Consolidation is never good news for the consumer.
Airlines always seek to reduce service and raise fares to increase their profit margins.
There isn’t any pretence or debate about this. It is what they do. Consolidation in the US has seen fares rise there despite a strong low-cost aviation sector.
While IAG say they can help bring lower costs to Aer Lingus, it is always competition that keeps fares down, not cost base.
Last year when fuel prices plummeted, most airlines raised their air fares.
A few of the complicating factors in an extremely complicated industry factors in the IAG-Aer Lingus takeover, which could save us from the worst of the profiteering.
Competition is not a problem on short haul to Europe where Aer Lingus faces direct competition from Ryanair to 40 cities, making sure neither will get away with shaking down consumers.
The only route that BA and Aer Lingus go head to head on is London Heathrow and BA returned to that route for a variety of reasons three years ago.
Transatlantic is another story. IAG doesn’t just own Aer Lingus, it is closely allied with American Airlines so most of the transatlantic options for the Irish consumer will be tied up by one major player. In the US, the number of airlines has reduced to just three from 10, when deregulation was introduced in 1978. Last year, air fares in the newly consolidated American Airlines rose between 17% and 29%, while the average in the US was 14%.
Competition doesn’t just affect air fares. Airlines don’t like competition on things like baggage charges and charges for on board extras such as cups of coffee or wifi.
Already on transatlantic routes from Ireland airlines have matched each other’s prices and ancillaries.
This is the big win for Irish consumers from the deal. We will have two new transatlantic routes next year and possibly four by the start of the 2017 summer season.
IAG will feed passengers in to Dublin, effectively making it Heathrow’s third runway. None of these new routes would be viable if they were just to serve the Irish market.
The short-haul network could also grow as routes are established to feed the transatlantic services. It is probable that Dublin will get 12 new transatlantic services by the end of the decade and will soon be serving 200 destinations.
It is not just US pre-clearance that has captured the attention of IAG. Dublin is served by 26 cities in England, Scotland, and Wales, Heathrow by just eight.
It makes more sense for some people to fly to Dublin from a secondary city in Europe rather than drive to their capital and cope with a more stressful airport experience.
But because people from other European countries are funneling through Dublin, we will not get the great value deals that we might otherwise expect on some of the softer routes.
One of the happiest and oddest benefits that Irish consumers enjoy in the weird world of aviation is that it is often cheaper to fly to North America from Dublin, transferring through Heathrow, than it is direct from London. This is because British Airways used to dump their fares in Aer Lingus’s market, rather than damaging their own price structure and business model closer to home. That practice will likely come to an end, although not immediately. Thankfully Air France and Lufthansa will continue to do so, keeping the BA prices in check. Flying indirect can save 20% of the ticket price. As we get more direct options, prices of indirect flights will be sure to fall.
Heathrow is the hub of choice for Shannon with 25% of transfer customers, less so Cork which has 20% compared with 8% in Dublin.
One of the more peculiar sideshows was the debate about slots. A seven-year guarantee is easy to give by IAG as it tries to send business to its own airlines. But the future of both airlines is no clearer as a result of the proposed takeover than it was before. The lobby to turn Shannon into a cargo hub will likely have willing ears in IAG.
As people travel more often for short periods direct flights are a pre-requisite for tourism growth. Transatlantic tourism to Ireland can expect to maintain the recent growth levels of 20% a year for the foreseeable future. Direct flights to Dublin from north eastern USA and Canada, California, Colorado, Florida. and Texas are in the pipeline. Everyone involved in tourism has reason to be cheerful today.