The Justice Department made a startlingly bad decision on Tuesday to block the proposed merger of American Airlines and US Airways. In the last five years, the department has approved three mega-mergers in the airline industry, leaving bankrupt American and US Airways little choice but to unite in order to survive. Drawing the line against industry mergers at this late date is unfair to both the airlines and the flying public.
The theoretical rationale behind the government’s action sounds perfectly reasonable. Competition is good for consumers. It tends to bring prices down and offers more choices. Mergers, on the contrary, leave passengers with fewer choices and, often, higher fares. We’re all in favor of competition. But here’s the news the Justice Department apparently has not heard: That ship has sailed. Or, if you prefer, that flight has departed.
Since 2008, the Justice Department has approved the mergers of Delta Airlines and Northwest, United Airlines and Continental, and Southwest and AirTran. American, once the largest of legacy carriers, not only tried to go it alone but also made a commendable effort to meet its contract obligations to union employees without plunging into bankruptcy.
But it didn’t work. First, the mergers of the competing airlines pushed American into third place among the major carriers.
Then it became obvious that American could not compete under its existing cost structure. The airline was obliged to seek bankruptcy protection while it scrambled to come up with a new plan to stay in the air.
US Airways, meanwhile, like some of the partners in recent mergers, was too small to compete on an equal footing. It obviously stood to attract more business by partnering with American.
Attorney General Eric Holder said the government acted to ensure “robust competition in the marketplace.” Actually, blocking the merger will have the opposite effect.
The merger would reduce the number of airlines by one, of course, but it would replace two weak airlines with a robust company in a better position to compete for passengers. Ultimately, that holds out the promise of a larger benefit for the flying public.
The Justice Department also believes the mergers have helped to drive up airline fares. No doubt those fares are higher today than they were before merger-mania hit the industry. But they went up while American and US Airways were struggling as stand-alone carriers. Blocking the merger is unlikely to bring those fares down.
The consolidation would inevitably change the way the newly united airline would do business, which means some routes could be lost, and even some hubs. (Miami would probably be little affected because American’s routes to Latin America and the Caribbean remain among the most valuable assets in the industry.) But it is also likely that a merger will create new routes along the way, which benefits consumers.
The most bizarre aspect of the Justice Department’s action was its attempt to lay out a plan for American’s survival as a stand-alone airline. American’s own executives have failed to achieve that objective despite years of effort. What do Justice Department attorneys know about running an airline that the company’s own leaders don’t?
It’s commendable that the department would take its antitrust duties seriously. But it’s late to the game in the airline industry and should allow the American-US Airways merger to go through.