Continental / United merger approved by DOJ

by Charlie Leocha on August 29, 2010

The best chance of stopping the merger of giants Continental and United Airlines is gone. The same department that two years ago recommended against allowing these two airlines to for an airline alliance with antitrust immunity, just approved a full merger. Go figure.

One thing that we can be certain of, is that the government is still firmly in the camp of the legacy airlines in the long run. These financially troubled behemoths hold an uncommon sway over our governing structure. Senators and Representatives all tread lightly when the airline are concerned because no one wants to bear the unspoken consequences of standing up against the airlines — loss of local service.

Let’s face it, airlines drive an amazing amount of economic benefits to communities that they serve. But there has to be a balance between the economic and social benefits of airline service and the perils of airline concentration.

Airlines can both give and take away.

In Salt Lake City when Delta held sway over that airport, the state of Utah may have claimed some benefits to having direct service, but at the same time the higher prices forced on the Utah community by an airline with almost monopolistic power at the airport meant that development of their state tourism suffered, especially their winter ski and snowboard tourism. It wasn’t until Southwest moved into the airport that competition began to lower prices for Salt Lake City inbound and outbound passengers.

Much of the same story can be told about Cincinnati where Delta dominated the airport and turned it into a giant regional hub. This was a boon for the business community, even though they complained bitterly about the high airfares metted out by Delta for anyone starting or ending their journey in Cincinnati. Originating and incoming tourism traffic and consumer traffic was handicapped by high prices and airports such as Dayton and Columbus took an enormous slice of the leisure travel market.

The Cincinnati story’s ending was not as happy as that in Salt Lake City where competition drove prices down. In Cincinnati, Delta simply abandoned the airport as a hub after their merger with Northwest. Much of CVG (actually in Kentucky) is a ghost town.

With the United/Continental merger, we will begin to see the same sort of developments as economic powers are concentrated in the hands of few. The issue before us with the Continental/United merger is a loss of competition on both a nationwide and international scale.

In my testimony before the Senate Commerce Committee (I was one of two consumer advocates invited to speak before Congress about the pending merger.) I urged Congress not to reduce airline competition more than it already has. Here are some excerpted portions of my statement.

The Consumer Travel Alliance cannot find any public benefit from this merger. There are no new destinations and no new savings passed on to passengers. We see customer service disruptions and more restrictive frequent flier programs. Ultimately, we believe consumers will be faced with less competition and higher prices.

Neither this merger nor antitrust immunity are in the consumers’ interest. I don’t think that any of us in this room can point to even a single public benefit from the latest airline mergers.

Should this merger be approved, the nation’s system of network carriers will be effectively reduced to three — Delta, United and American.

This trio, even without USAir, already rumored to be exploring a merger with American, would control more than 70 percent of the domestic market if associated regional airlines are included. And their alliances would control 85 percent of international traffic.

We are creating yet another industry with companies, “too big to fail.” have we learned nothing from the past two years?

Admittedly, these two airlines have limited overlapping routes, however their impact on hubs, long-haul routes, connecting routes, suppliers and consumers cannot be measured by overlapping routes alone.

If airline consolidation is allowed to continue with mergers of domestic carriers and antitrust immunity, the consumer travel alliance predicts this committee will find itself, within the decade, meeting to find ways to restore competition to our airline system that is being eliminated today.

Without a doubt, passengers will end up paying for millions in legal fees and executive bonuses. That is already baked into the merger cake. Now come the economic consequences.

With real-world figures like 70 percent control of the domestic market and 85 percent control of the international markets, the major airlines and their alliance partners will have a competitive position that will force consumers to pay higher airfares and increasing fees.

Get ready.

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