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Airline merger challenge was all about Washington

Airline merger challenge was all about Washington


Tough talk turned conciliatory in a hurry when the Justice Department reached a settlement last week with American Airlines and US Airways.

When the department sued to block the airlines’ merger, its top antitrust official insisted that only a “full-stop injunction” would satisfy concerns about reduced competition. As it turns out, the department was mainly concerned about competition at Reagan National Airport, the preferred point of departure for Washington’s political class.

The settlement calls for American and US Airways to sell landing slots and gates at Reagan National, New York LaGuardia and five other airports. Bloomberg reported Friday that the Reagan National slots were the main sticking point in settlement negotiations.

The merged airline would have controlled 63 percent of flights at Reagan National, so the forced sale of 104 landing slots will enhance competition in Washington.

For the rest of us, not so much.

The Justice Department’s lawsuit had argued that this merger would be especially harmful to consumers because US Airways was something of a maverick, pricing connecting flights more aggressively than other airlines. That concern seemed to evaporate once a deal was reached on the landing slots.

Yes, giving Southwest or JetBlue or others a chance to expand at Reagan National should hold down fares there, but that hardly amounts to striking a blow for air passengers nationwide.

“That (Reagan National) is fundamentally a high-cost airport,” said Richard Aboulafia, an aerospace analyst at Teal Group. “If you want to look for competition, look at Dulles or BWI (Baltimore Washington International Airport),” the other two airports in the Washington area.

Aboulafia says he was surprised that the Justice Department made such an aggressive challenge in the first place. It had demanded few concessions in allowing earlier airline mergers, like Delta and Northwest or United and Continental, to go forward.

The reality is, Aboulafia argues, that US Airways and American would have had to cut a large number of routes and jobs if the merger had been blocked.

“I’m sure they had a fallback plan, and I’m sure it involved shrinking,” he said. “Which would you rather have, three very large network carriers or two dominant networks and two very weak smaller carriers?”

As it turns out, we’ll soon have three big hub-and-spoke carriers — American, Delta and United — down from six in 2008. Southwest once had a reputation for undercutting the majors on price, but recently it’s behaved more like them, sometimes even leading fare increases.

David Swierenga, an airline consultant at AeroEcon in Round Rock, Texas, says fare increases have been driven by fuel costs, not a lessening of competition. He doesn’t think the latest merger will have much effect on prices, not in congested places such as LaGuardia and Reagan National or in less busy places such as St. Louis.

In Swierenga’s view, this is the endgame of a process that began with deregulation in 1978. Costs had to be cut; fleets had to be rationalized. That required a series of painful bankruptcies — don’t forget that American is still operating under Chapter 11 — and mergers.

Now that the consolidation is complete, Swierenga says, fares are rising almost in lockstep with costs. If fuel prices go up, consumers pay more. If they go down, you might see fare wars. He doesn’t think the American-US Airways merger will change that.

It’s certainly hard to see how the Justice Department’s settlement really provides much help to those of us out here in the hinterland. If this fight was really only about Washington, they should have said so.

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