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Oberstar's objections to airline mergers

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Oberstar believed the government's examination of airline mergers should include consideration of whether a merger would inevitably trigger others.

Former US House of Representatives Transportation and Infrastructure Committee chairman Jim Oberstar, who died over the weekend, was perhaps the most vocal critic of the recent wave of airline mergers in the US. The death of the longtime Democratic congressman from Minnesota prompted me to take a look back at his objections to industry consolidation from a few years ago. It will take time to judge whether any of his predictions come true. But, for the record, it’s worth recounting those objections in one place:

In the spring of 2010, Oberstar wrote a letter to the US Department of Justice to “strongly urge” it to reject the United-Continental merger on antitrust grounds. He said the tie-up would be “another domino in the chain” of airline industry consolidation, likely leading to “further consolidation” and less choice for consumers.

Oberstar said DOJ in 2009 had “regrettably … departed from its policy of preventing anticompetitive activity when it approved the Delta-Northwest merger.” He told reporters at the time, “This is wrong. This is bad for competition, and it will be a disservice to all of aviation domestically and internationally.”

When DOJ cleared United-Continental in August 2010, Oberstar called the approval “regrettable,” adding, “It may be time for Congress to rethink its vote in 1978” to deregulate the airline industry.

Oberstar said DOJ “had little choice” but to approve the combination since DOJ only examined antitrust implications when reviewing airline mergers. He pushed “to give broader authority over such mergers to the Department of Transportation [rather than DOJ], allowing DOT to consider such factors as the impact a merger will have on service to communities and customers, as well as the effect the merger could have on the industry as a whole.”

He added that government examination of airline mergers should include “consideration of whether a merger will inevitably trigger others, ultimately reducing the industry to a few large carriers, each of which is unwilling to compete seriously in markets dominated by one of the others.”

Oberstar was prescient about the future. With the Delta-Northwest and United-Continental mergers approved, he asked in 2010, “Can a US Airways-American Airlines merger be far behind? This consolidation of the mainline companies into three or four mega-carriers is not what I voted for in 1978 … Airline consolidation brings consumers and communities fewer choices and less competition, usually leading to increased fares and reduced levels of service. That runs directly counter to the promise of deregulation.”

Oberstar had been voted out of Congress by the time the American-US Airways merger was announced in 2013, but he was still around when Southwest Airlines reached a deal to buy AirTran Airways in 2010.

In October 2010, he wrote a letter to DOJ warning that the Southwest-AirTran merger could severely damage the famous “Southwest effect” that keeps fares low at airports where Southwest operates through the Dallas-based carrier’s exertion of “competitive discipline on network carriers.”

In calling for DOJ to “rigorously” review the antitrust implications of the combination, the congressman said “the product of the Southwest-AirTran merger would by all measures be a large airline with less ability and incentive to continue to apply downward pressure to air fares in relevant markets … No airlines offer low fares out of a sense of philanthropy to the traveling public; like any airline, Southwest is ultimately concerned with the bottom line, and if it is not faced with potential competition from other low-cost carriers, Southwest may decide that it would be more profitable to follow the fares of network carriers rather than force fares down.”

He said the merger would “encourage other mergers” and posed “substantial problems,” adding, “In sum, the future of competition among airlines at every level of the industry, legacy and low-cost alike, is at stake in the Southwest-AirTran merger.” Oberstar urged DOJ to “consider this merger’s special significance to the evolution of the US airline industry” and “take all available action, including the pursuit of injunctive relief, to remedy any anticompetitive effects … Competition and innovation by low-cost carriers must be preserved.”

Discuss this Blog Entry 1

on May 8, 2014

Nice summary, Mr Karp. Well done, although you've too much professional class to state herein what I'M going to state --- that Oberstar was essentially anti-capitalist, at best. He spoke of airline bottom-line profitability as if it was a sin or a crime. He loathed legacy carriers despite his own home state's long history of hosting a couple of the better ones out there. He asserted that airlines are for all intents & purposes in existence to provide virtually free transport' to any & all comers rather than to "allow" said airlines --- private business entities, all --- to actually set their own fares so that their costs are covered and then some (How dare they? Perish the thought of profitability!). No, Oberstar was essentially a socialist. From an airline perspective, he'll not be missed. Rest in peace, Jimmy.

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