Travel&Vacation

Last week’s announcement by Continental and United that they plan to “cooperate globally” is the latest wrinkle in the giant airlines’ ongoing push to combine. For consumers, the net result will look almost the same as a full merger, with the same effects: greater network scope and reach, more flight cutbacks, and more fare hikes. United is already trying to sell the agreement as a benefit to its frequent flyers, but that’s blowing smoke. Although United frequent flyers will be able to book award travel on lots of Continental routes, they’ll be competing with Continental’s frequent flyers for seats on both lines. At best, it will be a wash for frequent flyers. And, up or down, nothing much will happen for a year or more.

Until a few months ago, chances were pretty good that Continental-United, Delta-Northwest, and American-somebody would try to engineer all-out corporate mergers. They universally blamed the need to merge on high fuel prices, but that was an excuse, not a reason. The real reason was to reduce competition and thus allow easier fare hikes. And the big lines were willing to take on the major challenge of possible government opposition and the hassles of working out labor agreements to make it happen—especially since the top execs expected to cash out big on the deal.

Now, however, the dealmakers can no longer see the big stock spike they once relished, and they realize they can’t afford years of wrangling with either the government or with pilots, mechanics, and flight attendants. Non-merger cooperation may be the best they can do, at least for now. And, given a modest amount of antitrust immunity, those non-merger mergers will probably offer most of the benefits of full mergers without the trials and tribulations of the full merger process.

I certainly wouldn’t be surprised to see Delta and Northwest move in that direction quickly. And I also look for a big push on the part of U.S.-based airlines to work out closer deals with some European and Asian mega-carriers. American and British Airways, for example, would love to expand their deal, as would United with Lufthansa and Delta/Northwest with Air France/KLM.

The Continental-United agreement would certainly extend the two lines’ network scope. Continental operates strong hubs in Houston and the New York area (Newark)—airports where United has traditionally been weak—and United has strong hubs in Chicago, Washington, and San Francisco, all weak areas for Continental. United is strong across the Pacific, and Continental is big in the Caribbean and Latin America. Delta-Northwest would complement their route structures as well.

The downside for most consumers, however, would outweigh the advantages. Either one or the other of the two lines—maybe both—will likely cut back still further on flights to/from small and mid-size cities, and they’ll surely reduce schedules on even the more popular routes. And, of course, they’ll squeeze leisure travelers: increased fares for their lowest-priced seats, fewer seats allocated to the lowest fares, and increased restrictions imposed on those cheap tickets. Travelers on routes not served by a robust low-fare line—AirTran, JetBlue, or Southwest—will see few counters to upward pressure on fares.

The supposed upside for frequent flyers will be improved earning potential for miles and elite status, as well as incremental geographical coverage. But, these days, the problem isn’t earning the miles; it’s using them. Cooperation or no, the big crunch will remain finding seats and upgrades. And I see nothing in the cooperation agreement that would lead either line to increase the allocation of seats for frequent flyers.

I’ve never subscribed to the theory that combining two losers somehow makes a winner. But the big airlines are in such a terrible financial bind that I suspect they’ll get the various government agencies to go along with cooperation, with maybe a few trivial limitations. The next few years will be tough for air travelers, although, to be fair, they’ll be tough whether or not these specific deals are accomplished.