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 straight:

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 West.

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 complained

 a) hey, this isn't fair, you already let everyone else merge,
 b) American is in bankruptcy and needs this deal to compete,
 c) one less major airline will actually increase competition by creating a stronger
competitor and
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.

It 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.

Creditors, 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

The Justice Department notes that executives from both airlines have bragged that they
could operate without the deal—so why not hold them to their words?

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
bankruptcy again.

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; his email address is

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