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Frank Buckley on reports of American Airlines' plan to buy TWA

Buckley
Buckley  

CNN Correspondent Frank Buckley explored how a marriage of American Airlines and TWA could help or hurt consumers.

Q: How could the deal help passengers?

BUCKLEY: Depending on whom they talk to, it may be a good thing for consumers. Randy Petersen of InsideFlyer.com, a sort of guru of frequent flier programs, said that if the merger goes through, holders of TWA tickets will know they have an airline with whom they can redeem those tickets.

The downside could be that in the long run, American Airlines could decrease routes and increase fares.

FULL STORY
American's plan to buy TWA would create two dominant carriers
 

Q: Why would American do that?

BUCKLEY: As American looks at TWA routes, it may decide some of them are not profitable enough for American and may quit operating those routes.

Secondly, there are critics who believe that if there are fewer and fewer airlines that are bigger and bigger, they will control the market and there will be less competition. When giant airlines dominate any market, they will set the fares they want, instead of market forces setting the fares through competition, because there will be less -- or no -- competition on some routes.

One example Petersen cites is the Caribbean market. American Airlines is the dominant U.S. carrier there, and TWA has a significant number of routes as well. If they are all American Airlines routes, American can decide to raise rates and not worry about competitors that might undercut them.

Q: If the expected buyout doesn't happen, will TWA go under?

BUCKLEY: TWA has filed for bankruptcy twice before. There is a consensus that their viability is at least a question mark.

Q: Could consumer concerns block the buyout?

BUCKLEY: Because of the issues involved with regard to competition and air fares and ongoing concern about passengers and their ability to get good service and reasonable fares, I think this deal will get very close scrutiny.

But there could also be benefits for consumers. Peterson pointed out that after the Lockerbie bombing, Pan Am declared bankruptcy and was taken over by Delta, which honored Pan Am tickets and frequent flier miles.

Similarly, TWA suffered a severe blow when Flight 800 exploded over Long Island, and now the airline plans to file for Chapter 11 bankruptcy protection Wednesday. If American Airlines does push through a deal to buy the financially crippled airline, it would be expected to honor TWA tickets and frequent flier miles.



RELATED STORIES:
American may buy TWA
January 8, 2001

RELATED SITES:
American Airlines

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