Friday, August 16, 2013
Attorney General Greg Abbott: Why I challenged the American Airlines-US Airways mergerWhy in the world would Texas file a legal action challenging the merger of American Airlines with US Airways? The answer is simple: We believe that actions by the airlines and their officials violate antitrust laws. In fact, the legal violations appear so overt that it would offend my oath of office not to take action.
The legal action is based on evidence such as internal emails, investor presentations and other comments by top executives of the airlines. Those documents reveal their thinking about how shrinking competition in the airline industry — and, hence the merger — will allow the airlines to pile even more bag fees, ticket change fees and increased fares on customers. American and US Airways compete directly on thousands of heavily traveled routes. The merger would allow the new company to shed that competition and distort the marketplace — while harming competition for nearly 200 Texas routes.
But don’t take my word for it; take the word of the airlines: The president of US Airways — the company American is trying to merge with — said that consolidation among airline competitors helped pave the way for airlines to hike fares. He later noted that it’s “impossible to overstate the benefit” of mergers in giving airlines the ability to impose new fees. He also said that they were “able to pass along to customers” “three successful fare increases” because of mergers and consolidation in the airline industry.
This is just a small sampling of troubling things. First, the airline executives’ own words raise antitrust concerns. Second, the goal of the airlines appears to undermine free markets. The combined airlines will be able to extract higher fees and impose more onerous fares only because the free market system will be so distorted.
Free markets work best with competition in the marketplace.
What the proposed merger seeks is not competition in the free market, but it expressly seeks the elimination of competition so the airlines no longer need to compete for customers. It turns the free market on its head. Kevin Mitchell, chairman of the Business Travel Coalition, said that the merger casts “a spotlight on how uncompetitive and cozy U.S. airlines have become.”
As the Department of Justice said: When you have fewer competitors — in this case, just three legacy airlines — it’s much easier for them to play follow-the-leader. One takes the bag fee up, and the others go along. If you reduce the number of airlines, you make it easier for the remaining players to participate in tacit coordination rather than real competition.
For airlines, the free market is morphing into an oligopolistic market. Competition is giving way to price and market control by a limited number of players who appear intent to agree on price increases rather than competing for customers. That is what typically happens when competition is removed from the marketplace.
Evidence shows that competition has been working in the airline market. If you look at the recent financial performance of US Airways and American Airlines, you can see how the two airlines are viable, healthy and in a position to be competitively aggressive and successful on a stand-alone basis.
American entered bankruptcy with plans to restructure and remain independent, and adopted a stand-alone business plan designed to “restore American to industry leadership, profitability and growth.” Now American is on a path to compete independently as a profitable airline; its most recent quarterly results reported a company-record $5.6 billion in revenue, with $357 million in profit. And earlier this year, American’s management presented plans to emerge from bankruptcy on a stand-alone basis that would increase the destinations it serves in the U.S. and the frequency of its flights.
My history of taking on the Department of Justice is well-documented. I have sued the Obama administration about 28 times and have repeatedly battled against overreaching actions by the federal government. I would not join with the federal government in a legal action if the merits did not command it. In this instance, the facts compel action to ensure the rule of law is enforced.
This column first appeared in the Dallas Morning News on August 16, 2013.