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Wed August 14, 2013
Feds Sue To Block Proposed Airline Merger
Originally published on Wed August 14, 2013 7:16 am
DAVID GREENE, HOST:
And let's hear now about a proposed airline merger. In a surprise move, the Justice Department announced yesterday that it will try to stop American Airlines and U.S. Airways from becoming one. This is largely because of two other mergers that made both Delta and United Airlines much bigger. Those deals were approved back in 2008 and 2010. Now, as NPR's Wade Goodwyn reports from Dallas, the government seems determined to change course.
WADE GOODWYN, BYLINE: There are several big differences between the airline industry these days and back in 2008 and 2010, when the Justice Department green-lighted Delta's and United's mergers with Northwest and Continental. One, the economy is significantly better. Two, the airline industry has finally turned profitable after a decade of unmitigated disaster. And three, consumers are paying quite a bit more than they used to fly. Add it all up, and you've got the Justice Department changing horses midstream on the subject of airline consolidation.
BILL BAER: While shareholders might benefit, creditors might benefit, the fact of the matter is consumers will get the shaft.
GOODWYN: Assistant U.S. Attorney General Bill Baer predicted a merger between American Airlines and U.S. Airways would cost consumers hundreds of millions of dollars in higher fares and fees. As one example, Baer pointed to Reagan National Airport in D.C., where the newly merged airline would control nearly 70 percent of the gates.
BAER: By allowing one airline to control that many slots, the merger will prevent other airlines - including low-fare carriers like Jet Blue and Southwest - from competing at Reagan National. You can't compete without slots, and if U.S. Airways has 70 percent, you cannot compete.
GOODWYN: The Justice Department worries that with just three legacy airlines, the trend would be towards, as Baer put it, quote, "tacit coordination instead of full-throated competition," which the government believes is already occurring too often with both fares and fees. But even if the government regrets the current situation it helped create, is it fair now to deny American and U.S. Airways the merger it allowed Delta and United? Isn't that playing favorites?
ROBER MITTLESTAEDT: You're right. It doesn't seem fair, because other airlines have been allowed to merge.
GOODWYN: Robert Mittlestaedt is Dean Emeritus at the W.P. Carey School of Business at Arizona State. Arizona is where U.S. Airways is based.
MITTLESTAEDT: I think the part that we are ignoring here is that, you know, all of these airlines that have merged, there are still individual cities that they control heavily.
GOODWYN: American in Dallas and Miami, Delta in Atlanta, United in Chicago. Mittlestaedt says airlines have long had fortress hubs. He believes the Justice Department is wrong to think it can predict the future in an industry as volatile as this. Mittlestaedt says three huge legacy airlines plus one more big one seems like plenty enough competition to him.
MITTLESTAEDT: They keep talking about going from four airlines to three, I think that they're forgetting Southwest. I mean, Southwest is a very significant player in an awful lot of markets in this country.
GOODWYN: Mittlestaedt believes the market would bear the price increases that would come with consolidation, and that the carriers need the cash to buy new planes.
MITTLESTAEDT: I can fly from Phoenix to New York for the round trip flight cheaper than I can pay to spend one night in a hotel room when I get there. There is no evidence that the industry has excessively gouged people. I think there's evidence that they have found ways to charge people extra for a lot of things so that they can stay in business.
GOODWYN: Having thrown the merger lifeline to Delta and United, Mittlestaedt says the government should now allow American the same opportunity. The federal government clearly believes American and U.S. Air will be fine on their own. It's more concerned with how much it's going to cost the nation's flying public to go see mom over Labor Day. Wade Goodwyn, NPR News, Dallas. Transcript provided by NPR, Copyright NPR.