## The Impact of Airline Mergers and 

# Consolidation on Air Travel Consumers and the Aviation Industry

Sixth Meeting of the U.S. Department of Transportation’s Advisory Committee for Aviation Consumer Protection

October 29, 2014 Rich Golaszewski GRA , Incorporated

115 West Avenue • Suite 201 • Jenkintown PA 19046 • USA  2 15

- 884

- 7500 • 7 215

- 884

- 1385

* richg@gra

- inc.com

### How Did We Get Here?

 Industry structure has evolved since airline deregulation in 1978.  New entry, bankruptcies, mergers, acquisitions, liquidations, etc.  Events of September 11 had profound effect on industry.  Formation of multinational alliance groups.  Evolution of low fare carriers.  Emergence of ultra low cost carriers.  Financial crisis.  Fuel price volatility (now falling?).

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## Implications

 Airlines still affected by global economy and input prices.

 U.S. carriers need to modernize backbone of domestic fleet, 737’s and A320’s

— requires capital.

 Airlines eliminating smaller hubs and strengthening remainder.

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## Implications

- Continued

 Costs driving shift to larger regional jets and turbo props.

 Fuel, crew and other costs.

 Lack of highly efficient 50 seat aircraft (advanced turboprop?).

 Fares rising

- more unbundling via ancillary fees.

 Legacy airline focus on premium traffic (affects award program credits, among other factors).

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### What Has Happened to Service at Airports?

 Since 2006, success is measured in who has lost the least amount of service (some individual airports have had increases).

 Financial crisis, airline consolidation, fuel costs and reduction in small RJ flying.  Medium hubs appear to have largest losses (airlines closing or scaling back service at secondary hubs).

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## What Has Happened to Service at Airports

- Continued?

 Smaller communities also hit hard.

 Have exclusively regional jet service, except for LCC’s and ULCC’s

.

 Less network connectivity.

 ULCC’s providing point

- to

- point service to large leisure markets.
 But U.S. has continued to increase safety via data sharing, technology and regulation.

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## Change in Available Seats, 2001

– 2013

Large Hub

- 9%

Small Hub

- 11%

Non

- Hub

- 17%

Medium Hub

- 25% DOT hub classes based on share of U.S. enplanements: Large : >1% Med .: >.25% <1% Small : > .05% < 25 %

Source: OAG, October of each year 7 GRA, Incorporated

10/29/2014GRA Economic Connectivity by Hub Group: 2006

– 2014 ( Labels indicate change from previous value)

Change f rom 2006

- 5.1%

- 18.3%

- 18.8%

- 10.2%

Source: Based on non

- stop, one stop and two stop flights from GRA GRACE Model to top 50 U.S. and 17 major foreign airports. 8 GRA, Incorporated

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### What Can Improve Service to Consumers?

 Entry to discipline fares

— which new services are feasible

 New start

- up carriers

— most ULCC’s focus on leisure markets

 Evolution of business models (e.g., Frontier) to provide network service at lower fares (have traditional LCC’s matured?)
 Address barriers to entry: access to key airports

— airport competition plans

 Many airport have excess gates

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### What Can Improve Service to Consumers? Continued

 How to provide equitable access to most constrained airports

 Should lack of access trigger slot rules?

 Use new technology to increase capacity and reduce costs of service

 While we do not want to sacrifice efficiency, can we increase equity in system? (If a community is only served by RJ’s and it is relatively close to hub, almost always has its flights cancelled when TFM

- CDM in use)

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# Questions?

Contact Information: RICHG@GRA

- INC.COM 215

- 884

- 7500

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