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Boycotting United Will Never Work. Here’s Why

Bloomberg logoBloomberg 4/14/2017 Lance Lambert
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A string of mega-mergers has given the four largest airlines a monopoly-like grip on U.S. air travel. Sure, everyone knows that—but did you know how tight that grip is, and what it means for you as a customer?

A lot of people are thinking about that after Sunday’s violent treatment of a United Airlines passenger by Chicago airport security workers. Why would a business ever think it was okay to allow a paying customer to be assaulted so its own employee could take his seat?

Part of the reason may be that you, as a customer, don’t really have a practical alternative to punish the offending company. American Airlines, Delta Air Lines, Southwest Airlines, and United now have 85 percent of market share, compared with 55 percent in 2007 . Like all monopolies, they have less pressure to improve customer service or fret about losing passengers. They’re certain you’ll be back. And it’s not just airlines: As of 2015, market concentration hit a three-decade high.

When David Dao was left bloodied with a broken nose and missing teeth after being dragged down the plane’s aisle, it was met with a public outcry for accountability and better service—and even a boycott. But the reality of America’s economy, where monopolies are part of the commercial fabric, makes that threat less than effective.

BC-BOYCOTTING-UNITED-WILL-NEVER-WORK-HERE-S-WHY© Lance Lambert BC-BOYCOTTING-UNITED-WILL-NEVER-WORK-HERE-S-WHY

“If you are in Houston, good luck if you want to boycott United,” said John Kwoka, an economics professor at Northeastern University, referring to how the airline dominates that hub. “That’s called monopoly power, where you have little functional choice for your travel options.”

He added: “If you look at a lot of the routes these firms dominate ... sure enough the prices have risen.”

Major airline mergers picked up steam after the 2005 union of US Airways and America West Airlines. Next up was the 2008 merger between Delta and Northwest Airlines. Then the 2010 Continental Airlines and United union, and Southwest and AirTran the year after that. The last major tie ups were between US Airways and American Airlines in 2013 and, most recently, Alaska Air Group Inc.’s purchase of Virgin America.

To be fair, one must remember the environment from which the modern airline monopoly sprung. Seth Kaplan, a managing partner at industry journal Airline Weekly, says consolidation wasn’t triggered by a desire for unwarranted profit, but rather simple survival.

“The industry was in crisis first because of 9/11. It was both a cost and revenue shock to the industry—suddenly all these new security costs,” Kaplan said. “At the same time, cost going up partly because nobody wanted to fly, and later because too much security hassle.” Additionally, carriers faced spiking fuel prices which peaked in the summer of 2008, a global economic downturn, and increased competition from upstarts led by JetBlue Airways Corp. and Spirit Airlines Inc.

The majors eventually survived, and flourished. For passengers, however, things started going south. The period of mergers coincided with cuts to services. More baggage charges, fewer free meals and flight attendants. Cuts to regional air travel. 

“A decade ago anything that wasn’t a mandatory cost they were slashing,” Kaplan said. “The saying goes ‘burning furniture to warm the house.’” Having fewer competing airlines has eased the pressure to reverse those cuts even though profits are now greater. And that’s unlikely to change. The airlines, meanwhile, contend that a profitable industry created by consolidation provides for a more stable U.S. air travel system and secure employment.

As for overbooking, that original reason United gave for the Chicago incident (before conceding Dao was booted in favor of United employees), that’s been going on for a long time—and United isn’t even the worst offender. Purposeful overbooking is a financial tool carriers use to fill every seat possible.

Earlier this year, Bloomberg reported that the Department of Justice was unlikely to bring antitrust action against the major airline carriers. The government started the investigation into price fixing and collusion among airlines in 2015.

Matt Stoller, a fellow at the Open Markets Program at the New America, said when the probe was announced that he didn’t expect anything to come of it. The Justice Department hasn’t really taken antitrust or mergers serious for decades, he said.

Indeed, the Justice Department investigated just three in 2015, compared with the 22 cases in 1994.

Kwoka and Stoller were among the speakers at a conference last week titled “Is There a Concentration Problem in America?” hosted by the University of Chicago’s Stigler Center. Attendees discussed how mega firms are expanding, and not just in the airline industry. But the few carriers who envelop most American airports is certainly the most visible example.

“This is not the airline industry an economist interested in competition or a passenger interested in options would want,” Kwoka said. “This is not where we should have ended up.”


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