We’re all familiar with the parable of the straw that broke the camel’s back, and the dilemma that it illustrates: You never know it’s the last straw until it’s too late and something breaks.

When it comes to airline mergers, we had come to believe that the camel could take one more. Airline mergers are not our favorite events, but since the industry had already gone down this road with Delta-Northwest, United-Continental and Southwest-AirTran, we were resigned to the idea of American-US Airways. We figured we could live with that.

The Justice Department’s antitrust division thinks otherwise. It thinks it’s looking at the last straw, so it has gone to court to save the camel.

To give the government some credit, it should be noted that this is not an easy call. The Clayton Act requires the government to prohibit mergers if the effect of the transaction “may be substantially to lessen competition, or to tend to create a monopoly.”

Given the current state of the arts of fortune-telling and time travel, this is necessarily a judgment call.

The Justice Department has a numerical exercise that adds the squares of market shares to measure concentration and market power; it’s called the HHI index, and it’s as close to science as antitrust analysis gets.

By this measure, a merger of American and US Airways would reduce competition in slightly more than 1,000 city pairs, which sounds “substantial” until you consider that many of these are small markets linked exclusively through connections, such as Austin, Texas, to Durango, Colo.; or Lexington, Ky., to Syracuse, N.Y.

The merger partners note that they are direct competitors in only 12 nonstop routes.

Several commentators have pointed out that previous mergers had similar effects in a similar number of markets, maybe more. Is Uncle Sam changing the rules?

We think he is. There are only two factors that make this merger any different. First, it involves carriers that control two-thirds of the takeoff and landing slots at Reagan National Airport in Washington. Second, it was preceded by three other mergers.

If the government is complaining that the camel is already overloaded, aren’t we entitled to ask who loaded the camel? The government, under administrations of both political parties, created a regulatory environment that encouraged and rewarded airline consolidation.

Government policies encouraged airlines to hoard and bid up the price of slots at Reagan National to the detriment of new entrants, and even allowed US Airways to enlarge its slot holdings in a deal with Delta last year.

The government also has granted antitrust immunity to numerous international airlines so that direct competitors could stop competing and pool their revenue in joint ventures. And it approved every airline merger placed before it in the last decade.

In our view, American and US Airways can’t be blamed for taking the hint and seeking the same path to profits.

As we have said before, we think consumers could be reasonably well served by an airline sector consisting of three global mega-carriers, supplemented by Southwest, JetBlue, Alaska, Hawaiian and other niche players.

Rather than filing one lawsuit every decade, the government’s antitrust watchdogs might want to rethink the way they have allowed airlines to appropriate airport slots and to expect antitrust immunity for their international ventures as if it were an entitlement.

That could take some strain off the camel.


From Our Partners

2020 Australia Webinar
Australia is open for business
Register Now
7 Reasons You Should Be Selling Train Vacations
Read More
2020 Events 365
Discover Unforgettable Live Events with Events 365
Register Now

JDS Travel News JDS Viewpoints JDS Africa/MI