Fares up, flights down as AirTran prepares to depart


What do you get when you merge one low-cost airline with another?

In Atlanta, the math says you get higher fares.

As AirTran Airways’ final days draw near and it is fully absorbed by Southwest Airlines, the assumption that creating a larger, low-cost carrier would bring consumer benefits to Atlanta has been overshadowed by fare hikes and route cuts.

It was that idea — or at least the idea an AirTran-Southwest union wouldn’t hurt competition — that led antitrust regulators to approve the $1 billion deal in 2011.

But Southwest has slashed flights in Atlanta as its dismantles AirTran’s hub, reducing competition with dominant Delta Air Lines. While fares are up in many markets, Atlanta has been hit with some of the highest increases in the nation for four straight quarters, according to federal figures.

And that’s before AirTran’s frequent flier program ends Nov. 1 and its last flight takes off from Atlanta to Tampa on Dec. 28.

To Diana Moss, vice president of the American Antitrust Institute, the disappearance of AirTran eliminates “a maverick, a low-cost disruptive firm that kept everybody else on their toes.” AirTran, founded in 1993 as ValuJet, was a more aggressive discounter than Southwest, Moss said, and the merger took that competition out of the mix.

Antitrust attorney Joe Alioto said a wave of airline mergers in the last six years including Southwest-AirTran, American-US Airways, United-Continental and Delta-Northwest has enabled carriers to raise fares and charge travelers more fees — although Southwest has maintained a free checked baggage policy.

Carriers that charge such fees “made over $6 billion just on their so-called baggage fees and extra charges. They would never get away with that stuff if there were competition,” Alioto said.

Positive force

The expansion of Dallas-based discount king Southwest through a major merger was seen by some to be a positive force for consumers. Some industry watchers predicted a Southwest-AirTran deal would create more competition against the old established guard of legacy carriers like Delta, American and United.

The U.S. Justice Department cited the benefits of low-cost carriers when it gave its antitrust approval.

The merger “is not likely to substantially lessen competition,” according to the Justice Department’s antitrust division in 2011 when it cleared the Southwest-AirTran deal.

“The merged firm will be able to offer new service on routes that neither serves today,” the Justice Department’s statement said. It added that “the presence of low cost carriers like Southwest and AirTran has been shown to lower fares on routes previously served only by incumbent legacy carriers.”

But that analysis may have not included some factors — notably Southwest’s eventual decision to dismantle AirTran’s Atlanta hub and cut operations at Hartsfield-Jackson. That move reduced competition on more than a dozen routes.

Southwest-AirTran’s market share at Hartsfield-Jackson has shrunk from 16 percent to 11 percent, while Delta’s has increased from nearly 78 percent to nearly 83 percent over the last four years. Total passenger counts were down 1.1 percent in 2013, and are up 0.75 percent for the first half of this year.

While Southwest has added several routes from Atlanta and operates larger planes than some of AirTran’s aircraft, it has cut more. Before the merger AirTran operated about 220 daily flights from Atlanta, while Southwest now operates about 142. That will drop to about 125 in January, a slower time of year, after all AirTran flights have disappeared. Total reduction: more than 35 percent.

And while AirTran operated flights from Hartsfield-Jackson to six Caribbean destinations, Southwest as of January 2015 will operate only two: Cancun and Punta Cana.

Since Southwest acquired AirTran, Atlanta fares adjusted for inflation have increased 6.2 percent over the past three years, from an average domestic fare of $380.95 to $404.58, according to the U.S. Bureau of Transportation Statistics. Nationally, the average air fare was $381 in the first quarter, up 1.2 percent over the past three years.

Southwest spokeswoman Thais Conway said Southwest is still “delivering on the low-fare promise we made … We were able to continue the good work and the low prices that AirTran had begun.”

She said higher fuel prices have driven up fares, adding that Southwest’s policies for free checked bags and no change fees “provides a great advantage for current and potential customers.”

‘An apocryphal story’

That’s in line with Southwest’s image as the best-known discount airline in the country. But Alioto, the antitrust attorney, said AirTran was playing a key role in keeping prices low, and that was lost in the merger.

“There was an apocryphal story that Southwest was keeping the major airlines in line on prices. However, they were being kept in line by AirTran,” he said. “AirTran was eliminated, Southwest was no longer in line and neither were the majors, because Southwest joined them…. Southwest began to increase its prices everywhere.”

Alioto filed a lawsuit challenging the Southwest-AirTran deal, claiming travelers have suffered from reduced competition. The Ninth Circuit Court of Appeals threw out the lawsuit,and Alioto has asked the Supreme Court to take up the case.

Yet the Southwest-AirTran merger is hardly an outlier. It is one of four major mergers in recent years that also saw Delta absorb Northwest, United swallow Continental and American subsume US Airways. Now, American, United, Delta and Southwest handle about 85 percent of U.S. passenger traffic, based on 2013 figures.

The leading airline industry group, Airlines for America, says mergers have helped airlines become more financially stable.

“Consumers win when airlines are strong, able to compete and reinvest in their business with new planes, products and destinations,” said Airlines for America Jean Medina in a written statement.

The remaining airlines may be stronger, reporting billions in profits. But with fewer significant competitors it’s easier to raise fares and cut unprofitable routes.

Reduced growth?

Southwest’s reductions could reduce the Atlanta airport’s growth plans for years to come.

Earlier this year, a master plan update was delayed as planners scaled back traffic forecasts because of Southwest’s dismantling of AirTran’s hub. That is likely to contribute to reduced demand for more gates and concourses and delay the need for a sixth runway.

It’s a turnabout for Hartsfield-Jackson, where AirTran rapidly grew through the mid-2000s.

AirTran sought to gain a critical mass with its Atlanta hub by offering low fares and more flights. That sometimes led to it lose millions of dollars.

But Southwest, which boasts a 41-year profit streak, does not operate a traditional “hub-and-spoke” network. Southwest focuses on point-to-point service, instead of connecting passengers through a hub.

Southwest executives did not say they planned to pull down AirTran’s hub operation when the merger was announced, waiting until a year later to disclose the strategy.

Without the millions of AirTran connecting passengers to fill up flights, many routes no longer made economic sense to Southwest, leading to flight cuts. In addition, employment in Atlanta has fallen from 5,300 pre-merger to 3,500 now.

Moss said there is little accountability when merger results turn out different from Justice Department expectations. “Once the merger has gone through, there’s no DOJ going back to the airlines saying, ‘Okay you guys, let’s see what you promised us.’ ”



Reader Comments ...


Next Up in Business

The Justice Department is suing AT&T to block its $85 billion bid for Time Warner
The Justice Department is suing AT&T to block its $85 billion bid for Time Warner

The Department of Justice is suing to block AT&T's $85 billion bid for entertainment conglomerate Time Warner, setting the stage for one of the biggest antitrust cases to hit Washington in decades. The suit is fraught with legal and political risks for both sides. Several Democrats have expressed concern that antitrust officials could be seeking to...
Business stories of the week: Amazon, 2018 priorities, Phipps Plaza
Business stories of the week: Amazon, 2018 priorities, Phipps Plaza

The week had no shortage of business headlines among Atlanta area companies – or perhaps companies that want to become Atlanta area companies. From the Amazon second headquarters search to major development projects, here are some of the big business headlines you might have missed from the past week. Georgia and Atlanta area economic development...
More job cuts coming to Atlanta as part of Coca-Cola restructuring
More job cuts coming to Atlanta as part of Coca-Cola restructuring

Atlanta-based Coca-Cola plans to cut an additional 179 jobs in its hometown as part of a broader restructuring the beverage giant announced earlier this year. In filings with the Georgia Department of Economic Development’s Workforce Division, Coke identified layoffs at three corporate offices in the city effective by the end of December...
Atlanta’s Phipps Plaza makeover plan shifts into overdrive
Atlanta’s Phipps Plaza makeover plan shifts into overdrive

The reinvention of Phipps Plaza into a mixed-use entertainment and shopping complex has been in the works for more than a decade. But the announcement Tuesday of a $200 million-plus expansion, including a flagship Nobu hotel and restaurant, will take that the makeover to a new level, officials with mall owner Simon hope. In Nobu, Phipps will add...
4 of the best ways to turn your home into a cash cow
4 of the best ways to turn your home into a cash cow

Your house is a large expense with many associated costs like a mortgage payment, insurance, maintenance and more. It provides a roof over your head, of course, but since it usually costs you money each month, why not put it to work for you and earn some cash in the process? The following are four ways your house can make you money: If you're planning...
More Stories