Money Talks: United/Continental Merger Bad For Consumers?
Wed, 05 May 2010 12:50:35 GMT —
Continental and United the latest major airlines to announce a merger.
If they get permission from regulators and their shareholders, they'll edge out Delta as the largest US Airline, with about 21% of passenger traffic.
This merger, if approved, would happen toward the end of the year. Is it good news? Yes and no.
Yes if you're the airlines involved. No if you're a consumer.
For the airlines, combining back offices means saving money: in the case of United/Continental, for example, they're estimating savings of 2 and 300 million dollars a year.
But another way mergers help companies is that they reduce competition.
And you remember econ 101: reduce the supply of something while keeping demand the same, and prices go up.
As of today, there are six major carriers in the United States: American, United, Continental, Delta, US Airways and Southwest. Eliminating Continental leaves 5.
And some experts say US Airways won't be far behind ...that will leave 4.
Of course, the Continental/United deal hasn't happened yet, and even if it does, prices won't go up overnight.
But merger mania in any consumer business is something to keep on your radar.