Michael B. Baker, Transportation Editor, BTN
If the domino theory applies to airlines, 2016 could be a year of great tumbling. Merger activity has been the dominant topic on the U.S. domestic airline front since Delta Air Lines and Northwest Airlines first announced their merger agreement in 2008. With that, the United/Continental merger and, as of last year, the American Airlines/US
Airways merger all done, at least from the customer-facing perspective, the three remaining legacy carriers now have the resources to ratchet up their fierce competition among one another. Where one airline has made competitive gains in recent years, look for others to follow this year.
One of these dominoes already has fallen. When both Delta and United shifted to revenue-based frequent-flyer programs rather than mileage-based programs, American was too deep in merger activity to follow suit. About a month after it completed its reservations system merger
last year, however, American announced it would begin that transition this year.
Other Outliers Merit Watching
Delta last summer announced a contractual guarantee that it would remain above at least one of its competitors on the operations side. United came out with a similar agreement near the end of the year, so it wouldn’t be surprising if American came up with a similar
operational guarantee sometime this year.
While it seems like a bet someone is sure to lose if everyone plays, Delta and United wordsmithed to the nth-degree. In both guarantees, the carrier must fall behind competitors in both on-time and completion records. Should a hypothetical American agreement be similar, it’s
plausible that one carrier could trail in completions and another in on-time performance and no one be liable for payment.
Delta also led the pack with its Basic Economy product, a highly restrictive fare that precludes both seat selection and changes at a price competitive with Spirit Airlines and other low-cost carriers. Both United and American executives already have indicated they plan
to announce a similar fare this year, unsurprising considering Frontier, for one, already has announced it will significantly grow its network this year.
American, meanwhile, became the first of the legacy carriers to announce a premium economy cabin on international routes as opposed to extra-legroom seats located in the standard economy section. Considering premium economy is of growing interest to travel buyers who want to
ease traveler friction without paying business class prices, Delta and United likely are considering similar offerings.
The “me too” that could cause the biggest stir would be if any carrier were to follow Lufthansa’s fee for global distribution systems introduced last year. While U.S. carriers so far have not indicated much interest in doing so, Lufthansa already has reported strong revenue and load factor for 2015, indicating the
bottom did not fall out due to that fee. That could prompt carriers around the world to take a second look at the option.
One domino unlikely to fall, however, sits with Southwest Airlines. JetBlue last year introduced a tiered fare structure that includes a lowest level without free checked bags, leaving Southwest as the only major U.S. carrier without a baggage fee. While its
ongoing move to a new reservations system has raised eyebrows, in that it would give the carrier the ability to add a bag fee should it choose to do so, CEO Gary Kelly as recently as last year remained adamant that would not be the case.