A new government study concludes there was relatively little
decline in competition on U.S. air routes during a five-year period
of major airline consolidation, a finding that it attributes in
part to the rapid expansion of discount carriers.
The Government Accountability Office report, requested by
Congress and published on Wednesday, examined the effect on
competition from 2007 to 2012, a period of three major mergers
creating today's Delta Air Lines Inc., United Continental Holdings
Inc. and Southwest Airlines Co.
On the 37 most-traveled U.S. routes, traversed by about 83
million fliers a year, the number of airlines providing nonstop or
connecting service decreased to an average of 4.3 in 2012 from 4.4
in 2007, the GAO found. The report counted only airlines with more
than 5% market share on the given routes. On the 9,379 smallest
city pairs, also traveled by 83 million passengers, the average
number of competitors decreased to 3 in 2012 from 3.3 in 2007.
Measuring airline competition is complicated, with prices and
other variables fluctuating frequently. This and other studies have
found that, despite a generally level number of competitors on most
routes, U.S. airlines cut their domestic flights by 14% and
increased domestic fares by 4% between 2007 and 2012.
The GAO tied fare hikes to service cuts across the country,
particularly in small to medium-size cities, which have lost the
most flights in recent years.
The GAO cautioned that consolidation's effects are still playing
out. Integration at some merged companies is continuing and the
study didn't include the December union of AMR Corp. and US Airways
Group Inc. to form American Airlines Group Inc., now the largest
carrier by traffic. That deal left the four biggest airlines
controlling about 83% of the domestic seats in the U.S.
The GAO, Congress's investigative arm, said that markets
maintained competition in part because low-cost airlines expanded
rapidly into busy markets. The average number of discounters in
each of the 37 busiest city pairs increased to 2.3 in 2012 from 1.7
in 2007, the report said.
The GAO also said that while mergers can eliminate a competitor
on many routes, they also can create new connections. For example,
the 2010 United-Continental merger created a new option for fliers
between Fargo, N.D., and Amarillo, Texas, via a stop in Denver, the
report said.
Despite the expansion of low-cost airlines, those discounters
are also doing a worse job of suppressing fares than in past years,
the GAO said. In particular, Southwest "no longer seems to have the
price disciplining effect it once had," it said.
Mergers and capacity cuts have also increased the number of
markets dominated by a single airline. One airline carried at least
half of the passengers on about 77% of all city pairs in 2012, up
from 72% in 2007, the study found.
However, the number of markets served by only one carrier
decreased by about 9% to 1,566 city pairs over the period, though
virtually all of those markets are among the least traveled in the
nation, the GAO said.
Write to Jack Nicas at jack.nicas@wsj.com
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