By now you've seen the news that Continental and United airlines have agreed to merge. This isn't a done deal yet: Any merger this big will get a close look by the Departments of Justice and Transportation, and anti-trust concerns could derail it. But most industry mavens believe the climate is "right" for such mergers, and if I were betting on it, I'd say it will go. And, if I were to continue betting, I'd bet that the overall fallout for consumers will be more negative than positive.

All the claims you'll see about more consumer "choices" and "seamless" service, while generally valid, are a smoke screen. The industry mavens are virtually unanimous in their assessments of the real forces driving airline mergers: (1) the big network lines currently sell too many seats at a loss, (2) the remedy for this problem is reduced competition, (3) the best way to reduce competition is through mergers between competitors, and (4) reduced competition will lead to higher fares. As another way to put it, if the mergers do not result in increased fares, they will have been a failure.

Fortunately, the independent low-cost airlines will put a ceiling on the ability of the mega-lines to raise fares as much as they might want. Southwest, JetBlue, AirTran, and the others can make profits at prices that lose money for the legacy lines, so those low-cost lines will keep the marketplace reasonably competitive, at least on busy routes. But even those lines would like to see some fatter margins than they now receive. And even the most ardent consumer advocates among us have to recognize that the airline industry does, in fact, need to make more money than it currently makes. So, yes, prices will go up. Get used to it.

Concerned about your frequent flyer status? My take is that the two frequent flyer programs will be combined, with gradual reconciliation of each line's specific rules and award schedules. Nobody will lose any miles, and anyone who is already at an "elite" frequent flyer level will retain that level in the new line. The big problem with frequent flyer programs is not earning or keeping the miles, however, it's using them. And I suspect that, if anything, the merged line will downsize a bit, and therefore frequent flyer seats will be harder to find, not easier.

Merging these two lines raises two intriguing customer service questions:

-- Overall, Continental enjoys a much better reputation for customer service than United. The big question is whether whatever Continental is doing can be transferred to United, or, instead, will United drag Continental down to its level?

-- The one customer service feature for which I give United high marks is its unique "Economy Plus" product: For a reasonable fee, travelers on economy tickets can opt for seats with at least four more inches of legroom than regular economy. Neither Continental nor any other legacy line has a similar product, so the question is whether the combined line will extend Economy Plus over the whole system or drop it from the whole system. So far, I've seen no info from either line.

Saving the worst for last: My biggest worry about the merger is the disastrous consequence if the combined CO-UA were to be shut down by a strike. The last system-wide strike on United, in 1985, seriously disrupted national air travel, and the chaos following a strike of the combined line would be much worse. The combined line's share of total national traffic would be higher, and, with today's high load factors, finding replacement seats could take weeks. Despite the strike-delaying provisions of the Railway Labor Act, airline strikes have happened before and they could happen again. And I don't want to be traveling if that happens.

All in all, my take is that consumers would lose more than they'd gain in the merger. But it will probably go ahead, anyway.

 

Will the United - Continental Merger Raise Airfares
Ben Baden

If regulators approve the merger of United Airlines and Continental Airlines, it will create the world's largest carrier. Although it's early, many experts agree that there will probably be a push for higher fares.

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(c) 2010 Ed Perkins