Misguided DOJ Rewards America’s Problem Airlines
Economist Bruce Yandle once famously concluded that regulations are supported by two groups of people: groups that want and generally approve of the purpose of the regulation, and groups that profit from undermining that purpose.
Yandle explained that for much of the 20th century, Baptists and other evangelicals were prominent in political activism for advocating for Sunday closing laws that restrict alcohol sales. This public policy initiative made for odd bedfellows, as the bootleggers who sold alcohol illegally, and got more business if legal sales were restricted, were perhaps the Baptists most ardent defenders.
Yandle wrote that “Such a coalition makes it easier for politicians to favor both groups” Why? Well, “the Baptists lower the costs of favor-seeking for the bootleggers, because politicians can pose as being motivated purely by the public interest even while they promote the interests of well-funded businesses.” In other words, Baptists “take the moral high ground, while the bootleggers persuade the politicians quietly, behind closed doors.” Nevertheless, the bad guys still win.
I was reminded of this story this week when I saw the Department of Justice sued to block JetBlue’s acquisition of Spirit Airlines.
The DOJ blocked the merger because it doesn’t like the consolidation that’s occurred in the airline industry over the past couple decades that has upped fees and fares. Fair enough, but the DOJ is forgetting an important point: JetBlue and Spirit are not a part of that cabal.
The problem mergers that have turned the nine largest airlines into just four is the doing of four companies — American, United, Delta, and Southwest. JetBlue and Spirit Airlines are the enemies of those airlines, not their friends.
JetBlue’s entry into markets drives down the big airlines’ prices. As Hopper, the website that rose to fame for saving American families thousands on hotels and flights, put it, “JetBlue has the largest impact on domestic airfare, as it drives prices by over 50% on the routes it serves — and, in some cases, even as much as 67%.”
JetBlue and Spirit’s business models were designed to stand up to the airline industry establishment, not stand with it, and their merger is designed to create an entity that can compete more aggressively against those four companies. Yet, the DOJ is peeved at the growing monopolization in the airline industry and is putting its foot down on this one even though the JetBlue-Spirit combination wouldn’t even give the new company a 10% market share.
I would like to believe the Justice Department’s motivations are pure. I would like to believe that it’s not blocking the merger as a favor to any one particular company. That said, we all know who is laughing all the way to the bank over the DOJ’s well-intentioned but completely misguided lawsuit — American, United, Delta, and Southwest.
In my economics classes, I always tell my students that antitrust is not much different than the healthcare industry — the first rule is always that decision-makers should do no harm. In this case, the DOJ without question has, but will the courts overrule its decision?
The facts of this case are as clear as day, so I’m confident that justice will ultimately prevail once it’s time for the unbiased, apolitical professionals in the judicial system to weigh in.
Let’s hope this merger finally goes through. The Jet Blue/Spirit business model will increase competition for the big four. That will result in downward pressure on price, improved efficiency which includes more favorable schedules and a better overall environment for the consumer.
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A discount airline makes up the difference somehow. Go ahead, roll the dice and see if it’s maintenance.