The Feds’ About-Face On Airline Mergers

Why a new overseer is out to stop the American-US Airways marriage | “There’s a tipping point, and the agency is going to say no”

Justin Bachman

For years the U.S. Department of Justice has stood by as big airlines got even bigger by swallowing their competitors. The agency’s antitrust lawyers didn’t let concerns about reduced competition and inflated ticket prices get in the way when Delta Air Lines acquired Northwest in 2008, or when United Airlines and Continental merged in 2010, or when Southwest Airlines bought AirTran in 2011. But that forbearance has abruptly vanished, as the DOJ is seeking to block the $14 billion union of American Airlines and US Airways.

Why now? Federal regulators say the merger, which would create the world’s largest airline, would lead to less competition and greater expense for travelers. Six states, including Arizona and Texas, where the two airline are based joined the department’s Aug 13 lawsuit. “If this merger goes forward, even a small increase in the price of airline tickets, checked bags, or flight-change fees would result in hundreds of millions of dollars of harm to American consumers,” said the DOJ’s William Baer in announcing the case. A former attorney at Arnold & Porter in Washington, Baer took over the department’s antitrust division in January.

The same could have been said of previous megamergers. Most large U.S. airlines currently enjoy a monopoly on at least 25 percent of their routes, Wolfe Research airline analyst Hunter Keay wrote in a recent note to clients. If American and US Airways were to combine, the resulting Big Four — United, Delta, Southwest, and the new American — would account for more than 80 percent of domestic flights. The industry has also seen a bonanza in recent years from new “ancillary” fees for checking a bag, changing a ticket, or choosing an aisle seat. Mergers have “likely aided the implementation of these fees,” the government said in its suit.

US Airways and American may just be the victims of bad timing. “If you’re the first merger in an industry that’s consolidating, you’ve got an advantage,” says Robert Doyle, an antitrust attorney in Washington at Doyle, Barlow & Mazard. “If you’re the third or fourth mover, then you can have a problem.” Unluckily for the airlines, their merger coincided with Baer’s arrival at Justice. Under his direction, the division has adopted an aggressive posture toward antitrust regulation, after several years under Presidents Bush and Obama when it operated with a “cookie-cutter approach” to merger reviews, says Garret Rasmussen, an antitrust lawyer at Orrick in Washington. Before Baer, “it wasn’t hard to get a merger through — even a big merger.”

Baer has worked in government before. In 1997, as head of the Federal Trade Commission’s Bureau of Competition, he helped block the union of Staples and Office Depot. This year he successfully sued Apple over e-book prices. He also blocked Anheuser-Busch InBev’s $20 billion purchase of Mexican brewer Grupo Modelo, maker of Corona, saying the two companies would corner the U.S. beer market. Baer allowed the deal to go through after AB InBev agreed to divest itself of Grupo Modelo’s U.S. beer business, selling it to winemaker Constellation Brands.

Joe Sims, a Washington antitrust lawyer at Jones Day, which represents American, says the government has overlooked the benefits of the merger for travelers. The airlines say the new company will offer more routes, better service, and will be a more stable employer. “We think the antitrust division is being simplistic, is the best way to put it,” he says.

Baer is clearly unsympathetic to these claims. If he’d been at the Justice Department a few years ago, the government would have blocked the United-Continental merger, Rasmussen says. After so much consolidation, “there’s a tipping point, and the agency is going to say no.”

The bottom line After years of looking the other way at big mergers, the government is getting serious about enforcing antitrust laws.

Welcome!

Magazines Review offers you a broad range of popular American magazines online. Browse an extensive directory of magazines, covering most important aspects of your life. Find the most recent issues of your favourite magazine, or check out the oldest ones.

About content

All the articles are taken from the official magazine websites and other open web resources.

Please send your complains and suggestions through our feedback form. Thank you.