Jeff Gelles: Airline case proves need for antitrust vigilance

Posted: August 19, 2013

Even if it manages to block the merger between US Airways and American Airlines, the antitrust lawsuit filed last week won't preserve a highly competitive airline network connecting every corner of the country.

That plane has already left the hangar. Just ask the residents of Pittsburgh, Cincinnati, Memphis, and a host of other places, many in the nation's heartland, that have lost service because of mergers that state and federal regulators waved through.

But the case presented last week by Assistant U.S. Attorney General William Baer and a bipartisan group of six states' attorneys general just might be the proverbial stitch in time. And thanks to details gleaned from the two airlines' internal documents, it shows why vigorous antitrust enforcement is essential in an era when both political parties put faith in the ability of competitive markets to self-regulate.

Would the new American be better able to raise prices and cut service? Absolutely.

Might the two airlines be exaggerating when they assure cities such as Philadelphia and Charlotte, N.C., they won't mess with their popular hubs? No question.

Would this latest consolidation - which would leave us with four national carriers, down from twice as many a decade ago - make it easier to avoid the peskier aspects of competition, such as trying to lure fliers with better prices and services? Seems clear enough.

How do we know? Because the two airlines' employees and executives tell us repeatedly.

Consider US Airways' deeply discounted Advantage Fares, a competitive response to the fact that its hubs are mostly in cities smaller than those of the other surviving "legacy" carriers.

It may surprise you if you fly from Philadelphia International, but US Airways has recently become an aggressive discounter.

The catch is that it offers its best prices, called Advantage Fares, only on connecting flights via its hubs, which are in smaller cities that draw fewer lucrative "origin and destination" passengers than, say, United's hub in Chicago or American's in Los Angeles.

For instance, a traveler from New York to Houston, leaving one day and returning the next, would pay $1,445 for nonstop flights on United and about the same on Delta or American - even though JetBlue and Southwest each offered the same nonstop round-trip for about $900, according to a recent test documented in the suit. But a traveler willing to connect via a US Airways hub could buy the same ticket for as little as $575.

The lawsuit says US Airways' fares "have proven highly disruptive" to airline pricing, and have prompted its competitors to sometimes fight back against nonstops from US Airways' hubs.

If the merger goes through, wave goodbye to those deals. The suit quotes an internal American analysis saying US Airways' Advantage Fares "would have to be eliminated in a merger with American, as American's large nonstop markets would now be susceptible to reactionary pricing from Delta and United."

Eliminating a competitor that offers discounts would likely raise prices for everyone, and make it easier for the remaining carriers to move prices in lockstep.

The fate of the merged airline's hubs would also be in doubt.

Why not trust assurances? One reason is that other cities have been there before. But no inferences are necessary.

The complaint quotes an e-mail sent by US Airways' CEO in 2010, during congressional hearings on the United-Continental deal. It says an industry analyst had testified that "he did not believe the merger would cause reductions in Cleveland," a Continental hub, and that the US Airways leader couldn't believe it.

"[S]urely these guys aren't really planning to keep Cleveland open," he wrote to his colleagues, according to the lawsuit, which redacted the analyst's name. "I'm hopeful they're just saying what they need to (including to [the analyst]) to get this approved."

Of course, it's impossible to say with certainty what US Airways' longtime CEO, Doug Parker, would do if he gained control of a merged airline. Both carriers dispute the antitrust charges, and have vowed to fight.

But the case shows the almost-casual coziness of an increasingly concentrated industry, laid bare by another e-mail incident in which the US Airways' CEO complained about a threat to profits from a competitor's "triple miles" deal and urged portraying that carrier "as idiots to Wall Street and anyone else who'll listen."

The CEO forwarded the whole thread to his triple-miles counterpart. Thankfully, the trustbusters were listening, too.


Contact Jeff Gelles at 215-854-2776, jgelles@phillynews.com, or @jeffgelles. Read his blog at www.inquirer.com/consumer.

comments powered by Disqus
|
|
|
|
|