Airlines: Increased stability from mergers worth service cuts

The U.S. airline industry is more stable now after a spate of mergers in recent years that cut the nation’s number of major carriers in half, aviation industry officials said Tuesday.

Lawmakers who represent districts that are home to airports that are no longer airline hubs like Cleveland, which was recently dropped by United Airlines, have complained bitterly about service cuts that have resulted since the trend of airlines merging first began around 2008.

Consumer groups have also argued that the mergers have resulted in less competition and higher ticket prices for passengers.

{mosads}Steve Morrissey, United Airlines vice president of regulatory and policy affairs, said Tuesday during an event presented by The Hill and sponsored by Airlines For America that the mergers were inevitable because “airlines are not immune from market forces. 

“If things lose money, particularly over the long haul, any business needs to stop doing them, one way or another,” Morrissey said.

“Cleveland was a financially losing hub for United for many, many years. There comes a time to act,” he continued. “If you’re going to be a strong, stable business, you have to do things that make sense for the business, even when they’re hard.”

Morrissey said the airline industry as a whole was healthy since the merger trend that included United’s 2009 combination with Continental Airlines first began.

“If you stepped back and took a longer view, you’d probably have to admit that consolidation in this industry was inevitable,” he said. “We couldn’t continue to go with the massive losses that we were incurring and the negative impact that had on every stakeholder we’ve talked about today. They were a function of just market realities.”

The most recent major airlines to attempt to merge, US Airways and American Airlines, had to overcome a lawsuit from the Department of Justice to win approval of their combinations from federal regulators.

Consumer groups sought to convince the Justice Department to block the US Airways-American merger by arguing that airline service had suffered after the previous combinations of U.S. carriers, such as United’s and Continental’s.

Morrissey said the airline industry’s financial performance in recent years compared to pre-merger era showed otherwise.

“The last 10 plus years have been very disruptive,” he said. “We’ve seen the impact when airlines aren’t healthy. it’s bad for communities with service cuts and its bad for employees when they lose their jobs.

Morrissey added that “a healthy, stable U.S. airline industry is good for everybody.

“It creates jobs, connects communities to the global marketplace,” he said. ” It is an essential engine for our economy.”

Air Line Pilots Association (ALPA) President Lee Moak agreed, adding it was not always a given in the normally-fractious aviation industry. 

“Five years of profits, but the airline industry after totally restructuring … we still only have one investment grade airline, Southwest Airlines,” Moak said. “We have two that are on the cusp of being investment grade, Alaska and Delta, but the rest are not investment grade and what you hear reported is ‘record profits.’ We need to get off of that and all our airlines need to be investment grade.” 

Moak said airlines were reacting to fees and taxes imposed by the federal government when they make decisions about which airports to serve as much as they are considering the effects of their recent mergers.

“You need to back up just a little bit and see what is really affecting it,” he said. “What is going on, especially now in the airline industry, is taxes and regulations for small communities are having a practical effect on their ability to have frequency of service.”

Moak added that airports that are no longer airline hubs still usually offer flights that would allow passengers to make connections in other cities to reach their destinations.

“There’s been a lot [said] about frequency of service, if you take a good hard look at available seat miles in the communities, airlines have had to up gauge..in order to be profitable,” he said. “There are no gifts in the airline world. … You have to make a profit. What’s happened in communities have understated the effect these taxes, regulation and oil where it’s at have impacted the ability for airlines to be profitable, especially in the 50-seat space.

“Ultimately I believe Cleveland and other communities like Cleveland are going to be part of the regionalization of airports around the country,” Moak concluded. “That’s what’s going on.”