Note: Some articles of interest:
- Robert Crandall, former CEO of American, has this op-ed piece in The Wall Street Journal (via Google News, so it should be accessible to Readers).
- With the concentration of airline service that the US Department of Justice is so worried about, this article argues that foreign carriers should be allowed to operate US domestic service.
The lawsuit filed by the US Department of Justice against the proposed merger of American Airlines and US Airways reads more like a political document than a legal brief.
It’s clear the true intent is to force American and US Airways to divest slots at Washington Reagan National Airport. But in throwing in the proverbial kitchen sink, DOJ has made a mockery of its own case.
DOJ claims more than 1,200 city pairs will be adversely affected by the merger, with most of these being connections since the non-stop overlapping routes number only about a dozen.
But lots of the city pairs cited by DOJ are pretty obscure. Just to pick a dozen examples:
|DOJ Examples of Connecting Routes|
|1||Austin, TX-Palm Springs, CA*|
|2||El Paso, TX-Kahului, HI|
|3||Columbus, OH-Fresno, CA|
|4||Des Moines, IA-Kahului, HI|
|5||Kapaa, HI-Tucson, AZ|
|6||Albuquerque, NM-Salinas, CA|
|7||Albuquerque, NM-Kapaa, HI|
|8||Charlotte, NC-Grand Junction, CO|
|9||Charlotte, NC-Durango, CO|
|10||El Paso, TX-Salinas, CA|
|11||Charlotte, NC-El Paso, TX|
|12||Harrisburg, PA-Fayetteville, AR|
Some of the cities listed in the DOJ complaint (like Salinas, CA) aren’t truly served by airlines but rather by nearby airports (in this case, Monterey (CA). In another, Palm Springs (CA) is actually shown in the complaint being served by Riverside (CA). DOJ seems obsessed with city pairs involving Kapaa (HI) and El Paso (TX). Figuratively speaking, the three people per year flying between some of the city pairs cited by DOJ are really going to drive the market (queue the sarcasm).
DOJ appears to be really stretching in its attempt to make an anti-trust case.
DOJ’s lawsuit is replete with uninformed and ill-informed assertions that in aggregate make it clear the department simply doesn’t understand the dynamics of the airline industry.
The lawsuit frequently quotes US Airways CEO Doug Parker and his long support of industry consolidation. This is a true statement. But Parker was hardly alone. Glenn Tilton, CEO of United Airlines through its bankruptcy, also was a strong supporter of consolidation—as were other CEOs.
DOJ contends that airlines routinely match non-stop fares on one-stop or connecting routes. This is a serious misstatement of fact, and DOJ cleary cherry-picked the examples contained in the lawsuit. One-stop and connecting fares are routinely far cheaper than non-stop fares, both US domestically and on international routes. As we search for fares between Seattle and the upper East Coast–routes generally not served by US Airways, which hubs through Phoenix–American and Delta Air Lines often have lower fares than United or Alaska Airlines. DOJ is dead wrong on this one.
DOJ’s concern about Washington Reagan Airport slot and route concentration is factually correct, but hub (or in this case, focus-city) concentration has long been a fact of life ignore by officials in Washington. Previous mergers, dating to the Presidency of Ronald Reagan, led to hub concentration at Minneapolis, Detroit and St. Louis, with nary a peep from DOJ. To absolutely no surprise, now that the politicians and bureaucrats in Washington (DC) will be affected, suddenly this practice is deemed inappropriate.
DOJ claims more than 1,200 connecting markets will suffer following the merger through higher fares. Although we aren’t terribly concerned about routes like Santa Barbara to Tampa, or El Paso to Kahului (HI), or Kapaa (HI) to El Paso, DOJ ignores the prospects of Southwest Airlines entering route such as Dallas Love Field to Phoenix once the anti-competitive Wright Amendment finally expires, an amendment DOJ never challenged and which restrained competition for decades. In fact, the legacy airlines’ one-stop service (and often even non-stop) is frequently cheaper than Southwest’s non-stop pricing. Price competition, while it will certainly be reduced, is unlikely to be as absent as DOJ suggests.
A key element DOJ ignores is that the proliferation of airlines led to irrational pricing, which while benefiting consumers, also led to scores of failures by airlines—which also eliminated competition. Profitable airlines in the long run provide stability for the consumer and for stakeholders—and the economy.
At the same time, the US government levies taxes that approach 25% of the ticket prices—something that costs consumers billions of dollars. Airlines can’t hike ticket prices to account for these taxes. Airlines, in fact, now often lose money on ticket prices (especially with the uncertainty over fuel costs). This means airlines must find profits in another place, and this is where fees come in. Government policies have had a direct effect on ancillary revenues.