tv Inside Story Al Jazeera December 2, 2013 11:30am-12:01pm EST
inside story.is next. you can catch us any time on www.aljazeera.com. merger that will plenty two airlines into the bigger carrier in the nation. what that means to you, the consumer, is our "inside story." >> hello, i'm ray suarez. turkey and travel go together. this thanksgiving season its estimated 25 million people will be in the air. and according to an airline industry trade group we're all paying less in real dollars than we did in 2000, but you had more options then, too.
there has been a string of big mergers and american airlines will finalize a $17 billion deal with u.s. airways making american the largest carrier in the country. before the deal went through the justice department made american open up major hubs to smaller airlines and cut back on routes and a number of flights. on this edition of "inside story" we're going to talk about the mega merger and what it means for the flying public. the merger between american and u.s. airways is a $17 billion deal. the new american will carry 130 million passengers annually. it will operate 6700 flights to 500 destination nationwide. it will allow the new american airlines to become king of the air waives. airwaves. it must give up gates and landing slots in seven major
airport including new york, los angeles, and ronald reagan washington airport in washington, d.c. those slots will go to lower cost carriers. american must now sell 104 take-off and landing slots. >> we expressed potential reduction in competition that the merger would potentially empose. >> the justice department initially blocked the deal fearing competition. but in a statement the attorney general eric holder sought to reassure fliers. r re- reassure flyers. >> passengers still have concerns. >> i just have a feeling it
always happens, every time there is are a merge there are is a rate increase. >> i think with less competition it means that it may drive flight rates up. >> since 2005 when u.s u.s. airways acquired u.s. west there had been a string of increases. and two of the smaller carriers, southwest and air tran merged as well. joining us now from dallas, rick ceni, an air traffic analyst and ceo of fair compare, a website dedicated to getting the best flight deals. in the studio, douglas kidd director of the national association of airline passengers, and from minneapol minneapolis, terry trip letter, analyst who runs a consumer
website called "the plain rules." rick ceni let me start with you. this was not looking good, and then suddenly the clouds parted, the inpediments disappeared and they were back in business. what did the two carriers have to do to get attorney general holder's blessing? >> well, i think they started picking at it at the state level. they went after some of the state legislators, the attorney generals got them to flip some of their positions on things, based on things they wanted to handle with them and then slowly but surely you could tell pretty much last week when southwest filed a friend of the court free they were really talking turkey on the kind of settle they would have. i didn't think it would be this soon. i thought it would go up to the wire, into novembe into the end. >> why would they be happy right now? >> well, in the case of american, i live in dallas where
american is based, there has been acrimony between labor and management for a long time. they really wanted this deal to occur. on the case of u.s. air ways, i don't know if they were as giddy about it as we were here. but it would be more difficult time against two other mega airlines which are delta and united. >> so they have more job security? >> i think that many of them think they will. i agree with them. i think they will actually be doing some growth. there will be certain cities where there will be cut backs over time but it looks like part of the settlement includes in three to five year window where they can't cut back in certain hubs they would like to, but that's part of the settlement as well. >> douglas kidd what about the flying public? what is their interest here? >> the flying public has one interest, and that is being able to fly, and of course flying on an airline that is not facing bankruptcy, and that is hopefully making money and will
be in a position to treat the customer and the passenger gregory. when an airline is facing financial difficulty, there is a tendency to pinch pennies. it's quite another when american airlines in the past has received proposed fines and penalties for neglecting maintenance. that's really important. so to the extent that this merger can resolve some of those issues so that flying will remain safe and comfortable, then of course the passengers are all for it. >> the general trajectory, if you want to fly anywhere from anywhere has been fewer seats, somewhat higher fairs, lower level of service, and more fees. is any of that going to change with this new american vigor, american airlines? >> that remains to be scene. this is a matter of concern for us.
as you say there are fewer seats. the planes are more and more frequently fully sold out if not oversold, and of course anybody in business has to wonder if the airlines are filling the seats on their flights and they're still having financial difficulties. there is something seriously wrong. >> terry, was this a good deal for all the stake holders involved? the cameras, the carriers and the flying public? >> i think absolutely. i think this is truly one of those win-win situations. i've been in this business 45 years and i think i've seen 20 mergers in that time and we have always heard the same story from many people that less competition fares will go up. that's economics 101. but in 99% of the time it has ended up being good for everyone. in this particular situation this is good for united, delta,
and america because it gives the united states three truly giant global carriers that they can to compete with the international carriers, many of whom are subsidized by their government. >> why is it a good thing for their competitors that these two already big carriers merged to become one giant one? go i believe that high tide raises all boats, and when you put three giants u.s. transglobal carriers from the united states, it gives everyone a push. it gives everyone--it levels the playing field for u.s. airline airlines--plural--against other airlines, i believe everyone will benefit from this. if you have a restaurant and another one moves in across the street you're happy because it draws more people there. what we see happening as we go
along there will be times of the year that their business may be down somewhat, particularly internationally. now we have got three global airlines who will slash prices and offer real deals across the world. this will be good for them. one of the biggest beneficiaries will be southwest airline. this airline will grow as fast as it wants to, as fast as it can get aircraft along with jetblue. i see this as a win-win for everyone. >> you've laid out a lot for us to think about and talk about, we'll talk about these testable propositions in a minute. we'll be back with our guests in
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on al jazeera america >> this is "inside story." i'm ray suarez. we have rick seany with fair compare compare, and douglas kidd, and terry trip letter, an aviation analyst who runs a consumer website called "the plane rules." you heard terry trip letter laying out the ways that this could be good for all the stake hold efforts involved, but we have lived through an era of mega mergers. have they done any of the things that terry suggests? >> i'm not sure that they have. the primary benefit that all these mergers have provided is that they've kept carriers in
business while they have consolidated. while the carriers are in business, we want them to make money and provide good service there has been to my mind especially among the u.s. carriers a focus more on making money rather than pleasing the passenger . in this with regard we know going to the airport is like going to a carnival where you pay your fees, and then you're hit by fee after fee after fee, airport security, which is a whole other story, then you get to your gate, you're going to be shoehorned into a space that is really too small for the average individual. that's not much fun for passengers. >> rick seany help us under what is going on here with the economics of running an airline. if you fly a lot you may have noticed that there is rarely an empty flight that you get on to. airports seem crowded.
the fees have gone up, and right now jet fuel price versus moderated quite a bit, why is it so tough for them to make money on a ticket? >> well, a couple of things. first of all, if you were to ask an airline ceo in 2006-2007 could you survive for any length of time at $100 a barrel oil? they probably would have laughed you off the face of the planet. that's two years before the bag fee which happened in spring o of 2008, which was this fee generation is the savior for the airlines, to be hospital. and airlines in many cases were their worst enemies. they wanted to grow than they could grow to do things. they wanted to have a business model where only two-thirds of the plane was full. by the way, that's a good business model if you have a lot of loyalty points and you want to fly for free. now all these loyalty point systems are being watered down dramatically because there are
no seats to give away to award passengers. i would say that in general airlines now are definitely on a road for financial stability. the question is will we be sitting here in 2020 saying i wish i had eight mega airlines instead of four. >> one of the commonplaces that people who live in big markets and fly out of major hubs probably are going to be all right, and we'll hear the loudest squawk from people who live in small regional cities or places well away from the big markets. is that going to be the case with this merger? >> well, i think like all mergessers it will be the case, but it's not just the merger that has caused that. i was born and raised in south dakota where at one time there were nine airports served by airlines in south dakota. now there are three or four, and what it is is to be totally
hospital, i grew up where we had to drive 60 miles to go to a movie. we chose to live there. we chose to live 60 miles away from a movie. some people in washington or oregon or indiana should not be subsidizing me because i had to drive so far to get to a movie. i feel the same way about the airline industry and transportation. if we had to drive to sioux falls to get on an airplane, so be it. that's the way it is. mitchell, south dakota, was much closer, but they had to subsidize north central to fly there, and then the subsidies wore out. we cannot be subsidies ing every small city. in air tran was dryin flying to mobile, alabama. when they don't make money on an
airplane, they pull it. well, air tran decided to stop serving mobile, alabama. mobile, alabama, promised they will they would support the airline, gave them concrete promises of the amount of money they would spend. air tran backed off, continued to serve mobile. a year later, air tran had to withdraw from mobile because they did not the business that they needed to have. it's just the way it is. so it's the way we live today. the airline industry isn't like rea where every farm was giving electricity, and that was abandon subsidized to the country. what used to be a luxurious way to travel is now mass transit.
>> but, doug, the days before deregulation, those bad 'ol days before deregulation one of the trade-offs was that carriers would service these smaller markets because they were guaranteed certain access to the larger markets and the economic model worked out. now some of the place that terry names as an example. snead of being served by three carriers is served by one and you're basically at the mercy of what that airline wants to charge. >> that's true, and it's something that is most troublesome because you can take a look and say, i can fly from coast to coast for less money than going from one smallcy to a major hub. that is a matter of concern. i should say this that all the airlines in this country serve the public. yes, they are in private business, we want them to make money, but there is a public trust that they're regulated by
>> this isn't a new channel, this is a watershed moment in media for america. >> this entire region is utterly devastated. >> people our here are struggling. >> the fire jumped the highway we took earlier. >> your average viewer want's to actually understand how the health care law is going to help them or hurt them. >> they know they can get extremist bickering somewhere else. >> people say that we're revolutionary. our revolution is just going back to doing the best in journalism. >> this is the place to go watch high quality journalism, period. >> welcome back. we're talking about air travel and the u.s. airways-american airlines merger. rick seaney can the united states government ever say no to a merger now that they've said yes to this one after they were so opposed to it in the beginning? does this clear the way for even more consolidation? >> i think you hit it on the head. i don't think there are many
players, many dance partners to consolidate at the moment. but if you look at the case they brought, the crux of their case was these small cities of which there are 120 to 150 of them that are between two and four hours away from major hub cities, they're only going to end up with one carrier when this is all said and done after this is the fourth mega merge center five years, and those folks are going to take it on the chin. not the family of four that has to drive four hours like terry likes to do up in south dakota, but businesses up in those areas that they would like to support. there is nothing in this particular settlement that helps these folks at all. which is really the crux why they decided to do it. we already knew they were going to take slots out of reagan and laguardia. low cost airlines, by the way, u.s. aways is america west. it is a low-cost airline. removing it from some of these
locations and replacing with jetblue and southwest airlines is not going to drop prices. it's going to be a tradeoff between those two. and those airlines certainly aren't going to fly to regional cities. that's not part of their business models. >> what does this mean for carriers that are serving regions, the front tears, the alaska air, the sun countries, how do they fit in this new in competitive environment? >> well, i would say-- >> rick, first you and then to terry. >> well, yes, i would say what they do is they end up being merged in or in the case of frontier they're spun out of republic. they're going to pick certain days. they're not going to have the frequency of schedule that you would see normally. you can build a business out of these fringe markets. but you will never grow to the size of what was before a mega
airline. it's really down to four mega airlines that have three-quarters of the entire lift, and then niche airlines where they have regions to make money. >> i have to disagree with rick on this. i feel that if you have got a city, and this city warrants 10,000 passenger as year, someone will be there to fly them. if you want to get from point a to point b in the united states, you're going to be able to get there. this is a way that its a hauls worked. the free enterprise system does take over. what people fail to release the government regulations is what caused the operation. they protected the airlines from competition. they wouldn't let an airline fly where it wanted to fly or charge what it wanted to charge.
the c.a.b. said no, you can't go there. you cannot charge this. there were no sales, no frequent flyer programs, no advance purchase, no refundable tickets. it wasn't until jimmy carter said let's deregulate this industry then the industry broke loose. america west is the only airline of the first wave of new airlines that cropped up right after deregulation. there has been two waves of america west is the only one that survived. the one area i look at is management. i know the management of u.s. airways. i know what they have accomplished since they merged with america west and u.s. airways. a good example is delta. he was the ceo of delta, was the ceo of northwest. i know how they operate. i don't think there is anyone that they can deny that they have seen an airline grow better and better by the day than we
have seen with delta airlines. you know the management. you know what they can do. i know the management, and i know what they can and will do, and know what southwest can and do with remaining slots. i think a year from now we can sit here and say wow, this was a good merger, and it will just get started. >> well, you just heard terry tri tripl trippler 's statement. but i fly and i don't see people very happy. >> you're not talking about routes, planes and people how airlines are run by their top management, middle management, line workers, all that effects
the passengers. it can have a real affect on an airline, and poor management can have an devastating effect on an airline as well. this is what makes the difference between taking a trip and enjoying your flight or taking a trip and having a perfectly awful time and saying i will never fly those people again. >> rick, before we go, one question a lot of people who fly both airlines, american or u.s. air, are probably asking is what happens to my miles that i earned on one or the other? where are they going to go, and where is this new merged airlines airline is going to go. >> so basically it's the new american. they're going to be staying with the one rule alliance. they'll move from the star alliance to the one world program. their elite programs are different. they'll have to merge them together. but what airlines have done
they'they've erred on the side f upgrade ing loyalty programs. the last thing they want to do is alienate their highest paying customers. i expect that to be more painful to folks who are loyal to u.s. airways. >> that's it for now. from the team in washington, d.c. and from me, ray suarez, but you can keep the debate going on logging on to our facebook page or send us your thoughts on twitter. or you can reach me directly @ray suarez news. thanks for joining us. thanks to my guests. good night.
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