A Negative Impact Airline Mergers on Passengers

Despite its general pro-merger stance, the report recognizes that mergers can have a negative impact on passengers, particularly during the transition period when the merged airlines are trying to blend their operations. 'This is the sensitive time,' says Geoffrey Lipman. 'It's when more bags tend to get lost or mislaid, services are disrupted and there's a general sense of confusion.' Some airlines never get over the transition period. The free-wheeling, nonunion style of People Express never quite jelled with the highly structured and unionized framework of Frontier. And the Texas Air acquisition of Eastern has tied to endless problems with unions, particularly the machinist's union, which has tied down the carrier in a series of legal actions.

There can be other merger-related problems for passengers. When a merged airline dominates a hub, it can be difficult for new entrants to break into the market; this, in turn, can cause prices to rise on certain routes. The hub-and-spoke system itself can aggravate problems of airport congestion, as flights gravitate toward already crowded terminals. However, the report concludes that 'Security is definitely not a merger issue and safety only to a very limited extent.'

In its findings, the report avoids blanket judgments. 'We concluded that it's difficult to make the generalization that mergers are always good or bad for passengers,' says Jan Ernst de Groot, a researcher at the International Institute of Air and Space Law. 'It all depends on the circumstances of the case.'

To protect the passenger's interest, however, the report makes an innovative suggestion: when applying for approval of a merger or a take-over, it urges the airlines involved to file a 'passenger impact statement', containing the changes they anticipate on ten passenger-related features; including safety, security, infrastructure issues, competition, pricing and product choice. Many of these issues are directly related to the anti-competitive threat posed by mergers. If, by acquiring another airline, the merged carrier achieves a monopoly or dominant position at certain hubs, the report urges strong government action to assure that new entrants can enter the market. This can include requiring the merged carriers to give up airport slots, interline facilities and fifth-freedom rights.

Among its final recommendations the report urges airlines to take special measures to ensure that passengers are protected during the transition period of any merger. And, recognizing that not all negative impacts can be foreseen, it suggests an open-ended government role: if the impact statement is not sufficient, the appropriate authorities 'should attach conditions to the merger or take certain measures to protect passenger interests'. These could presumably include government action, for example, to disapprove fare changes which they consider excessively high or predatory.

The IFAPA study represents a serious effort to strike a balance. 'We know more mergers will take place, particularly in Europe,' says Lipman. 'We can't be ostrich-like and ignore that development.' But IFAPA's executive director quickly adds, 'When mergers do occur, we want to be sure that passengers are consulted in the process and that there are built-in safeguards to protect them.'