Delta-Northwest). Airlines that had staggered under the weight of out-of-control costs in the late 1990s were further hurt by 9/11. More recently, it has been high fuel costs that have hurt the industry. A merger between major companies would allow consolidation of resources and perhaps give a combined company a better chance at survival and profitability.

While mergers could possibly save companies like Delta, United, and Northwest, would their customers be better off if mergers occur? On one hand, the answer could be "no." When consolidation occurs in an industry, a certain amount of competition is removed from the marketplace, and that includes price competition to attract customers. If a Delta-United merger, for example, led to the combined company dominating flights in certain markets, there would be little reason to keep down prices.

On the other hand, if a merger occurs and airlines become complacent because they dominate a market, it creates a market opportunity for an upstart to enter and attempt to take market share. That scenario makes sense in theory, but it may be more difficult to execute in an industry with enormous fixed costs such as commercial airlines. However, Southwest and Jet Blue have shown it can be done, and mergers by airline behemoths may be the trigger for history to repeat itself.