Does Airline Consolidation Mean Fewer Seats and Higher Prices?

US Airways Plane


AMR Corp. (OTC:AAMRQ), the parent company of American Airlines, is in court on Monday to seek approval of a settlement with U.S. regulators, opening the door to the firm’s long-sought merger with US Airways (NYSE:LCC). The merger, if approved, would create the world’s largest airline and catalyze a series of changes within the airline industry that some believe will leave consumers worse off than before.

Broadly speaking, there are two groups of people with an economic interest in the merger: shareholders and bondholders of the two airlines, and would-be passengers. According to Reuters, Stephen Karotkin, a lawyer for AMR Corp., said that not a single shareholder or bondholder filed an objection to the deal. A group of consumers, though, has stood up to oppose the merger, filing a lawsuit and claiming that the deal would make flights more expensive.

The reasoning for this is fairly straightforward. An airline in trouble will consolidate, and consolidation can leave certain consumers in the lurch as routes are shut down and fewer seats are flown from certain airports. Demand for seats, though, generally does not decrease simply because supply decreases, and as a result, prices will rise. The trend over the past seven years has been exactly this: fewer seats and higher prices at many of the largest airports in the United States.