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Continental Airlines

On competition and airline prices

I come across news stories of blog interest from a variety of sources. Here’s one that I got from my alumni association email list that has to do with airline pricing; it was of interest to Trinity University alums because it quoted one of my former economics professors.

United Airlines gained a new hold over Newark Liberty after it merged with Continental Airlines, which had controlled nearly 70 percent of the flying business at Newark. United’s dominance is even stronger, providing consumers with a variety of travel conveniences, but also wielding a unique power that travelers and experts say makes flying from Newark more pricey.

To get a sense of the marketshare United commands, consider the snapshot provided by the Port Authority of New York and New Jersey: For all of 2011, Continental and United, which were still operating as separate airlines last year, handled 71 percent of the flying business at Newark Liberty — or nearly 23 million passengers traveling through the airport, according to the Port Authority’s data.

Delta and JetBlue Airways, which were among Newark’s four busiest airlines, each commanded less than 5 percent of the flights at the airport. US Airways is ranked fifth with 3.5 percent of the business.

The dominance of a single airline — Continental was the busiest carrier at Newark for more than a decade — brings some benefits, including the convenience of frequent service and lots of destinations, but price-conscious travelers like Levy grumble that the lack of competition also gives United the ability to set higher fares.

“There’s more frequent service. There are more places where you can fly,” said Richard Butler, an economics professor at Trinity University in San Antonio who is considered an expert on airline hubs. “The less wonderful thing is that the hub carrier has increased pricing power.”

That was evident in 2009, when Continental dominated Newark Liberty. The airline’s average round-trip fare to Houston was $336 compared with United’s average fare of $315, according to data collected by the Department of Transportation’s Bureau of Transportation Statistics. In comparison, American’s average fare to the Texas city was $209, according to the DOT’s data.

George Hobica, who runs airfarewatchdog.com, a fare-finding website, said Continental’s (previous) dominance always made flying out of Newark more expensive than other airports, including others in the region like JFK, LaGuardia and Philadelphia. “Now it’s United dominating,” Hobica said, “and some of the effects of the dominance have shifted somewhat.”

The most dramatic effect of United’s stronghold may be on flights to the Western part of the country — California, Nevada and Denver — where Continental no longer exists as a competitive force.

I don’t know how much there is to learn about the situation we have here with Southwest and the Hobby expansion from this, but one thing is clear: Less competition is generally not good for the consumer. Maybe the Southwest deal will be a boon for the city and maybe it won’t, but it at least makes sense to me as a matter of basic principle.

It’s just business

The fact that Continental Airlines once had a cozy relationship with the City of Houston doesn’t mean that United Airlines should expect the same treatment.

Then two years ago, Continental got married, and it took a new name. Houston renewed the courtship by trying to entice United to locate its post-merger corporate presence here. United responded with a reminder that whatever the emotional component to the relationship between town and trade, corporations are guided by the bottom line. It moved 1,500 corporate jobs out of Houston to Chicago. Some Houston leaders regarded it as a stinging betrayal.

“Why did you buy Continental? Why did you do it?” Councilman Andrew Burks thundered at United executives making their pitch against Hobby expansion to the council last month.

Part of that pitch was that it would cost the city jobs. Former Lt. Gov. Bill Hobby seized on what he considered the irony while attending a news conference to announce the Houston-Southwest deal at the airport named for his father.

“Continental, or United, has been very concerned about job losses in Houston. They weren’t so concerned about job losses when they moved their headquarters to Chicago,” Hobby said.

“I know there are hard feelings about the headquarters location, but the merger was something we felt we had to undertake for the company’s future, to protect future jobs,” said Nene Foxhall, executive vice president of communications and government affairs at United.

Let me rewrite that sentence for you, Nene:

“I know there are hard feelings about the Hobby expansion proposal, but giving the go-ahead to Southwest to spend their own money doing it was something we felt we had to undertake for the city’s future, to protect future jobs.”

Wasn’t that hard, was it? You can believe whatever economic projections about this deal that you want, but asking the city to ignore its own report and give you what you want amounts to special treatment. Continental might have been able to get away with that back in the day, but what exactly has United done to deserve it?

Terminal B expansion on the menu

In late May, the city announced that Terminal B expansion at IAH would go forward.

Houston Mayor Annise Parker, the Houston Airport System (HAS), and United Continental Holdings, Inc. Airlines, reaffirm a commitment to overhaul Terminal B at George Bush Intercontinental Airport (IAH) with a revised $1 billion renovation project.

This public-private initiative will help boost the Houston economy by creating local construction jobs during the next seven to 10 years. It will also offer a major upgrade for airport passengers as one of the original terminals at IAH is transformed into a spacious, efficient, eco-friendly facility.

“As the largest hub for the largest airline in the world, Bush Intercontinental is positioned to serve the world as United builds its global network,” said Houston Mayor Annise Parker. “Our airport serves as one of the most important economic engines in Houston and we are committed to expanding the portal to our global business connections.”

During a news conference today, Mayor Parker, airport and airline executives reconfirmed construction plans for the billion dollar redevelopment at IAH United’s largest Hub which serves some 40 million passengers a year.

The agreement to move forward closely mirrors the agreement approved by Houston City Council in 2008. Under the revised plan the airlines will develop the project in phases, as economic conditions improve.

Here’s a presentation about the Terminal B redevelopment lease, which notes that it is on the City Council agenda for Wednesday (see item 40) after a public hearing tomorrow. (That will be a special meeting of the Transportation, Infrastructure and Aviation Committee in Council Chambers at 10 AM, in case you’re curious.) There are some questions about what exactly is in the lease agreement, as things are a little different now than they were in 2008. In particular, the main player is now United Airlines, not Continental. The folks at SEIU sent me this fact sheet about the deal that asks some questions about what is in it. I have not followed this story, and I don’t know anything about it beyond the docs that I’ve linked to in this post. It is a pretty big deal, though, so I wanted to throw this out there. If you know anything more about this, please leave a comment. Thanks.