Losing one of the good ones – The Economist (blog)

7 months ago Comments Off on Losing one of the good ones – The Economist (blog)

AS APRIL Fool’s Day jokes go, it wasn’t bad. Virgin America released its “new” logo (pictured below),which bore a passing resemblance to a pair of breasts, to the bemusement of some. Such fun and games are all very well, but the firm’s management has more serious business to attend to. The carrier, America’s ninth largest, has reportedly received takeover bids from both JetBlue and Alaska Air. It is said to be mulling the merits of the two offers, with an announcement possible next week.

Analysts suggest that JetBlue would offer the better fit. It would improve that carrier’s access to the West Coast and remove competition on some transcontinental business routes. The pair also fly similar types of Airbus planes, saving on maintenance. But a deal will have its knockers.

It is open to debate whether flyers would benefit in the long term from a tie-up. Currently, the pair are the only two American carriers that are awarded four out of five stars by Skytrax, an airline ratings website (no carrier from the United States gets full marks). Halving the number of well-thought-of carriers in America does not feel like progress at a time when all around them seem to be engaged in a race to the bottom, squeezing in more seats, asking passengers to pay ever more for ancillary services and rolling out “last class” cabins below even standard economy.

The deal might prove to be the beginning of a trend. Following a wave of consolidation between 2008 and 2013, the number of big carriers in America has fallen from eight to four. These remaining airlines—American, United, Delta and Southwest—now account for 80% of the domestic market. In order to return to profitability, they have cut back on capacity, ditching many loss-making routes. That, in turn, has given an opportunity for small- and medium-sized niche players, which differentiate themselves either on price or service, to grow in the gaps. But as the oil price has fallen, many of these discarded routes are once again viable for the big carriers, says Jonathan Kletzel of PwC, a consultancy. As they return and compete with smaller players, consumers should feel a short-term benefit, he reckons, particularly through lower prices. But, if they use their deep pockets to quash competitors completely, the outlook for flyers will not be so rosy.

The best way for smaller airlines to protect themselves might be to merge with one another. Virgin America has already complained that it can’t secure enough take-off slots at big airports to grow. A tie-up should help. But whether a JetBlue or Alaska with added Virgin would continue to differentiate itself through better service, or would merely begin to act like the big boys, remains to be seen.

Virgin America has long felt like a case study for the state of the country’s airline industry. Flyers laud it for its reasonable legroom, modern and clean planes, and friendly staff. But they haven’t loved it quite enough to patronise it in large numbers. Instead America’s consumers have tended to choose the cheapest flights, and then to whinge about the service they receive. They may soon have more opportunity to do so.

Losing one of the good ones – The Economist (blog)

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