The American Antitrust Institute (AAI) has released a new White Paper, “Delivering The Benefits? Efficiencies and Airline Mergers.” The merger of USAirways-American was consummated today, less than four weeks after the U.S. Department of Justice (DOJ) negotiated an eleventh-hour settlement with the carriers. “Now that the traveling public will be forced to cope with yet another airline mega-merger, the spotlight is on what happens to fares and capacity, and whether carriers deliver on their promises of cost savings and consumer benefits,” explained AAI’s Vice President, economist Diana Moss.
It is well documented that previous airline mergers have been accompanied by fare increases and capacity cutbacks, with particularly harsh effects on medium size and smaller cities. Also important is whether carriers actually deliver cost savings and benefits such as increased “connectivity.” The AAI study takes a look at the track record on the benefits that were claimed by carriers in previous large airline mergers, including Delta-Northwest, United-Continental, and Southwest-AirTran.
The White Paper highlights the finding that integrating some airline systems has been difficult, time-consuming, and more expensive than what was predicted by the carriers. Another concern is that promises of network benefits involving increased connectivity may not have fully materialized. The AAI analysis also concludes that the possible effect of more intense, merger-induced “hubbing” on airport congestion and carrier-specific delays deserves a closer look.
Moss explained that the study findings should cast doubt on whether mega-mergers can deliver the benefits. “Airlines have likely underestimated integration costs and overestimated benefits in previous mergers. We are concerned that the track record on previous mergers is an important indicator for what we’ll see in USAirways-American,” she concluded.
The AAI opposed the USAirways-American merger that would create the largest domestic carrier on the grounds that it would likely harm competition and consumers. The AAI also criticized the settlement negotiated between the carriers and the DOJ because it fell short of remedying the harms described in the government’s August 2013 Complaint. The USAirways-American merger is being consummated well before the public has had the opportunity to comment on the settlement.
The the White Paper can be downloaded here. Follow the AAI’s work on airline mergers at: http://antitrustinstitute.org/industries/airline-mergers
About American Antitrust Institute (www.antitrust institute.org)
The American Antitrust Institute is an independent Washington-based non-profit education, research, and advocacy organization. Our mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. Our list of contributors is available upon request to firstname.lastname@example.org.
Diana Moss, AAI