Too many airline mergers? Blame politics, one report says
The airline industry’s merger mania period may jump back into the spotlight this week after a report out Tuesday by ProPublica.
The non-profit news organization puts it spotlight on the American-US Airways merger that closed in 2013, taking a closer look at the Justice Department’s role in the deal. Justice originally sued to halt the deal, though it eventually allowed the merger to proceed after winning concessions from the merging airlines.
ProPublica takes a look at the politics that it contends were going on behind the scenes as pro- and anti-merger forces each tried to rally support to their own sides.
“The Justice Department’s abrupt reversal came after the airlines tapped former Obama administration officials and other well-connected Democrats to launch an intense lobbying campaign, the full extent of which has never been reported.”
“They used their pull in the administration, including at the White House, and with a high-level friend at the Justice Department, going over the heads of staff prosecutors. And just days after the suit was announced, the airlines turned to Chicago Mayor Rahm Emanuel, Obama’s first White House chief of staff, to help push back against the Justice Department.”
FULL REPORT: See the full ProPublica story
Era of airline merger mania comes to a close with last US Airways flight
ProPublica goes on with an in-depth look about the political wrangling it says happened behind the scenes. The outlet suggests opponents of the merger faced great pressure in trying to block the deal.
With the merger now settled, four airlines have taken control of about 80% of the U.S. market. All four of those carriers – American, Delta, Southwest and United – have been strengthened by large mergers during the past decade.
The American-US Airways merger was somewhat unique in that it followed three other mega-mergers. Those deals produced two very large global carriers – Delta (merged with Northwest) and United (merged with Continental) – whose sizes then greatly outpaced American and the even-smaller US Airways.
US Airways and American officials argued that their own merger was needed to effectively compete, saying United and Delta had become so big that they could muscle out American and US Airways and effectively dominate the market for “traditional" hub-and-spoke airline service.
Plus, many argued, how could Justice now block the American-US Airways deal after recently approving three other large airline mergers? The most-compelling argument against the merger, those critics contended, was not that the American-US Airways merger raised different antitrust concerns, but rather that it was simply "one merger too many."
US Airways' final flight closes curtain on another major airline
Today, those three big airlines – American, Delta and United – have become healthier financially. All have invested in new planes and airport facilities and have become stronger players against their global rivals. Just a decade ago, the threat of bankruptcy -- possibly even liquidation -- had become an ongoing concern for a number of carriers.
Low-cost giant Southwest – emboldened by its takeover of AirTran – has also become a true national airline and has expanded internationally for the first time in its history, bringing new competition to Mexico, Central America and the Caribbean.
At American itself, ProPublica notes “the combined company has 10% more employees than it had at the time of the merger.”
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Further, the divestitures made by American and US Airways – most notably a combination of slots and gate space at Washington Reagan National, New York LaGuardia and Dallas Love Field – have led to new competition from low-cost carriers in those markets.
But those who say the merger should’ve been blocked will point to increasing add-on fees and fares that have not dropped along with fuel prices. The now-consolidated U.S. airline industry, those critics will contend, has tipped the scales away from consumers and toward the companies’ interests.
“It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government, told ProPublica for its piece.
Not everyone agrees with that sentiment, of course. But, for those interested in one take on the political process that played out behind the scenes, the ProPublica piece is an interesting read.
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