But even though the number of airlines declined, the capacity did not as the ambitious survivors moved in to pick up the lost service. It has only been in the last few years, with the mergers of United with Continental and Delta with Northwest that the industry was able to end its ruinous competition and begin to raise prices to a level where companies could turn a profit through the business cycle, not just during boomtimes. The marriage of American with US Airways completes that consolidation process, creating the largest of the remaining giants.
The airline business, after spending a generation consolidating, is now down to a “Final Four.” United, Delta, the merged American-US Airways, and, domestically at least, Southwest, an early low-priced upstart whose prices are now often indistinguishable from its larger rivals and whose operations have slowly drifted toward a similar hub-and-spoke route model.
US Airways chief executive Doug Parker and his team was patient and disciplined in the way they went about quietly stalking their prey and winning over American’s unruly unions and its unhappy creditors. They are the right crew to return the luster to what was once the class of the airline industry. After the inevitable hiccups involved in melding two fleets, two route structures, two sets of unions, two frequent flyer programs and two computer systems, their long-term challenge will be to find a way to become a truly global airline with service into the fast-growing Asian market.
While consumers have benefited from the intense price competition in the past, such pricing was not sustainable, as the serial bankruptcies indicated. Going forward, the airlines will likely shift the focus of their competition to service, which many of us would welcome. While on-line competition may force the carriers to keep fares low in an ever-shrinking steerage class as the carriers grow and improve their “premium economy” sections.
To keep the surviving carriers from raising fares too fast, the Justice Department will have to demand that the newly merged American forfeit some of its slots in Washington (National), New York (LaGuardia) and Boston to smaller rivals. It will also have to keep an eye on the anti-competitive tricks the airlines, often with the connivance of airport authorities, play to protect their fortress hubs from new entrants.
On balance, however, the takeover of American by US Airways is probably the best possible outcome for consumers, investors, lenders and employees who have experienced more than the occasional turbulence over the last 25 years. A profitable decade without another bankruptcy would be a welcome breakthrough for an industry that has yet to turn a cumulative profit.