Issue of the week: Blocking a major airline merger

last updated 8 January 2015

That was unexpected, said James Stewart in The New York Times. The Justice Department and six states filed suit last week to block the proposed merger between American Airlines and US Airways. The companies’ investors and employees “may well be wondering: Why us?” After all, government regulators have been “notably lax on airline mergers” in the past, essentially rubber-stamping Delta Air Lines’ 2008 merger with Northwest Airlines and the union between Continental and United Airlines in 2010. US Airways and American “have come out fighting,” saying they plan to defend the merger and get to trial as quickly as possible. “But perhaps the airlines shouldn’t have been so surprised by the lawsuit—and shouldn’t be quite so eager for a courtroom showdown.” The Obama administration has taken a tougher stance on antitrust enforcement in recent years, as shown by its successful 2011 challenge to AT&T’s proposed acquisition of T-Mobile. And while mergers that violate antitrust guidelines can sometimes get a pass when they offer clear advantages to consumers, employees, and shareholders, regulators now say consolidation has led to “higher fares, new fees and add-on costs, reduced services, and fewer amenities.”

I see a tough landing for the airlines, said Steven Pearlstein in The Washington Post. The government was lenient on past mergers “for one basic reason: The industry had fallen into a pattern of ruinous competition.” That was generally good news for customers, “as anybody who ever snagged a round-trip, cross-country plane ticket for $200 can attest.” But it left legacy airlines with no choice but to merge or go under. The American–US Airways linkup, however, isn’t about avoiding financial ruin. Documents cited by the government show that, “rather than add capacity,” the airline executives plan “to cut capacity in the merged airline by 10 percent” and to raise service fees. That’s hardly good news for consumers. Let’s hope the government’s decision to block this merger will “signal a new era in antitrust enforcement.” Companies should have to prove that their actions are “likely to translate into lower prices, more choice, and better service.”

Of course competition is good, said USA Today in an editorial. “But fliers will ultimately suffer if it leads to more instability, less investment in new equipment, and frequent-flier miles that evaporate when a carrier collapses.” Allowing the American–US Airways merger to proceed would bring the number of major carriers down to three, which antitrust experts say is far better than the “industry of two”—United and Delta—that would result if American and US Airways struggled on or collapsed. This merger is “a suitable compromise between competition and stability” in an industry wracked by soaring fuel costs and serial bankruptcies. Granted, the new company “would be particularly potent” on the East Coast, but the government could fix that by demanding that it give up some routes and gates in exchange for regulatory approval. Instead, the regulators’ “hard-line bid to scuttle the whole deal comes off as an overreaction, one that’s not in the best long-term interest of the industry or its passengers.”