Thursday, May 27, 2010

Critic on United-Continental: An Airline Too Big to Fail
May 27, 2010, 6:35 pm — Updated: 8:19 pm

A consumer advocate argued at a Senate hearing on Thursday that the proposed merger of
United Airlines and Continental Airlines would create an airline that was too big to fail, one that the government would need to bail out if it ran into trouble.

“Just as we have seen with the banks, with financial services companies and with automobile manufacturers, we are now seeing the domestic airline industry evolving into an oligopoly of 800-pound gorillas,” William J. McGee, a consultant with the Consumer’s Union, which publishes Consumer Reports magazine, said at the hearing, held by the Judiciary Committee.

The chief executives of both airlines said that the merger would help create a newer, more efficient airline, and that cost savings would be made without resorting to hiking up ticket prices.
But Mr. McGee cited the consolidation of the airline industry to a handful of legacy companies, a development that he argued had reduced consumer choice, raised fares and cut service in crucial markets. He noted the disappearance of seven major airlines over the last 20 years, most recently TWA and
Northwest Airlines.

Should United merge with Continental, only four major airlines would remain, wiping out 20 percent of the nation’s air service in one fell swoop.

“In the past, Wall Street investors and executives at competing airlines have decried any form of assistance to financially struggling carriers, asserting the government should let the marketplace decide which airlines survive and which airlines fail,” Mr. McGee said. “In the future, these same parties will reverse that argument claiming that a megacarrier such as United-Continental will be too big to fail. And they will be right.”
– Cyrus Sanati

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