A

I'm Brett Snyder, author of Cranky Flyer. You're listening to the Air show, the podcast where we talk about what happens in the business of the sky. Now, John is getting ready to head off to Farnborough for the Air show this week, and Brian is on vacation with family, so that leaves me. I know you don't want to just listen to me, so I brought in a ringer this week. Ladies and gentlemen, please welcome the founder of Visual Approach and my Cranky Network Weekly and Cranky Network awards partner, Courtney Miller.

B

Uh, wait a minute. You're not Joe Rogan. Did I show up for the wrong podcast again?

A

Listen, this is bigger than Joe Rogan, but this is still pretty weird for me because usually we just sit around on a call every Friday night, pouring over the weekly Cirium schedule data, talking about whatever we feel like. So, listen, we're gonna have to tighten it up this week, all right?

B

Man, I was not given that information in advance. I am out.

A

I know. You can't quit me. You aren't going anywhere. Besides, I need help digging into this week's topic.

B

Yes, you do. Let's tell the people what we're talking about.

A

Well, the U.S. government Accountability Office, better known and loved by its rabid fans as the gao, came out with a new report on airline competition that was mandated in the FAA reauthorization bill from 2024.

B

You know, I kind of assumed this was going to be bashing the rest of the government for allowing so much consolidation, but. Well, it did not do that.

A

No, it didn't. In fact, the title is quote, try not to fall asleep Court. Okay. Indicators suggest increased competition in the past two decades, but lower cost airlines face challenges, end quote.

B

Listen, this is an act of pure genius to conclude that lower cost airlines face challenges right after watching Spirit go out of business. But it's an appropriate conclusion nonetheless.

A

Yeah, not a real leap there, but there is data behind the work they did, and we Both read all 97 pages, right? So let's talk about it. Or really, let's poke holes in why this report isn't all that useful, even if it's not actually a bad report itself. Also, for those of you who want to do the same, we will put a link in the show notes. All right, Court, you want to give us the top line here?

B

The study was commissioned to look at the impacts of mergers on fares and competition. This going all the way back to 2007, a full two crises ago. A few quotes set the stage. First, they say that, quote, in the short run, Consumers face higher fares and lower service quality on routes where the merger resulted in fewer competitors, end quote. But then it shifts to say that in the long run, quote, there's been increased competition in the past two decades.

A

Yes, and really the big lift here is being done by the fair data is at least how I looked at this. Fares went up in inflation adjusted terms from 2007 to 2012, but then they dropped below 2007 levels by 2022, kept going lower through 2024, just downhill.

B

Right. So that's a big part of it. But I think there's a pretty important caveat here, and that's that the data used in the study ends in 2024. You know, thinking about it, I wonder if there's anything has happened since then that may change things. Things

A

I don't know. Yeah, well, I looked in serum, in case it wasn't obvious here. So we, we only have OND fare data through Q1 2026, but for travel within the continental US only, which is what they used in the study, the Q1 2024 average fare was $183. In Q1 2025, it crawled higher to $186, which is actually a slight decline using inflation adjustments. But then in Q1 of this, it was $199, which in March, $2024 is just over $188. So it's up. And by the way, March was $23 higher than January this year. So this is just the beginning of the big increase in fares we've all seen. And it's barely even hit yet.

B

Yeah, and those fares haven't budged even as oil has fallen since. Airlines are finally seeing pricing power with fares rising sharply in the past three months. Oil an almost overnight shift to the two decades long trend highlighted in the study.

A

Right, so everybody just keep that in mind. Who's listening? But there does have to be more to this than the GAO just saying fares fell, so competition is up. Hooray.

B

No, no, no, no. That was it.

A

Liar. Good thing I read this or this would be a very short episode.

B

Damn it. I was told this wouldn't require me doing any actual work. All right, fine. So, yes, what they did here was look at a bunch of studies that had been done on the effects of mergers. Starting then, they also did their own work, which focused on 2022 and 2024, and they also talked to stakeholders. So a lot more than just fares. But that's where they started, looking at 12 different studies.

A

Oh, and I love this they note that they looked at 12, but then they say that three of those were, quote, particularly strong. So I guess the rest were particularly not strong. Either way, eight of those studies found that fares increased when a direct competitor was eliminated in a merger from 1 to 8%.

B

Look, when it comes to obvious conclusions, that one was, quote, particularly strong. Look, viewer, competitors generally lead to higher fares. Tell us something we don't know.

A

I know. One thing I did note here though is that 1 to 8% is a very broad range. And I think the reason is because there's a lot of noise in here thanks to timing issues of the different analyses. Like one of these looked at Delta Northwest merger where the before times were 2006 to early 2008 and then the after was 2009 to 2011. So pop quiz. What happened in between?

B

Ooh, ooh, ooh. I know.

A

Okay, you. Yes, you, sir.

B

The obvious answer is that I hung up my wings and stopped being a commercial pilot in 2007.

A

That is an answer. But I'm pretty sure that did not impact fares.

B

Listen, you don't know just how bad of a pilot I was. We used to have to pay people to fly on flights that pulled down the average fare.

A

It's a great point. They really should have interviewed you as a stakeholder for this, I think. But no, what I am talking about is the Great Recession. So when they say that fares in the merger only increased 0.2 to 1.8% in this one, I'm going to say that has a very negative built in impact from that time period because of the Great Recession. Probably should have been higher with all else being equal. So the impact's probably actually at the high end of the range in general, that 8% ish range.

B

Yeah. And remember, the US dollar actually saw deflation. That's a thing. It saw that a bit during the financial crisis. So to be up 0.2 to 1.8% in fares May sound low, but compared to what was happening in the economy, it was still outpacing other prices.

A

Yeah. So long story short, competitors down, fares up. Are we done now? No. All right, we'll keep going. There is more than that. For example, there was one study that looked at markets Southwest actually entered after the AirTran merger, and it shows fares in those markets dropped 3 to 9%. Another shocker of a conclusion. I know.

B

Then beyond fares, there were another seven studies that looked at service quality, which is kind of this hybrid metric of schedule frequency and operational performance.

A

Yeah, there were some odd takeaways in Here, there was one study that used the Herfindahl Hirschman Index, or hhi, which I assume is how you pronounce those.

B

Yeah, it's pronounced hh I. You did a nice job.

A

Oh, thank you. Thank you. Yeah, that. So that is a measure of market concentration. You see it a lot in the government doing merger analyses on deciding whether to challenge or not. So what they did is look for ones that saw a big in concentration. And what happened in those markets is that arrival delays increased by two to five minutes and then quote, the probability of airline caused flight delays of at least 15 minutes grew 1.3 to 4.9 percentage points. So you have less competition and presumably fewer flights, but you're delayed more. Yet on the flip side, when a merged airline entered a new market post merger, a operational performance on that route got better. So how does that work? This makes no sense to me.

B

Yeah, on time performance is kind of funny in this context. Even though the percentage of delayed flights ended up decreasing over time after the initial bump, load factor and aircraft size went up. So the chance of a delay may have dropped subtly. But more people are disrupted when there is a delay and fewer yet fuller flights likely make recovery even more difficult. From an operational performance perspective, which is what this study measures, the numbers are better, but whether it's better for passengers probably requires a separate study.

A

You don't offer to do that study?

B

No.

A

All right, fine. Like if I'm looking at these numbers though, that they're claiming, my best guess on the performance decline is that because mergers are hard and denigration is tough. And they did say later that one of the particularly strong studies said there was a penalty in performance during a merger, but it was gone within two years. So if these are looked at in the short to medium term, probably wasn't great. But in the long term it should have improved and be a non issue now. But the thing that I don't understand is why it improved when a merged airline entered a market. That is a mystery to me. Maybe a listener knows and and can tell us about that.

B

Well, all in all, improvements are good news, even if they don't necessarily know why. Got any more of that good news?

A

Oh yes. Let's talk about multi market contact.

B

That sir, is a stupid name.

A

So is Courtney, if you're a dude. But I digress. The idea is that there's this network effect of competition. So let's say before American and US Airways merged, Delta had overlap with American on 100 routes and with US Airways on 50 routes, not also Flown by American. So after American and US Airways merge, now Delta overlaps on 150 routes with the new airline. So there's greater overlap between the two entities or multi market contact and this creates more competition.

B

No, it doesn't.

A

No, it doesn't. I just wanted to make sure you were still paying attention. There were seven studies that looked at this and all of them found higher airfares or lower service quality. The example they gave showed a 30 percentage point increase in multi market contact led to a 6.5 to 14.5% increase in the lowest fare with highest fares going up 3 to 9.7%. And then another study found that a 29% increase in multi market contact led to a reduction of 2 to 2.5 round trips per week.

B

Okay, but it feels like this is missing something important. There may have been frequency reduction, but as we've already mentioned, the industry has been hugely focused on increasing gauge. I would think that number of seats would be a far more important metric.

A

I agree, especially since airlines have had no choice but to up gauge in the biggest markets. But apparently another study did say that seats also declined. The number wasn't given. So it sounds kind of, I don't know, not particularly strong to me, but. All right, I want to talk more about fares, but let's do that after the break. Flights are getting expensive.

C

Getting. I think we're already there. That's why people pay a lot more attention to their points when they're booking travel these days.

A

And there's nothing more frustrating than being so close to the mileage they need for that trip they're looking forward to. But also so far.

C

Yeah, building points can take a while. So people can feel defeated when that happens.

A

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C

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A

This is good for travelers, but it also makes a lot of sense for loyalty programs.

C

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A

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C

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A

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C

Brett I finally had a chance to spend some time with schedule data in the Sky Go app. And did you realize there are hundred thousand pre built aviation profiles?

A

Yeah, which, and I have double checked is a lot. Airlines, airports, aircraft routes, manufacturers, regions, pretty much every major aviation entity you can think of.

C

And each one already has the key information organized for you.

A

Yeah, but you know me, I never use things the way I'm told. So that's why I like that this is just a starting point that can be modified.

C

Wait, what? How?

A

Skygo lets you create what it calls flow profiles, where you build exactly what you want to look at.

C

English, please. Give me an example.

A

Maybe I want to see every route from LAX to New England. Or maybe I want to compare the whole LA basin to South Florida. Or perhaps I want to look at flights between the west coast and the east coast. All transcons. Whatever question I have, I can build that view instead of hoping someone else already did.

C

So the hundred thousand profiles are really just the starting point.

A

Exactly. They help you get oriented. But flow profiles lets you explain. Explore the information exactly the way you want it.

C

With Sky Go, you start with over 100,000 aviation profiles and then build your own with flow profiles. SkyGo is currently in beta. Learn more at theairshowpodcast.com SkyGo.

A

And we're back. So, Court, tell me how they analyzed fares in this study.

B

So what they did, they broke the domestic routes into five different quintiles based on traffic.

A

It's a fancy word for parts.

B

Well, they say it's a fancy word for segments, but you know, whatever point is, the most heavily trafficked routes were at the top, least at the bottom, and then the rest in between. There were only 55 markets in the top quintile, but 10,526 in the bottom because those markets had the same rough number of passengers, which is pretty wild when you think about it. Then they looked at the average fares in each of those segments.

A

Okay, and I, we have to talk about this because I take issue with how they looked at fares. So what they did, this includes the base fare, and then they took the aggregate ancillaries that get reported to the feds, which, that's change fees, reservation fees, bag fees, and then they just divided those up by flight for the airlines. So there are two very big problems with that. First, the ancillary revenue generated by Peoria to Chicago is going to vary dramatically compared to New York to la. You need to adjust, at the very least for stage Length, and I don't think they did that. So short hauls are likely getting too much ancillary while long hauls are getting too little. But even then, this isn't accurate. It's just guessing. And also, this doesn't include all the ancillaries. Like seat fees aren't included because they don't request that in the data. So if you look in 2024, it says Frontier had $38.98 in ancillaries per passenger, but Frontier itself said that it had $70.29. I'm guessing even this is an apples to apples between these two numbers, but you get the point. This is not right.

B

You're right. And this is some good background. It's something, I think this ancillary fares is something we'll talk a little about later. But we do work with what we have and what we have. Has shown the fares have plunged, at least from an inflation adjusted basis. In 2024, fares were down 15% on average versus 2007, again, adjusting for inflation. The busier routes were off 14% and small routes were off 18%.

A

Yeah, still just seems like such a tough comparison considering what's happened with ancillaries.

B

Yeah, look, it's even more pronounced than that because fares spiked between 2007 and 2012 and then they fell after. At that point, it really didn't have much to do with the mergers. The report shows that seats declined from 2007 to 2012, but then they came back up to 27 levels by 2017 and stayed flattish until about 2022, from which point seats then rose 14%. Fares did the opposite. Look, this is exactly what we would expect with rising capacity.

A

Yeah, but as you just said, a lot of this happened long after mergers. It seems odd to be connecting these two.

B

Yeah, there are a lot of reasons why we've seen these moves over the last two decades. But mergers fall pretty far down the list, quite frankly. The last big merger was at the end of 2013 when America West, I mean US Airways took over.

A

You can call it America West.

B

Okay, when America west took over America. Sure, Alaska bought Virgin America in 2016. 16. But it had a pretty narrow impact.

A

Yeah, and this, Even that was 10 years ago. But this is the ULCC discussion. Ultra low cost carriers. Right. Because by 2015 they were having a real impact on fares overall. So fares were coming down from then on, including a dip of 8% from 2022 to 2024 alone. And that really is because the ULCCs since 2007, they had grown 4.5 times their size. They do also say that from 2017 to 2024, fares fell 12% and fares fell in 88% of all markets. So that they're trying to do that to show this is during the time when you'll see these were already really important. But I'm just not sure how you get to the conclusion that mergers are good for competition. ULCCs are good for competition.

B

Yeah, look, I just think there's a lot of noise here. I mean as we discussed earlier with how fares are calculated alongside all the other external shocks.

A

Yeah, I know. The noise is a real problem. And beyond that you even have trade offs. Right. So if you want to see where mergers have the biggest impact on pushing fares down, look at those abandoned hubs in Cincinnati, Cleveland and Memphis. The hub carrier leaves with the merger. Then the high fares disappear as the low cost operators backfill. So fares plunge, but that comes with a massive loss of service in those cities. So is that a win? Maybe if you need to go to Florida, maybe not. If you are going to Sheboygan, I don't know.

B

Does anybody fly to Sheboygan on purpose? Not diversions, no.

A

Toledo, is that better?

B

Toledo is the example. Right. But look, as someone who flew for commer in Cincinnati, I can definitely confirm this with firsthand knowledge. But let's not forget that even in the smallest quintile, all 10,526 markets, well, those fares dropped. Is this just an allegiant thing?

A

Maybe. So they, they do say they consider total markets to be a route. So like allegiant flying St. Pete to wherever is considered part of Tampa, Sanford is Orlando, that kind of thing. So a lot of allegiance routes are actually going to fall into a bigger category because of that. But Bismarck to wherever, like those are definitely smaller markets. So they probably did keep fares low in that quintile with the growth of allegiant and some of those.

B

The greater Bismarck metropolitan area is what we call that, by the way.

A

Sorry, I was unaware. Okay, well we'll have to fix that episode next time we talk about Bismarck.

B

So look, the report does go on to say that in big markets, the number of effective competitors explained as those with at least 5% traffic on a route, those actually increased in big markets but declined in small markets.

A

Right, so ULCCs again because look, so I, I went, I pulled some of the data here. So look at something like Washington D.C. to Atlanta. Right. In 2007 you had AirTran, Delta, United and US Airways in the market. But by 2024 you had American to step in and take over US Airways and then Southwest took over Air Trans. So that's one for one there. But then you also have both Frontier and Spirit entering the market. So then that's obviously growth ineffective competitors. But then think about Fresno to Greensboro. That's got to be in the bottom quintile in. In 2007 Continental, Delta, United and US Airways could all carry that traffic. But now it's just American, Delta and United.

B

So one less competitor until Breeze enters that market.

A

Fresno to Greensboro, that's high on their list I think.

B

I dare you.

A

You listening? Breeze, Fresno, Greensboro. Do it.

B

So sure. So look, if a market is big enough for a ULCC to come and fly, then great. And that can include some pretty small routes, but the tiniest routes that can't support anything nonstop. Yeah, forget it.

A

Yeah, but overall fares were still down. So do we care?

B

Well yeah, because the non stops the small markets could support were likely limited to Las Vegas or Florida, not the broad domestic networks more likely to be flown in 2007 with higher fares and network airlines. Fresno, Greensboro for instance.

A

So okay, so this is back to the dehubbing question of fares versus schedule quality. And schedule quality really does matter. But if you are in one of these smaller cities, is it better to have low fares if you can only fly to Florida and have no beyond connections like that? That seems like punishment to me. But that's just me. But those are the markets that work for the ULCCs and that's what they'll continue to fly. But in competitive markets the big airlines figured out they could kill off these lower cost operators. They introduce basic economy, have more competitive fare then they get people to buy up and still fly them. Then they added capacity to sit on top of the ULCC then know so they can kind of crush that. And this isn't even counting the biggest change of them all.

B

Uhuh. Credit cards.

A

Yes, credit cards are all the rage. I think I might get one someday. It's probably better than me carrying around all those hundred dollar bills.

B

Welcome to the 21st century, Mr. Snyder.

A

It's a scary place. But really credit cards, they can make the big guys billions and billions of dollars while smaller lower cost competitors just don't have the reach or the appeal for that matter to attract enough people to take on their cards. So it creates this permanent imbalance.

B

On top of that, the biggest credit card money is in the largest cities and there's no room at the inn in New York, Chicago or la Technically there's room for a small operation, but no ULCC can build up something big enough to sway people to get their credit cards in those big cities.

A

And it would still be a losing proposition because remember those big airports have ever increasing costs of employment so the little guys can't justify running their bread and butter flights from there anyway.

B

Throw it all together and the ULCCs are now at a disadvantage even after being the primary driver for the lower fairs in the study.

A

Right. So this grip on low fares or lower fares or better competition or whatever, it's tenuous at best. Like Allegiance okay. Doing its thing. Breeze will be okay if it can make money and probably not fly Fresno Greensboro because it's not on competitive routes as much. But Spirit is gone and Frontier is in trouble.

B

Yeah, look, I don't think this study is bad by any stretch. It just appears to have been asked to study the wrong metric. In an industry that rapidly changed right after the study period. The mergers had their impact from 2007 to maybe 2015, but at that point it's no longer a merger story. This is about the low cost airlines. Measuring the impact of 2000's mergers over this period is a bit like trying to weigh a feather in a hurricane. Sure, the feather weighs something, but does it even matter?

A

You just blew my mind, bro. I don't even know. But maybe mergers don't matter. But I think one thing this study did highlight is that there is a real problem after the study that everyone should be concerned about. With fares increasing and ULCC is still unable to get much traction, competition is something that may need to come back to the forefront when the government starts to look at those things.

B

Things.

A

All right. Thank you for joining me today. Court people can find you at the local strip club, right?

B

That's correct.

A

Or at visualapproach IO.

B

That is correct.

A

Or your telephone number is. Do you have a Friendster profile?

B

It's my MySpace page is still active. And the Time on Wing podcast too. For those who like to listen to things.

A

We should talk about that. If you like to hear Court talk on and on with fascinating guests. Who's your most recent guest?

B

Oh, we talk to Jamie Baker, Mark Streeter all the time. Richard Ablafia. John's been on. You've been on. We talked to David Rush, a lot of the the lists or those who attend I stat. It's much longer form and we just talk about anything and everything.

A

So if you miss your your weekly dose of metal since John is in here, go back and listen to some of these lessor ones that they've done. You've been listening to the Air Show. Thank you to our sponsors, Skygo and plus Grade. If you have suggestions or questions for us, or if you're interested in sponsoring the podcast, email us@infoheershowpodcast.com Leo Duran produced an editor of this episode and our theme music is by Joshua Moser. Thanks for listening and we'll be back soon. The soothing sound of Courtney Miller. It'll put you right to sleep, so it's a great way to go to bed at night.

B

It is with my voice.