According to the annual AAA survey, during this Thanksgiving season, the average distance traveled is expected to be 601 miles. That is an increase of last year’s average of 588 miles.
Approximately 90 percent of the 43.4 million people estimated to travel are doing so by car. About 3.2 million (or 7 percent) have taken to the air. It is good news, then, that gasoline prices are at the lowest level for the Thanksgiving holiday since 2010 and that average airfares are comparable to last year’s (the complete forecast results are available at http://goo.gl/vVKlD7).
Those waiting in airports on their way back on Sunday or Monday may want to take a look at the recent Justice Department decision to let the U.S. Airways/American merger go ahead, pending certain steps that the firms had to agree to. The so-called “Competitive Impact Statement” of the merger (posted at http://goo.gl/EZXZOp) nicely outlines the concerns that some consumer groups have had with the proposed union.
Those include a further reduction of the number of “legacy airlines” to only three (“New American”, Delta, and United) and significant market power of those airlines at key airports, including in Chicago, Los Angeles, Miami, New York and Washington, D.C. Given that U.S. Airways and American Airlines have been vigorously competing in a number of markets and on certain routes, the concerns expressed by the Justice Department when it filed suit back in August to stop the merger are understandable. At D.C.’s Ronald Reagan National Airport, the merged airline would “control 69 percent of take-off and landing slots.”
The government filing points out that, in 2012, U.S. Airways collected more than $13 billion while flying more than 50 million passengers to around 200 locations worldwide. The respective numbers for American are $24 billion, more than 80 million passengers, and approximately 250 locations worldwide.
Therefore, the amount of concentration that would result on certain routes and in particular airports by merging these firms is worrying. Moreover, it would make it easier for the large legacy airlines to implicitly cooperate (doing so with explicit agreements would be illegal).
The free enterprise economy thrives when competition is permitted to efficiently match supply and demand. On the other hand, consumers are also not helped when airlines fail outright. After all, American filed for bankruptcy reorganization two years ago and is under the supervision of a Bankruptcy court.
Thus, the remedies agreed to by the DoJ and the two firms are reasonable way out. Rather than the heavy-handed course of action that would continue to fight the merger in court, the settlement terms will provide for more competition.
Accordingly, the two airlines will have to divest themselves of slots and gates at key airports.
This will enable so-called low cost carrier airlines (LCCs) to establish a (stronger) presence in those markets. As pointed out helpfully by the government in one of their presentation slides: “past LCC entry into constrained airports has led to dramatic reductions in average fares and increases in traffic.” (http://goo.gl/9vXkMW)
So, go ahead Southwest Airlines and JetBlue Airways, among others, and gobble up those tasty slots and gate rights at major airports.
Hopefully, this will still allow the new, merged firm to thrive while preserving competitive prices for air travelers.
Certainly, those millions traveling during the Thanksgiving holidays in coming years would savor that.
Dr. Michael Reksulak has taught economics and public finance in Georgia Southern University’s College of Business Administration. He can be contacted at MReksulak.SMN@gmail.com.