GAO expects new low-cost carriers to fill service void

By Michael Fabey

With airlines expected to steel themselves from high oil costs and low economic expectations with a spate of mergers, the door will likely open for other airlines to fill service voids, according to a U.S. Government Accountability Office (GAO) report.

The GAO report also says those new airlines, probably low-cost carriers, will likely keep prices down unless the higher oil costs prevent them from doing so.

"A variety of characteristics of the current airline marketplace indicate that airline entry into markets vacated by a merger partner may be more likely than in the past, unless higher fuel prices substantially alter recent competitive trends in the industry," said the GAO report, titled “Airline Industry Potential Mergers and Acquisitions Driven by Financial and Competitive Pressures."

“According to our own analysis and other studies, the industry has grown more competitive in recent years,” the report said. “If that trend is not reversed by increased fuel prices, it will become more likely that market entry by other airlines, and possibly low-cost airlines, will bring fares back down in markets in which competition is initially reduced due to a merger.

"In addition, the ongoing liberalization of international markets and, in particular, cross-Atlantic routes under the U.S.-European Union open-skies agreement, has led to increased competition on these routes."

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