I’ve been reading through the ridiculous complaint filed by the Department of Justice taking a stand against the US Airways – American Airlines merger. The whole thing boils down to their belief that the consolidation will cause undue harm to the American people because airlines will raise their fares to levels where they can consistently actually make money.
Some key points from the complaint:
- They say that “even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually,” which is probably true, only it’s not 1 person paying hundreds of millions of dollars annually. When you look at the 700 passenger emplanements annually, I’m pretty sure those travelers (and the businesses paying those tickets) can suck up any added cost.
- They say that US Airways will currently price connecting flights lower than nonstops served by competitors, but that that will stop after the merger, since American doesn’t currently have that strategy. Except that the airline will be run by the executives currently running US Airways. And that’s why you’d stop this? To (at best) help people who would prefer to save $25 to make a connection?
- “American had a standalone plan to emerge from bankruptcy poised to grow. American planned to expand domestically and internationally, adding service on nearly 115 new routes.” Har har har. AA had a plan to grow like Nixon had a secret plan to get us out of Vietnam.
- It appears that the whole complaint rests on the DoJ’s belief that the airline industry is healthy, and will continue to be healthy going forward. This is unproven. Yes, the industry is in the best shape it’s been since deregulation. For the first time airlines are acting as rational competitors, something that would likely continue with 3 major carriers, rather than 4. Plus, Despite what the DoJ says in their complaint JetBlue, Southwest, and Spirit do help to provide competition in many markets. So it boils down to this: if you think the industry is great, and will continue to be great, then this merger will only raise prices and eliminate service. But if you think the industry needs further restructuring to keep it healthy (something that would certainly be in everyone’s benefit), you’d want this merger to go through.
- They quote US Airways management extensively, suggesting that they have spent the past 10 years trying to reduce competition, encourage consolidation, and otherwise act in an anti-consumer manner.
- They call out Washington Reagan National as one area of concern – that because of the limited slots available there, the combined carrier will have 69% of the available slots. (They also note that there are a handful of markets outside DCA where AA and US are the only players – Charlotte-Dallas, for example) I think DCA is where we’ll see the horsetrading to get the merger through. US will divest slots at Reagan to whatever the DoJ considers to be a reasonable (or “reasonable”) level, and eventually the carriers will combine.
So this was a complete shock, as there have been no signs that the government had any issues with this merger, especially considering on how few city pairs they served as the only carriers. I’m just disappointed that the government thinks the airline industry should return to the unstable years that brought about the reduced service they’re now complaining about.
(Disclosure: I own a very small amount of US Airways stock)