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Will proposed airline alliances hurt travelers?

December 5, 2008

In the final hours of the Bush administration, airlines are quietly lobbying for approval of a new kind of alliance that could potentially change the way airline tickets are bought and sold. But are these corporate hook-ups good for passengers? Absolutely not, says a brief filed by two groups representing travel agencies.

If you’re a frequent flier, you’re probably familiar with entities like the Star Alliance and SkyTeam. If not, here’s what you need to know: These alliances let airlines share resources and flights, and allow passengers to collect highly-addictive award miles on each other’s respective airlines.

But the new alliances would go much further, say agents. According to their filing with the Transportation Department in response to the Star Alliance’s request for antitrust immunity, they could create de-facto monopolies.

The application would allow the airlines to integrate the way in which they pay agency commissions, jointly market to corporate, group and government customers, consolidate their sales and distribution and share “competitively-sensitive information” on bids for corporate travel contracts, among other things.

Essentially, these airlines would act as one — and with the government’s approval.

The brief cites evidence that even without antitrust immunity, airline alliances have led to higher air fares in certain markets. But the real downside would be that the new alliances could dis-empower travel agents, which would be bad for us.

Degradation or destruction of independent travel agents would have profoundly adverse consequences for consumers. As the alliance carriers are well aware, travel agents serve as neutral sources of comparative price and service information for consumers.

They are powerful forces for lower fares by developing and constantly improving technology that allows consumers to easily compare the fares of all airlines offering service on a particular route.

They have also pioneered technology that automatically alerts consumers to the availability of lower fares for their trip if they will consider alternate airports or alternate dates of travel.

I think this is one of those occasions when travel agents and consumers are on the same page. These proposed airline alliances shouldn’t be getting any kind of antitrust immunity from the government. Not now, during the final hours of a lame duck administration. Not ever.

In fact, as a consumer advocate, I believe the government should end all of these alliances because they are not in the people’s best interests.

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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8 comments

  • Jasper

    So, as I understand it, they would basically operate as one company with many managements and names. Sounds lovely…. Not.

  • Carver Farrow

    It is impossible to determine whether such an alliance is ultimately good for consumers without knowing the details. Any industry needs to find a good balance between multiple weak players that cannot provide adequate goods and services to the converse having too few players which stiffle competition and innovation.

    I will admit to skepticism in this matter. Airlines prices are easily obtained by consumers let alone insiders, so I don’t see how this will lead to higher prices. But, the devil is in the details.

    What we can glean from this article is that travel agents believe that they will be the losers in this arrangement. Consequently, they trott out the big bogeyman of business. The “M” word; Monopoly.

    With the increasing popularity of the internet and the free flow of information, many travel agents and agencies have seen their revenues diminish and see their industry under attack. This industry has been attacked by several commentators as being irrelevant. This leads to a certain knee jerk reaction. A couple years ago I read an article in which a travel agency owner was pitching the importance of travel agencies and that the advice they give should be considered as important as medical or legal advice. How sad.

    Leaving aside the travel agencies for a moment, knowing that they havea beef with airlines and are hardly objective, the question is, have you been hepled or hurt by these alliances.

    Speaking anecdotaly; I am a member of American Airlines. On a recent international trip, I stopped at the British airways lounge in several European cities, and used 40K AA miles to fly business class from Heathrow to Rome and back. on BA. If anything I wish the integration was more seamless as a ticket I purchased on BA.com didn’t have my AA information which caused a few minor hiccups.

  • Jasper

    @ Carver: The problem is not a monopoly, but an oligopoly. While it is true that there are many airlines, many customers and many sale points, customers are bound very much by geography, especially if they are not traveling to and from larger metropoles.

    Antitrust immunity allows these alliances to create virtual monopolies on smaller airports. Traveling from London to Rome gives you plenty of options, just as traveling from NY to LA. However, try getting from Liverpool to Pisa, or Richmond VA to Des Moines IA. Suddenly your options are *very* limited.

    While I can see little good in antitrust immunity in general, I certainly don’t see how it would be good for customers on smaller routes.

  • Carver Farrow

    @Jasper

    I understand your point but I don’t think its applicable here. In both Star Alliance and OneWorld, you have one or two major US carriers and the rest are foreign carriers. While I haven’t done an extensive analysis, my suspicion is that your average small US airport doesn’t have a strong international presence.

  • Jasper

    @ Carver: The Star Alliance contains United, US Airways and Air Canada. Do you really think you want less competition between those three airlines on all those smaller “international” airports on the northern side of the US? Do you really want less competition between them for customers in Columbus, Minneapolis, and Buffalo for flights to Canada?

    In short, antitrust protection is bad for customers in general. Airline customers have a miserable enough life. They don’t need more government-backed insults.

    Please note that the airline industry is asking *for regulation* here. That should make everybody suspicious.

  • Carver Farrow

    @Jasper

    I’m a fan of having lots of competition. All things being equal, competition generally means better goods and services for the consumers at the best possible price.

    However, we cannot a priori make the statement that cooperation between competitors automatically means less competition, particularly when there is no dominant player in the market place

    For example, in banking, I can withdraw money from nearly any ATM machine. . Similiarly, I can deposit money in any credit union ATM that’s part of the Co-op Network. That’s a form of constructive alliance. Consumers reap the benefit of having access to an enhanced network yet few would argue thats such agreements reduce competition.

    I am skeptical that we will see less competition merely as a result of sharing information. However the jury is still out until we get a detailed factual analysis, e.g. what information is being shared, how will it be used, who will it be shared with, etc.

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  • Michael Wardlow

    Carver – I’m guessing you’ve never been involved in contract negotiations between airlines and corporations, yes?

    Contracts are generally based on specific market pairs – JFK-LHR for example. If BA and AA, which currently operate 64% of all available service on that lane, are permitted to coordinate schedules, pricing and sales strategy, then here’s what will happen:

    1. In the process of negotiating corporate BA and AA will jointly set high share requirements in return for the concessions that they will make to their corporate buyers. Buyers with a high need for inventory on that lane will agree to the coordinated share requirement and reduce their spend on other airlines, because they will have few other options.

    2. Other airlines will redeploy their aircraft from the JFK-LHR market to markets where they believe they might leverage their market dominance to gain increase share from their corporate customers.

    3. BA and AA will seek to increase prices, initially in their published fares and later in the much harder-nosed negotiations with their corporate customers, based on their dominance in the market JFK-LHR. Other airlines will also increase their prices in markets where they dominate – for example, STAR Alliance from SFO to just about anywhere in Asia etc.

    The result: two carriers from NYC-LHR, protected by a special, government-sponsored antitrust exemption. Just like the good old days, pre-deregulation. I am just not sure how that’s a good thing for consumers.

    Airlines are not cash machines. They used to be more like cash machines than they are now: your ticket on one airline was good on any airline or combination of airlines traveling between two points. That is certainly not the case now, so I am not sure I get your analogy.

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