Regulators taking harder look at air-service consolidation

The Alaska Airlines-Virgin America merger still has not received antitrust approval.
The Alaska Airlines-Virgin America merger still has not received antitrust approval.

Two recent airline antitrust-immunity decisions by the Department of Transportation (DOT), coupled with the continued delay in the Department of Justice's (DOJ) decision on the proposed Alaska Airlines acquisition of Virgin America, raise the question of whether the Obama administration is taking an especially tough stand on air-service consolidation in its waning days.

"They're clearly trying to make some noise before going away," Brett Snyder, who runs the aviation blog Cranky Flier, said of the two agencies.

The DOT's latest salvo came on Nov. 18, when it blocked a request from American and Qantas to jointly market, plan and operate flights between the U.S., Australia and New Zealand.

The denial of that request for antitrust immunity came even though Delta-Virgin Australia and United-Air New Zealand already operate competing immunized joint ventures.

But in announcing its decision, the DOT cited the fact that American and Qantas together control 60% of the U.S.-Australia market.

That decision came just two weeks after the DOT requested concessions from Delta and Aeromexico as a condition for a proposed approval of those carriers' application to jointly operate flights between the U.S. and Mexico.

Specifically, the department said it would grant approval of the joint venture only if the partners agreed to turn over to low-cost carriers 24 daily departure and landing rights at Mexico City's capacity-constrained Benito Juarez Airport and six such daily slots at New York JFK.

Diana Moss, president of the American Antitrust Institute, a nonprofit that said its mission is to promote competition that protects consumers, business and society, said the relatively aggressive stance taken by the DOT in these recent cases isn't necessarily related to the coming end of the Obama administration.

Rather, she said, regulators have generally looked with more scrutiny over the last few years at proposals that would further reduce consumers' choice of airlines.

Since 2006, the U.S. airline industry has seen the number of primary carriers shrink from 11 to four. American, Delta, Southwest and United now control approximately 80% of domestic passenger traffic, according to various estimates.

"Anything that happens now against this backdrop where we have so much consolidation is going to be given a harder look," Moss said.

That theory could help explain the difficulty that Alaska is having in gaining DOJ approval of its proposed $4 billion acquisition of Virgin America, even though the merger would be much smaller than the ones undertaken in recent years by American and US Airways, United and Continental, Delta and Northwest and Southwest and AirTran.

In September, Alaska and Virgin told the Justice Department that they wouldn't close the deal until at least Oct. 17, instead of Sept. 30 as had been planned, in order to give regulators more time to review the deal.

The acquisition still has not received antitrust approval, leading to widespread speculation that the DOJ is negotiating with Alaska about giving up select gate rights at key airports and about potentially ending or curtailing codesharing with Delta and American.

Moss said that one likely reason the DOJ appears to be concerned with the deal is that Virgin America is a disruptive player in the U.S. airline industry, offering a low-cost and innovative product.

"Those disruptive players keep everybody on their toes," she said.

Still, Snyder said he expects that regulators will reach a deal with Alaska-Virgin before Inauguration Day on Jan. 20.

"My assumption is they would have abandoned it by now if it wasn't going to be resolvable," he said of Alaska.


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