This week, a prospective merger between American Airlines and U.S. Airways stalled, when the United States Department of Justice and six states’ attorneys general filed an antitrust lawsuit. If the merger succeeds, it would create the largest air carrier in the world. The DOJ cited numerous concerns over the effects that a newly merged airline company would mean for consumers.
Bill Baer, assistant-attorney general of the DOJ’s antitrust division says he worries about the new company’s ability to change airfares unilaterally and sufficiently enough, that it would create price hikes across the industry. Through the company’s pricing power, industry standing, and numbers of slots at airports, the government contends the company would: wipe out special pricing programs and incentives, raise fares, reduce competition, and provide reduced services. The merger, which would leave three legacy carriers, would allow them to raise prices, because non-stop services would be eliminated, in lieu of connecting services.
In a refreshing change, it seems the DOJ is suddenly oriented toward thrift, and consumer protections. It is the government you have always wanted – they are looking out for you. It sounds great, right?
If this were not the same DOJ who turned a blind eye at voter intimidation and whose leader balked at answering questions about investigations of reporters, you might be able to take them at their word. It is also the same DOJ who allowed numerous other airline mergers in the past few years as well, without much criticism. (The lawsuit also uses those past mergers as proof that the new airline would raise prices).
As much as the DOJ would like to paint itself as some sort of a guardian of consumers, it is hard to believe. The remarks on the lawsuit contains several assumptions and suspicions about the prospective airline’s plans. The DOJ also points out that the two companies say they can manage without the merger, that each company stated they would do well without it. That is fine and good, but if the companies think that they can do business better still, with a merger, who is the DOJ to insert themselves (arbitrarily, in this author’s eyes) into the proceedings?
It was a done deal before the government stepped into the midst of the merger. ABCNews, and the Buckingham Group, point out that the merger had a 99% chance of happening. After the DOJ and state lawsuits, that figure dropped to 40%. The article continues to point out that if the merger occurs, the resulting, remaining airline companies would consist of four top airlines, which would control 80% of the commercial air market.
What does all this show us? What is the take away? I see a couple:
One, it seems to be another case of this administration seeking to pick winners and losers. A Blaze article goes so far as to say that the DOJ filed their suit to squeeze more concessions from the companies - this, despite people like Congressman Spencer Bachus mentioning that the airlines’ employees and unions supported the deal.
Two, in its prepared remarks about the merger, the DOJ lays out, step-by-step, the ways in which the merger will affect consumers. In a perfect understanding of market forces, they mention mechanisms such as supply and demand, competitive advantages, and pricing power concerns. Now, with an understanding such as that, how hard is it to swallow what this administration’s done elsewhere, and in other cases, where it has hurt capitalism?