Thursday, August 15, 2013

Alternatives to blocking American-US Airways merger via Lawsuit

Flying Plane

On Tuesday, the U.S. justice department announced that it was filing a lawsuit to prevent American Airlines and US Airways from merging.

The Justice Department and attorneys general from six states and the District of Columbia filed a lawsuit Tuesday challenging the $11 billion merger of American Airlines and US Airways, saying the combination would lead to higher prices and less service for consumers. The merger, which would create the world's largest airline, would "substantially lessen competition" for commercial air travel, contends the complaint, filed in U.S. District Court in Washington.


A top concern is local markets, the Justice Department said. It cited the example of Ronald Reagan Washington National Airport, where the combined airline would control 69% of takeoff and landing slots, and 63% of the outbound nonstop routes.
All I can think is that the government and business are going to spend a whole lot of money and time fighting this.  Don't get me wrong, I agree with the goal of keeping the airline industry competitive and with smaller, not bigger airlines.  In the article the CEOs of the companies tried to portray the merger as "pro competitive", but that, to me, is an abuse of language.  Any time a market has fewer and bigger players, it is -almost by definition - going to be naturally less competitive.

Instead of using anti-trust law to break the increasingly large airlines, consume them by encouraging more start-ups to compete with them.  Smaller companies tend to be more nimble and better able to out compete niche areas of the market, and consume market share from the massive companies that become large and unwieldy.

The problem is that this hasn't been happening in the airline industry.  According to this site, there's only been about 1 new airline startup in the United State per year.  And just as many failing.  Why are there so few startups?  This article makes some suggestions as to why.

But getting an airline off the ground has become a lot more treacherous. High oil prices these days mean carriers must fly full planes to turn a profit, and smaller airports just do not provide enough passenger traffic. At the same time, the major domestic carriers are more entrenched than ever in their own hub airports, making it harder for a new entrant to wrangle gates there. And investors have become more cautious about lending to just any airline project.

But is that it?  I would add that the number or rules and regulations from the FAA, TSA, and other agencies piles on to the cost of startup airlines.  There are thousands and thousands of regulations on everything from plane specs, to passenger movements, and airports.
One might be tempted to think that those rules are put in place to protect passengers.  That may have been the intent, but the additional costs of compliance help further entrench the big airlines by raising the startup costs of potential competitors.

In some cases the big airlines may have helped write some of those regulations with the mind that it would cost them little to comply, but cost other's greatly.  Here a great article that goes into detail about how this has occurred in other industries.  How Regulations Help Sustain Corporate Monopolies

However, in the world which we inhabit, most in the “business community” (who are actually antithetical to true business), tend to favor the status quo where regulations are concerned. This conglomerate of business interests do their part to actually favor certain regulations, especially those that would save their huge corporate monopoly from the doomed-uncertainty and promise of competition a truly free  market would provide.


The example I shall be drawing from is documented on Bloomberg News, in an article published just yesterday. It is titled Accidental Death Becomes Suicide When Insurers Dodge Payouts by David Evans. Evans analyzes the case of Todd Pierce, a 46 year old cancer survivor killed in a horrific and fiery car accident. Through his employer, Todd took out accidental life insurance that would pay his wife were he to pass away unexpectedly, as did happen. Due to the pursuant contractual obligations mutually agreed upon by both parties, MetLife was expected to pay Todd’s widow an total of $224,000.  Despite the sheriff, the state medical examiner, and the official autopsy report concluding that Todd’s death had been an accident, however, MetLife made their own medical decision. They labeled the death a suicide, noting Todd’s previous battle with cancer and the toxicology reports which indicated he had a prescribed drug in his system. As any breach of contract would be submitted to, the case was brought to Federal court in Montana by Todd’s wife, Jane Pierce. What Jane didn’t know, however, is that she wasn’t just fighting for her husband’s benefits, she was fighting the corruption of the entire American corporate monopoly system.

This is but one existing example.  I'm willing to bet that the same is true with the airline industry.  It would be better, and more cost effective if the government started curtailing as many of these regulations as possible.  If it did, we might see more new competition and it wouldn't have to spend tens of millions of dollars to fighting lawsuits to keep the big guys from getting bigger.  Instead, the little guys could do that for us.
Leave a Comment