American Airlines and US Airways signed a non-disclosure agreement Friday allowing the two airlines to share information as they analyze a potential merger. What would a combined airline mean for travelers? We break down the key issues.
Don't assume a merger would result in less competition and higher fares.
Henry Harteveldt, co-founder of Atmosphere Research Group, tells CNBC.com in an email, "You have a lot of competition in the airline business. You have airlines like Southwest , JetBlue , Virgin America, Allegiant and Spirit bringing low fares." Even if an American-US Airways merger moved forward, the industry is still highly fragmented among multiple carriers and and fares would not spike, Harteveldt says.
Adjusted for inflation, government data shows first quarter U.S. domestic air fares for this year actually cost 19.2 percent less than what they would have cost in 1999, illustrating the great financial value air travel offers consumers, Harteveldt says. He detailed his analysis in an August 9 blog post.
I have hinted an American-US Airways merger could lead to higher fares in a post in April (More: American, US Airways Merger Could Spell Frequent Flier Trouble). While airlines could have an easier time pushing through airfare increases, I agree with Harteveldt that multiple, low-cost carriers tend to dictate the majority of domestic airfares. He says, "Only when airlines like Southwest or JetBlue participate do fare hikes take place."
Route Changes and Fewer Seats
In addition to potential price changes, mergers can affect routes. Smaller cities typically feel the most pain from mergers. Smaller cities can lose flights or get dropped altogether, said Rick Seaney of FareCompare.com in an email.
Harteveldt isn't as convinced. According to his research, the routes of US Airways and American have very little overlap. Of the 508 nonstop city pairs (flights from one city to another without a stop) thatAmerican operated on a peak day in July (384 for US Airways), only 12 were identical with US Airways. That's a little more than two percent overlap.
Harteveldt does agree, however, that markets which aren't profitable — regardless of size — are indeed at risk of losing service.
Frequent Flier Program Changes
Merging airlines are careful not to mess with their rewards programs because they don't want to irritate their loyal customers and fliers, says Seaney of FareCompare.com.
While redemption levels for free travel and other benefits haven't changed, my experience with United since their merger with Continental says otherwise. United's parent is United Continental Holdings .
When United migrated over to Continental's reservation system in March, it caused numerous problems on my reservations related to my frequent flier status. Upgrades weren't being processed, mileage for flown flights wasn't posting on schedule and seat assignments were randomly changing. Many of my issues on United have since been fixed.
American and US Airways were not immediately available Tuesday for comment.
What's your opinion? Would another merger in the U.S. airline industry worry you?