When Two Airlines Tie the Knot

When Two Airlines Tie the Knot
By SUSAN STELLIN
Copyright by The New York Times
Published: May 23, 2010
http://www.nytimes.com/2010/05/23/travel/23prac.html?hpw


AS soon as Continental and United announced their proposed merger, news media outlets began reporting on how the union might affect travelers — less competition and higher fares being the primary concerns.

But some airline experts see those worries as overblown. First, the two airlines had effectively moved in together before deciding to get married, aligning their flights through a code-share partnership and linking their frequent-flier programs, so they were more partners than rivals even before the merger was announced. More important, most analysts believe that airfares are likely to increase regardless of whether these carriers tie the knot.

“The average person thinks that when you put a merger together it eliminates one competitor, but in this case it’s basically eliminating a brand name, not a competitor,” said Michael Boyd, an airline consultant with Boyd Group International. “For the consumer, it just means you’re going to be on an airplane with a different paint job.”

That may be the case, but lots of questions have been raised about this union. Here are some of the biggest issues being debated:

Is Bigger Bad?

Although the United-Continental merger still needs governmental approval, which may be months away, it is already clear that consolidation is happening in the airline industry, not only through mergers, but also through partnerships that link operations behind the scenes.

Besides the Delta-Northwest merger, which began in 2008, US Airways and America West joined forces in 2005. And last year a little-known regional airline company, Republic Airways based in Indianapolis, which flies under names like Delta Connection and United Express, bought Frontier and Midwest.

Global airline alliances, like the Star Alliance that United and Continental both belong to, have also become stronger, coordinating schedules to connect passengers between a domestic flight and a foreign partner headed overseas. Mr. Boyd predicted that these international identities would someday surpass national brands.

“You won’t be booking on United,” he said. “You’ll be booking on Star.”

In other words, “Too small to survive” seems to be the airline industry’s motto, and joining forces may be the lesser of two evils — going out of business being worse. What remains to be seen is whether there are ways to preserve competition — possibly through stronger government regulation — if consolidation is inevitable.

Will Prices Go Up?

As for whether fares and fees are likely to go up, Mr. Boyd said, “Plan on it, but not due to any merger.”

United States carriers lost $2.5 billion in 2009, primarily because of high fuel costs and fewer business travelers buying expensive tickets, so that fares have already been inching up, and most analysts expect that to continue. The same goes for fees for services like ticket changes (now $150 on many carriers).

A bigger factor affecting fares, analysts say, is whether competitors like Southwest, JetBlue or AirTran serve a particular route.

“These are the airlines that tend to set the pricing of the industry,” said Henry H. Harteveldt, a vice president and travel analyst with Forrester Research.

Low-fare carriers have been taking advantage of opportunities to expand when other airlines have given up slots and gates, but they tend to favor higher-traffic airports where they can consistently fill planes.

“It certainly is more difficult for secondary markets if they’re not a growing city or if they’re not an attractive leisure destination,” Mr. Harteveldt said, yet he added that carriers like JetBlue are increasingly taking a look at opportunities beyond big cities like New York and Boston.

“The low-cost carriers are all evolving their business models, and I think they realize there’s a business opportunity in some of these smaller communities if the network carriers either abandon these markets or charge too much.”

But most analysts don’t think a United-Continental merger is going to reduce service by much, if at all, because carriers have already cut back on flights so aggressively that planes are generally full and there are not many seats left to take away. Also, United and Continental overlap on only about a dozen routes, leaving few redundant flights to trim.

What Happens to Your Miles?

The biggest change likely to affect passengers will be the merging of the two carriers’ frequent-flier programs, but that was already in the works.

“United and Continental have worked really hard over the past year to get as close to a merger of frequent-flier programs as they could without an actual merger,” said Randy Petersen, the editor of Inside Flyer magazine, who has been tracking frequent-flier programs since 1986. “There are not a lot of differences between the two programs.”

Passengers can already earn Continental miles on United flights (and vice versa), and use their miles to redeem awards on either airline. Both carriers’ elite frequent fliers receive perks like upgrade privileges on either airline, and the companies even have the same credit card partner, Chase.

That means travelers who use Continental- or United-branded credit cards will not be wooed with the types of mileage bonuses travelers received when Northwest and Delta merged. In that case, the airlines’ respective credit card partners, U.S. Bank and American Express, showered bonus miles on customers to persuade them to stay or to switch banks.

One difference between the two programs is that United’s Mileage Plus miles expire after two years if a member hasn’t earned or used any miles during that time, whereas Continental’s OnePass program doesn’t have a strict expiration policy. Mr. Petersen predicted that the combined airline would adopt United’s approach, since that has become the industry standard.

Members of both programs will eventually be able to combine their Continental and United miles in one account, and though individual experiences vary, the scant data that exists suggest travelers have about the same luck actually using their miles to redeem awards in either program.

Delta, in contrast, is widely regarded as the worst frequent-flier program in terms of making seats available for award travel, especially at the lowest level, 25,000 miles for a domestic flight. So in the wake of that merger, many Northwest fliers ended up disgruntled.

The lesson from past mergers: if there is a policy difference between the two frequent-flier programs, the stingier one tends to survive.

Will Service Suffer?

The impact mergers have on customer service is another matter, and online forums are already full of discussions about which airline is better — United or Continental — and which airline’s standard of service will prevail when they are joined.

Continental generally ranks higher than United in the leading customer-service surveys, though airlines as an industry do not score high marks. As Mr. Boyd pointed out, this is yet another area where the merger is not going to change what was already happening system-wide.

“Consumers can rest assured that the air travel experience is going to get more hassle-laden than ever,” he said.