A new Government Accountability (GAO) report warns that the competitive pressure forcing airlines to keep prices down is continuing to weaken. The study found that airline mergers have increased prices and reduced the quality of customer service.
The report serves as a warning to low cost carriers who are facing difficulty competing with large, incumbent airlines and their massive credit card reward programs and stranglehold on airport gate access.
When low cost carriers enter a market, prices drop because the incumbent airlines can no longer keep prices above where they otherwise would be under truly competitive market conditions.
Even when carriers actually see the efficiency gains they always tout, the GAO warns that these benefits can be outweighed by challenges such as combining workforces. That is to say, the theoretical efficiency gains remain theoretical.
