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Don’t worry… The American-US Airways merger won’t cause an airfare hike

Yesterday’s announcement that US Airways and bankrupt American Airlines will be merging into the world’s largest airline has sparked fears that the cost of flying will shoot up. After all, with less competition among airlines, it would be unreasonable to think that ticket fares would stay where they are.

Except that’s exactly what’s happened in the past. Between 2004 and 2011, there were four major airline mergers, and none of them had a noticeable impact on airfare, according to a report in December from Pricewaterhouse Coopers (pdf). Even the merger of United and Continental in 2010, which at the time also created the world’s largest airline, didn’t lead to price hikes. The chart above shows how average airfare for domestic flights in the US has grown slowly in recent years (especially when compared to an airline’s principal operating costs, fuel and labor) and how that growth rate has been unaffected by airline consolidation.

From the report:

…no study has definitively proven that, at particular levels of consolidation, airfares rise dramatically, service levels drop, or passengers are negatively affected in other ways.

There’s also evidence that the quality of service has been unaffected by mergers:

In the first half of 2012, the Department of Transportation reported the lowest  recorded rate of mishandled bags (2.97 per 1,000 passengers) on record. The 83.7  percent on-time arrival rate represented the best January–June performance in 18 years,  and the 1.1 percent flight cancellation rate was the best since 1995…And in 2011, US airlines bumped the lowest number of passengers (0.81 per 10,000 passengers) since 1995, when  the DOT started tracking this metric.

How is it possible that consolidation has no effect? Because, despite there being fewer airlines, it hasn’t actually reduced competition:

We analyzed the top 1,000 routes in 2004 and 2011…On average, each of these top 1,000 markets was served by 1.69 competitors in 2004, and that number remained effectively unchanged in 2011.

What the PwC analysis doesn’t include is baggage fees and other charges that airlines have increasingly been adding to baseline ticket prices. These added about 9% to the average airfare in the first half of 2012. But, the report says, they are measures that the industry as a whole has adopted, and seem to bear no relation to mergers.

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