Tuesday, September 21, 2010

Antitrust Institute to Study Competition, Consolidation in Airline Industry

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter, and John W. Arden.

In light of recent consolidation in the airline industry, the American Antitrust Institute (AAI) will undertake a new study on competition in the U.S. airline industry, according to a September 20 announcement.

The study is motivated by the 2008 merger of Delta and Northwest and the recently proposed merger of United and Continental, both of which the AAI opposed.

Significant, Rapid Consolidation

“We have reached the point where the positive or negative effects of significant and rapid consolidation in the U.S. airline industry should be documented,” said AAI Vice President and economist Diana Moss, the lead researcher for the study. “Future merger decisions and aviation law policy can benefit from objective, empirical analysis.”

Consolidation in the airline industry has reduced the number of legacy network carrier systems from six to four, assuming the United/Continental deal is consummated, the AAI noted. The organization believes that American and U.S. Airways might counter the mergers with one or more deals of their own.

The study will assess the effect of recent airline mergers on fares and other fees; quality of service (including flight delays and cancellations); capacity expansions and restrictions; entry by low-cost and other legacy carriers; and choices available to the U.S. travel consumer.

It will attempt to determine whether the claimed cost savings from the mergers are actually realized and the extent to which the savings are passed on to air travelers. The study will also examine the effect of consolidation on low-cost carriers, in particular whether mergers create opportunity for collusion or establish price umbrellas under which low-cost carriers can compete less vigorously.

Justice Department Merger Review

In addition to the mergers themselves, the AAI is concerned with the lack of transparency in the Justice Department’s review of airline mergers. In approving both the Delta/Northwest transaction and the United/Continental combination, the Justice Department issued brief announcements. The AAI is urging the Department of Justice to provide additional statements that will facilitate evaluation of the assumptions and predictions implicit in the Antitrust Division’s analysis.

“The DOJ’s press release approving the United/Continental merger is an example of a common failure to provide sufficient information and explanation to help the public understand the reasoning behind its decisions,” said AAI President Albert Foer. “The public should not be satisfied with an explanation that `The department conducted a thorough investigation.’ Of course we take that for granted.”

In addressing the 2008 Delta/Northwest merger, the Justice Department made no mention of apparent competitive problems, stating instead that the merger would produce “substantial and credible efficiencies.”

The AAI urged the Justice Department to make additional statements that will facilitate public evaluation of the Antitrust Division’s analysis.

Participation in Study

In conducting the study, the AAI will seek input from all affected airlines and related industry groups. Those interested in participating should contact Dr. Moss at aai@antitrustinstitute.org.

Further information regarding the study—and the organization itself—is available here on the AAI website.

The American Antitrust Institute is an independent, non-profit education, research, and advocacy organization based in Washington, D.C. Its stated mission is to “increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy

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