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On competition and airline prices

I come across news stories of blog interest from a variety of sources. Here’s one that I got from my alumni association email list that has to do with airline pricing; it was of interest to Trinity University alums because it quoted one of my former economics professors.

United Airlines gained a new hold over Newark Liberty after it merged with Continental Airlines, which had controlled nearly 70 percent of the flying business at Newark. United’s dominance is even stronger, providing consumers with a variety of travel conveniences, but also wielding a unique power that travelers and experts say makes flying from Newark more pricey.

To get a sense of the marketshare United commands, consider the snapshot provided by the Port Authority of New York and New Jersey: For all of 2011, Continental and United, which were still operating as separate airlines last year, handled 71 percent of the flying business at Newark Liberty — or nearly 23 million passengers traveling through the airport, according to the Port Authority’s data.

Delta and JetBlue Airways, which were among Newark’s four busiest airlines, each commanded less than 5 percent of the flights at the airport. US Airways is ranked fifth with 3.5 percent of the business.

The dominance of a single airline — Continental was the busiest carrier at Newark for more than a decade — brings some benefits, including the convenience of frequent service and lots of destinations, but price-conscious travelers like Levy grumble that the lack of competition also gives United the ability to set higher fares.

“There’s more frequent service. There are more places where you can fly,” said Richard Butler, an economics professor at Trinity University in San Antonio who is considered an expert on airline hubs. “The less wonderful thing is that the hub carrier has increased pricing power.”

That was evident in 2009, when Continental dominated Newark Liberty. The airline’s average round-trip fare to Houston was $336 compared with United’s average fare of $315, according to data collected by the Department of Transportation’s Bureau of Transportation Statistics. In comparison, American’s average fare to the Texas city was $209, according to the DOT’s data.

George Hobica, who runs airfarewatchdog.com, a fare-finding website, said Continental’s (previous) dominance always made flying out of Newark more expensive than other airports, including others in the region like JFK, LaGuardia and Philadelphia. “Now it’s United dominating,” Hobica said, “and some of the effects of the dominance have shifted somewhat.”

The most dramatic effect of United’s stronghold may be on flights to the Western part of the country — California, Nevada and Denver — where Continental no longer exists as a competitive force.

I don’t know how much there is to learn about the situation we have here with Southwest and the Hobby expansion from this, but one thing is clear: Less competition is generally not good for the consumer. Maybe the Southwest deal will be a boon for the city and maybe it won’t, but it at least makes sense to me as a matter of basic principle.

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One Comment

  1. Jj says:

    So, this article says that Newark does not compete with JFK/LaGuardia. At least that is implied because the article says that Newark prices are higher compared to those two, implying no competition. But the Houston study said specifically that we needed to add international flights at Hobby in order to copy the Newark-JFK competition that exists in the New York area, thus reaping both lower prices and more flights. So, which is it?

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