AAI Says Southwest/Air Tran Merger Raises Important Airline Competition Issues

The American Antitrust Institute today issued a White Paper that examines competition issues raised by the proposed merger of Southwest and AirTran. The transaction would be the first major combination of low cost carriers (LCCs) in the domestic airline industry.

“The DOJ is likely to focus mainly on overlaps between the merging partners in city-pair or airport-pair markets,” said AAI Vice President Diana Moss. “Based on what we can gather from the DOJ’s public statements in other recent airline mergers, the combination of Southwest/AirTran probably wouldn’t meet with antitrust enforcement resistance,” Moss explained. However, the AAI believes additional factors are important to consider in a merger inquiry.

In the White Paper, Moss outlines how the proposed Southwest/AirTran merger could potentially result in: (1) a transition from a point-to-point/hybrid system to a hub-and-spoke network model; (2) changes in the two LCC’s price discounting strategies; (3) changes in entry or expansion patterns in new and existing markets; and (4) changes in short-term output and/or longer-term capacity decisions. Many of these questions arise because Southwest and AirTran play unique roles in the LCC segment of the domestic industry.

The White Paper is the first of what is intended to be a series by the AAI on competition in the U.S. airline industry.  In September, the AAI announced that it will undertake a new study on competition in the U.S. airline industry.  In conducting the study, the AAI will seek and welcome input from all affected airlines and related industry groups. Please contact Dr. Moss at aai@antitrustinstitute.org.

Airline Mergers at a Crossroads: Southwest Airlines and AirTran Airways