When the U.S. Justice Department filed suit in August to block the merger of US Airways and American Airlines, it seemed to signal the end of consolidation. How could one not think that the government had made a dramatic turn when it argued that, for flights between more than 1,000 city-pairs, consumers would be gouged if there were only three legacy network carriers?
This month, only days before a trial was to begin, Justice said, in effect, “Never mind.” Regulators ignored the city-pairs and said the two carriers had agreed to give up landing/takeoff slots and gates at seven important airports. Assistant Attorney General Bill Baer said these divestitures will give low-cost carriers (LCCs) a leg up on the legacy airlines, to set in motion a “structural change” in the U.S. industry to the benefit of consumers. This is a bit much to swallow, especially after Justice argued initially that LCCs are totally different beasts from network carriers and should not be considered when assessing whether the US-AA merger would be anticompetitive.
We may never know the reason for Justice's about-face. It might be that regulators had been willing all along to accept these rather modest concessions of slots and gates but American and US Airways were initially too arrogant to accede to them, so Justice responded with the broad-brush attack on the entire proposed network as a legal gambit. Or it might be that regulators had genuine second thoughts about whether any merger of the two would be a threat to consumers. American and US Airways had argued that combining them would create a third, strong, full-service network carrier to compete with United and Delta.
Antitrust law inherently involves shades of gray. And where one person sees a difficult judgment, as we did (Aug. 26, p. 54), another may see regulators succumbing to political pressures. There were many noisy proponents of this merger, to be sure. But Baer insists he received no pressure from above. It would be disgraceful if he had. Still, it is reasonable to take into account the many ways airlines fit into the national economy.
This presents a paradox for antitrust regulators: Block a merger out of concern for competitiveness in the domestic market, and U.S. airlines may not reach the mass and strength to compete internationally against the likes of Persian Gulf carriers (see page 35).
On balance, allowing the creation of “New American” is probably in the best interest of U.S. citizens as whole. Now, if Washington would relax its stringent restrictions on foreign ownership of U.S. airlines, it might empower some of them to compete effectively against well-heeled global rivals.