Friday, May 16, 2008

Competition Is “Critical” to Airline Industry: Justice Department

This posting was written by Sarah Borchersen-Keto, CCH Washington Correspondent.

The Department of Justice (DOJ) considers competition in the airline industry to be “critical,” and will consider each merger proposal on the basis of its individual merits, the House Aviation Subcommittee heard May 14.

James J. O’Connell, deputy assistant attorney general in the Department of Justice Antitrust Division, said he could not comment on the specifics of the Delta-Northwest Airlines merger proposal, but stressed that in any airline merger review the department would consider the entire spectrum of competitive effects, including the impact on both domestic and foreign routes.

Since receiving jurisdiction for reviewing airline mergers in 1988, the DOJ has “actively worked to ensure that mergers that would threaten to harm competition are not permitted to proceed,” according to O’Connell.

Three-Player Industry

Meanwhile, House Transportation and Infrastructure Committee chairman James L. Oberstar (D-Minn.) reiterated his concerns that a Delta-Northwest merger would result in an industry of three major carriers that would put at risk the consumer benefits of airline deregulation.

Subcommittee chairman Jerry F. Costello (D-Ill.) added that the long term implications of a series of mergers could have a major effect on the future of the industry.

House Transportation Committee ranking member John L. Mica (R-Fla.), told the hearing that he expects the merger to pass regulatory muster, based on the fact that he does not see the merged airline creating a monopoly position. Mica noted that the industry is under “tremendous pressure” and warned that if a three-carrier industry faces additional strains then “the government would be left holding the financial bag.”

Merger Agreement

On April 14, 2008, Delta and Northwest announced an agreement to combine the airlines to create a $17.7 billion enterprise, to be called Delta and to be headed by Delta CEO Richard Anderson. The enterprise would provide access to more than 390 destinations in 67 countries and produce more than $35 billion in aggregate annual revenues, according to the announcement.

The companies emphasized that the merger would produce a more competitive, financially secure airline; would not entail closures of any hubs; would help the airlies deal with rising oil prices; and combine Delta's strengths in the South, Mountain West, Northeast, Europe, and Latin America with Northwest's leading positions in the Midwest, Canada, and Asia.

The chief executives of the merging airlines testified before House and Senate Committees on April 24, 2008 (see Trade Regulation Talk, April 25, 2008),

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