Monday, 26 August 2013

Consumer advocacy pays off in challenge to AA/US merger

A series of mergers, greatly reducing competition between the remaining US-based airlines, has been allowed to proceed without interference from the US government.

So the antitrust lawsuit filed this month by the US Department of Justice against the proposed merger of American Airlines (AMR Corporation) and US Airways shocked the industry.

What should be shocking, however, is that Federal regulators — charged with protecting consumers against collusion in restraint of trade — allowed things to get this far before objecting.

How did this happen? And what has changed?

Until recently, airline passengers have had little influence on the decisions of federal aviation and antitrust regulators.

Many airline mergers and acquisitions have involved airlines that were operating under the supervision of Federal bankruptcy courts, but those courts are required to concern themselves solely with the interests of bankrupt airlines’ creditors — not the interests of passengers. Ticket holders are actually among airlines’ major creditors (airlines depend on advance ticket purchases for working capital), and should be represented in bankruptcy proceedings, but rarely are.

The Bush Administration did its best to avoid enforcing antitrust laws, and until recently there was no organized airline passenger lobby to call attention to its neglect of consumers’ interests.

The Obama Administration gets credit for reviving the moribund antitrust division of the Justice Department. But an additional key factor in the Justice Department decision to challenge the proposed AA/US merger has been the role of the Consumer Travel Alliance in calling attention to the negative implications for travellers of the proposed merger and pointing out the issues omitted from the airlines’ arguments.

American Airlines and US Airways put forward a perfunctory analysis of the impact of the proposed merger on competition that was concerned solely with routes on which both AA and US currently offer nonstop flights. Since there are few such routes (basically only routes between those airlines’ hubs), the airlines claimed that the proposed merger would have little impact on competition of the choices available to travellers on any routes — even between the majority of city-pair routes on which no nonstop flights are operated by any airline, and airlines including AA and US compete to get travellers to choose connecting flights by way of their respective hubs.

Similar arguments about a lack of competing nonstop flights had been made by United and Continental and Delta and Northwest in support of their mergers. In they absence of any organized challenge, those arguments were swallowed whole by the Justice Department.

In the case of the proposed AA/US merger, the Consumer Travel Alliance gets credit for pointing out that the airlines’ argument about nonstop flights has no clothes when it is applied to airlines with primnarily hub-and-spoke route systems. The CTA commissioned and publicized the results of a study analyzing the likely impact of the merger on competition and fares for through connecting traffic, raised this issue in Congressional testimony, and got it to the attention of the Justice Department and the Government Accountability Office. After auditors from the GAO confirmed the conclusions of the CTA study, the Department of Justice eventually decided to file suit to block the oligopolistic and anti-competitive merger proposal. Airline executives, not accustomed to being opposed, were shocked.

(I donate some of my time to CTA as a policy analyst, but wasn’t involved in its work against the AA/US merger. The heavy lifting was done by CTA Executive Director Charlie Leocha.)

The successes of the Consumer Travel Alliance on this and other issues since its founding in 2009 show how important it is for air travellers — customers of an industry heavily shaped by Federal regulation — to have our own voice and seat at the table when decision are being made in Washington that affect how much we have to pay, and what (if any) choices we have, when we fly.

Link | Posted by Edward on Monday, 26 August 2013, 10:10 (10:10 AM)
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