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Good Question: Do Airline Mergers Hurt Or Help Us?

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(credit: CBS) Heather Brown
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MINNEAPOLIS (WCCO) — American Airlines plans to end its direct flights from MSP to New York’s LaGuardia and Washington’s Reagan National Airports.

The changes are part of a deal with the Justice Department to push through American’s merger with U.S. Airways. American agreed to give up some of its airport slots to lower-cost airlines.

So do airline mergers hurt us or help us? According to Myles Shaver, a professor business strategy at the Carlson School of Business, opinions are mixed.

“They do a little bit of both,” Shaver said. “We get hurt in that we’re probably going to pay a little bit more, but at least we’ll have sustainable airlines.”

After American and US Airways combined forces last year, four major airlines — Delta, Southwest, United and American — were left in control of 80 percent of U.S. flights.

George Hoffer, a transportation economist at the University of Richmond, says it will mean prices will be higher due to one less competitor.

According to Hoffer, a benefit of the merged airline would be more hubs. He said keeping both American and USAirways hubs would make it easier to handle weather problems or mechanical issues.

“It’s a real advantage to the traveling public because the system is more redundant,” said Hoffer. “It’s got a lot of back-up at multiple hubs.”

According to one study from the Anti-Trust Institute, Delta did show an increase in ticket prices for a small number of routes after its 2008 merger with Northwest.

But Shaver says most people were not affected.

“One of the things we noticed with Delta and Northwest is there probably wasn’t a huge price increase,” he said.

Rick Seaney with FareCompare says fliers might see more competition and cheap introductory pricing on the new routes from low-cost airlines that took over the American gates.

But overall, he does believe people will pay higher ticket prices in the future.

“In the past decade, we’ve seen the industry transformed from one that boasted eight large airlines to a mere four,” Seaney said. “With the latest merger, it drops to three. It is likely we’ll be sitting around in 2020 saying ‘I wish we still had eight carriers.'”

But, one PricewaterhouseCoopers study found the mergers to be a win for consumers.

Study author Jonathan Kletzel says the lower-cost competition will keep prices steady. He examined airline ticket price information from the Department of Transportation and found price increases of only two percent each year since 2004.

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