A lawsuit that the U.S. Department of Justice has filed against American Airlines contains allegations that indicate what can happen when one airline dominates an airport. Assistant U.S. Attorney Joel Klein contends that American operated at a loss on flights against three small carriers, then, after the competitors gave up certain flights, recouped its short-term losses through higher fares. There is an exception to dominance and high fares. That's Southwest Airlines. It dominates traffic at every airport from which it flies, but still keeps prices lower than competitors.
Cities compete fiercely to attract Southwest.
One thing to remember when talking about airline mergers is that, based on history, they tend to be hard on passengers. Airlines are highly unionized, with strict seniority provisions. Trying to merge two major carriers usually results in big disputes, disgruntled employees and poor service. Indeed, there is some evidence that all the purchase and merger talks among other airlines are designed mostly to put pressure on regulators to oppose the United-US Airways deal. Regulators already have sued Northwest, demanding that it get rid of its stake in Continental, which ultimately could give it control of the Houston carrier.