Until this week, when the Justice Department filed suit to block the proposed merger of the airlines’ parent companies, it had been notably lax on airline mergers. What the antitrust division deemed acceptable — even beneficial — for Delta Air Lines and Northwest Airlines (in 2008), and Continental and United Airlines (2010), and Southwest Airlines and AirTran Airways (2011) now “threatens substantial harm to consumers,” the complaint says.
US Airways has been doubly unlucky. United abandoned a merger deal with US Air in 2001 after the Bush administration said it would file an antitrust suit. And the head of the Justice Department’s antitrust division, William Baer, said this week that the department might have sued to block US Airways’ 2006 hostile bid for Delta if US Airways hadn’t abandoned the takeover. (US Airways did get approval to acquire America West in 2005.)
The government “abandoned the framework it used in approving the last three airline mergers,” said Paul T. Denis, a partner at Dechert LLP, which is representing US Airways. “In some ways, the complaint is a throwback to the 1970s,” before market-oriented economic analysis led to a broad revision in antitrust policy. “Now they’re saying those prior mergers were anticompetitive. That’s surprising. But even if they believe that, it’s not relevant to whether this merger will have an adverse effect.”
US Airways and American have come out fighting. The government “got this one wrong, very wrong,” Richard Parker, an antitrust litigator at O’Melveny Myers and former director of the Federal Trade Commission’s antitrust arm, the Bureau of Competition, said at a news conference on Wednesday. He stressed that only a judge could block the merger and vowed to take the case to trial. But perhaps the airlines shouldn’t have been so surprised by the lawsuit — and shouldn’t be quite so eager for a courtroom showdown.
“It’s a different regime, different standards and a different time,” said Herbert Hovenkamp, professor of law at the University of Iowa and widely regarded as a dean of the antitrust bar. The relevant question may not be why the department moved to block the American-US Airways deal, but why it approved the United-Continental merger — a move it now seems to regret.
William J. Baer, the associate attorney general in charge of the antitrust division, told me this week: “We consider every merger one at a time. Here, we had a proposed merger that would reduce the legacy carriers from four to three. That’s not the same as six to five, or five to four. That logic would get you from two to one pretty quickly.”
And while he said he couldn’t comment on the earlier airline mergers, since he has been the antitrust chief for just seven months, “if you look at the net effects, what we’ve seen is a reduction in capacity and higher prices, and not the benefits that were promised.”
Whatever the recent precedents, the proposed American-US Airways merger violates the Justice Department’s merger guidelines, which the Obama administration finally seems to be taking seriously. The merger would substantially reduce competition because “there are too many routes that would create a monopoly or oligopoly,” Professor Hovenkamp said.
According to the Justice Department, the American-US Airways merger would substantially reduce competition in over 1,000 city pairs served by the two airlines. Among the more egregious examples it cited are Charlotte, N.C.-Dallas; Charlotte-Durango, Colo.; Dallas-Philadelphia; and Kahului, Hawaii- Tampa, Fla. It said the merger would create four out-and-out monopolies, albeit on secondary routes, including three that serve St. Croix in the Virgin Islands. And it said the merger would reduce competition on more than 1,000 routes.
It’s pretty clear what happens when concentration increases substantially on a route between two cities. After Continental and United merged, the combined airline accounted for 79 percent of the service between O’Hare International Airport in Chicago and George Bush Intercontinental Airport in Houston. During a three-month period after the merger, fares on that route were 57 percent higher than they were three years earlier, according to the aviation industry Web site PlaneStats.com. United’s fares overall increased 16 percent in the same period.
Article source: http://www.nytimes.com/2013/08/17/business/for-airlines-it-may-be-one-merger-too-many.html?partner=rss&emc=rss