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Monday, August 19, 2013
Saying No the Flighty American-US Airways
Deal The Feds' Move to Block the Airline Merger Is Overdue by Al Lewis -
Wall Street Journal - August 18, 2013
Try to keep this
American Airlines—which has already merged with Trans Caribbean
Airways, Air California, Reno Air and TWA—wants to merge with US
Airways—which has already merged with Lake Central Airlines, Mohawk
Airlines, Pacific Southwest Airlines, Piedmont Airlines and America
They want to merge because:
• United Airlines—which had
already merged with Capital Airlines and part of Pan Am— merged with
Continental Airlines—which had already merged with People's Express, New
York Air and the original Frontier Airlines.
• Delta Air Lines—which had
already acquired the Chicago and Southern Air Lines, Northeast Airlines,
Western Airlines and Pan Am's shuttle airline—merged with Northwest
Airlines—which had once swallowed Republic Airlines.
• And Southwest
Airlines—which had acquired Muse Air, Morris Air and ATA Airlines— recently
took over AirTran Airways—which had merged with ValueJet. The U.S.
Justice Department, which rarely intervenes in airline mergers, last week sued
to block the $11 billion merger of American and US Airways. The deal, it
complained, would reduce the industry to just four big carriers controlling
more than 80% of the market, which means higher airfares and less air
service for consumers.
The airlines, and a chorus of critics, immediately
a) hey, this isn't fair, you already let everyone else merge,
American is in bankruptcy and needs this deal to compete,
c) one less major
airline will actually increase competition by creating a stronger competitor
d) let the free market decide.
These arguments are as old as the
industry. There has never been a free market in the airline business. The
industry has always been federally subsidized in one form or another.
also has been subsidized by the bankruptcy process. Airlines battle each other
for market share and lose money until the day that they can't. Then they
file for bankruptcy and glue their pieces together.
investors and employees take the financial hit while top executives walk away
with grandiose pay packages.
American wants to pay its chieftain Tom
Horton $20 million for taking the carrier through the bankruptcy it filed in
November 2011—but the bankruptcy judge has scoffed at the plan.
Justice Department notes that executives from both airlines have bragged that
they could operate without the deal—so why not hold them to their
No, it's not easy running an airline. Beyond complex logistics and
fending off competitors who've slashed their operating costs in bankruptcy
court first, there are spiking jet-fuel costs, terrorist attacks and
economic meltdowns to circumnavigate.
The solution always comes down to
yet another bankruptcy and yet another merger. Over time, planes become
filthy, airline employees get grumpy, service gets spotty and innovation is
reduced to how to charge customers more fees.
What's left is an industry
of bureaucratic, too-big-to-fail corporations that will live to file
American and US Airways vow to fight. They'll
likely bring enough corporate lobbying power to bear, and offer just enough
concessions, to put together some kind of deal.
And everyone will forget
what American advertised when it bought what was left of TWA in 2001: "Two
great airlines, one great future."
—Al Lewis is a columnist based in
Denver. He blogs at tellittoal.com; his email address is