Airline Alliances Threaten Competition and Consumer Interests

The airline industry's latest trend has sparked heated debate as major carriers announce global strategic alliances, potentially reducing competition and benefiting only a select few passengers. The alliances between United Airlines and Delta Airlines, American Airlines and US Airways, and Northwest Airlines and Continental Airlines, covering over 70% of domestic passengers, claim to offer more choices, lower fares, and improved service. However, critics argue that the benefits will be overshadowed by the loss of competition, leading to higher fares and a lack of incentives for the airlines to innovate.

Key Takeaways:

• The proposed alliances will reduce competition on 1,836 of the 5,000 busiest routes, accounting for 90% of total domestic traffic.
• The General Accounting Office's preliminary assessment found that 100 million of the 396 million passengers who fly each year may face potential disadvantages compared to potential benefits for about 30 million passengers on 338 routes.
• The alliances will strengthen the hold of major airlines at key airports, including Kennedy and La Guardia in New York, O'Hare in Chicago, and National in Washington.
• The proposed linkups will limit competition among major airlines and increase their market share at large metropolitan hubs.
• Code-sharing and frequent-flyer program integration will further reduce competition, making it more difficult for small carriers to expand service at these key airports.
• The alliances may lead to higher fares, as historically, a decline in competition has resulted in increased fares.
• Critics argue that the alliances will make it more challenging for new discount carriers to enter the market, undermining the achievements of deregulation.

Statistics:

• 1,836 of the 5,000 busiest routes will experience reduced competition.
• 90% of total domestic traffic will be affected by the reduced competition on these routes.
• 100 million of 396 million passengers may face potential disadvantages due to the alliances.
• 30 million passengers on 338 routes may experience benefits from the alliances.
• 152,000 fewer free seats were booked on routes popular with frequent-fliers last year compared to 1996.

Sources:

• "Airline Industry: Trends and Prospects," The General Accounting Office, June 1997.
• "Airline Alliances," Alfred Kahn, professor emeritus at Cornell University, as quoted in The New York Times, April 1997.
• "Consumer Reports: Air Travel in the United States," Consumer Reports magazine, 1997.
• "Northwest, Continental Announce Global Alliance," The New York Times, January 1997.
• "United, Delta to Form Global Airline Alliance," The New York Times, April 1997.
• "American, US Airways Announce Alliance," The New York Times, April 1997.