United/Continental Nuptials: What’s in It for Us?

We probably didn't need economics professor Richard Gritta (University of Portland in Oregon) to tell us, but he's quoted in a Wall Street Journal article, saying: "It's Economics 101. Less competition means higher prices." Now that United and Continental have tied the knot (pending expected government approval), the number of legacy hub-and-spoke carriers is down to four, from six before the Northwest/Delta merger last year. Consolidation is one result of economic depression within an industry. It was evident in the oil business, which suffered mightily through the dot-com era only to emerge with record profits after a spate of big-ticket mergers cut the number of players virtually in half. Though there are few overlapping routes covered by Chicago-based United and Houston-based Continental, the overall consolidation is nevertheless expected to lead to higher fares, at least in the short term. Other expectations call for some glitches as common infrastructure is established, though the two were already mated in an extensive code-share arrangement. So if the current problems of the airline business model are based on too many airlines driving ticket prices down below realistic operating margins, then the joining of United and Continental could augur a return to viability through more realistic pricing. In the long term, higher ticket prices would help remove one of the chief barriers to general aviation growth — the competition of low-ball bargain fares. It remains to be seen if the merger will help stem the downward spiral in service that has plagued airlines (and stimulated general aviation activity) for the past two decades or more.

Mark Phelps is a senior editor at AVweb. He is an instrument rated private pilot and former owner of a Grumman American AA1B and a V-tail Bonanza.

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