I noted briefly at Lunch Buffet that the Justice Department had filed suit to stop the proposed merger of U.S. Airways and American Airlines. Here’s a more complete account from CNN’s Evan Perez:
The Justice Department and attorneys general from six states and the District of Columbia filed a lawsuit Tuesday challenging the $11 billion merger of American Airlines and US Airways, saying the combination would lead to higher prices and less service for consumers.
The merger, which would create the world’s largest airline, would “substantially lessen competition” for commercial air travel, contends the complaint, filed in U.S. District Court in Washington….
A top concern is local markets, the Justice Department said. It cited the example of Ronald Reagan Washington National Airport, where the combined airline would control 69% of takeoff and landing slots, and 63% of the outbound nonstop routes.
The Justice Department also said in its complaint that if the two airlines were allowed to merge, there would be higher fees for baggage and flight changes.
The states that joined the antitrust lawsuit are: Texas, where American’s parent company AMR Corp. is based; Arizona, home base for US Airways; Florida; Pennsylvania; Tennessee; and Virginia.
The lawsuit comes as somewhat of a surprise. In recent years the Justice Department has allowed other big airline mergers — Delta gobbled up Northwest, and United absorbed Continental — in part because the airline industry was losing so much money and the mergers were seen as necessary for survival.
But airlines are now making billions of dollars, not only from higher fares but also from $6 billion in fees they collected in 2012 alone, for baggage and seat selection and other things that used to be included in fares.
It seems as good a time as any to enforce the antitrust laws and also encourage a reconsideration of federal commercial aviation policy. As Phillip Longman and Lina Khan explained in the March/April 2012 issue of the Washington Monthly, the slow-motion disaster produced by well-meaning airline deregulation efforts decades ago is culminating in a wave of mergers that not only have created higher prices for poorer service and fewer choices, but also have wreaked havoc on the economies of abandoned “hub” cities. Here’s a sample:
We find ourselves at a moment when nearly all the promises of the airline deregulators have clearly proved false. If you’re a member of the creative class who rarely does business in the nation’s industrial heartland or visits relatives there, you might not notice the magnitude of economic disruption being caused by lost airline service and skyrocketing fares. But if you are in the business of making and trading stuff beyond derivatives and concepts, you probably have to go to places like Cincinnati, Pittsburgh, Memphis, St. Louis, or Minneapolis, and you know firsthand how hard it has become to do business these days in such major heartland cities, which are increasingly cut off from each other and from the global economy.
The new antitrust suit not only signals a possible halt to the final stage of the airline merger wave, but also provides an opportunity for policymakers to rethink the mistakes of the late 1970s.