The president of the American Antitrust Institute told the Senate Commerce Committee Thursday that the proposed merger between United Airlines and US Airways would weaken already anemic airline competition.
Albert Foer, whose non-profit organization advocates fair competition, told the committee that the merger–and what he predicted would be almost inevitable subsequent industry mergers–would just be solidifying a trend that has grown ever since the airline industry was deregulated in 1978.
Airlines have formed alliances that include shared frequent flier miles and benefits for flying on a partner carrier, he said.
“The alliances, some would argue, have already reduced the number of competitive carriers to three,” Foer said. “Alliances are not mergers, but they are partial mergers. They reduce the incentive of one airline to do something that might harm one of its allies.”
Opponents of the merger are painting the pending deal as a referendum on the future of the airline industry.
The fear raised by the proposed combination of the nation’s largest airline, United, and the sixth-largest airline, US Airways, is that other top carriers, such as American Airlines and Delta Air Lines, would follow suit, snatching up smaller airlines to keep pace with United.
“We’re moving in that direction,” Foer said. “I think three airlines would be a very dangerous situation.”
Members of the committee, chaired by Sen. John McCain (R-Ariz.), seemed to agree.
“I think the last thing we need with respect to the current system … is more concentration,” said Sen. Byron L. Dorgan (D-S.D.). “We need more competition. We need more choices and better prices.”
Sen. Ron Wyden (D-Ore.), who championed the failed Passengers’ Bill of Rights, expressed concern over the impending merger’s consumer impact.
“Just from integrating these various systems and procedures alone, I’m convinced that we are going to see customer service face additional problems that airlines did not follow through on pledges that they made last year,” Wyden said.
The current hub system is another factor contributing to merger anxiety, Foer said. As it stands, most airports are dominated by one or two airlines, which act as near-monopolies in local markets, often successfully fending off smaller carriers encroaching on their territory. The new, larger United Airlines would have hubs in Los Angeles, Chicago, Pittsburgh, Philadelphia and an increased Washington, D.C., presence. Hub airlines are able to charge higher prices than airlines at non-hub airports, Foer said.
Nancy McFadden, general counsel for the U.S. Department of Transportation, also addressed the panel, although she was limited in her testimony because the department is investigating the merger deal.
“Let me assure you that the proposed United Airlines-US Airways transaction … will be thoroughly examined by the Department of Transportation, with the goal of preserving competition in the airline industry,” McFadden said.
“I think that the law today is sufficiently flexible, that if there’s a will to stop this merger and there are good arguments to stopping it, then it will be stopped,” Foer said. “And, sort of my presumption is that it ought to be stopped, but I’m still open-minded enough to see what develops.”