The American Airlines and US Airways Might Merger Actually Increase Competition

See Arbitrary Antitrust: Government lawyers try again to predict the future of airlines. From the WSJ, 8-16-13.

"Out of the more than 900 domestic routes that American and US Airways fly, there are merely 12 nonstop overlaps, nearly all of them between their hubs. In the U.S., American flies to 48 cities not served by US Airways, and US Airways flies to 64 that American doesn't. Their networks are largely complementary, so combining the two would help them compete in more markets.

Market share data are an old antitrust favorite, yet that also isn't persuasive. A combined American and US Airways would have about 25% of the market for domestic seats, just ahead of Delta and Southwest.

As for international travel, the two airlines seeking to merge have struggled to compete for global corporate business against the extensive international networks of Delta and United-Continental.

US Airways now has 55% of takeoff and landing slots at Reagan, and the merged company would have 69%. But American and US Airways would still only enjoy about 25% market share if the Washington market is appropriately defined to include not only Reagan, but also Dulles and BWI, which is between Washington and Baltimore.

All of this suggests that Justice's real motivation is that airlines are finally profitable again, which must mean something nefarious is going on. Assistant Attorney General for antitrust William Baer declared this week that "neither airline needs this merger to succeed." Since when is that a standard for antitrust law, and how would he know?

The airline deregulation of the 1970s has been a great success for consumers, with fares still lower after inflation than under the price controls set by the Civil Aeronautics Board.

In 2001, Justice blocked the planned merger of U.S. Airways and United because the antitrust seers claimed the deal would reduce service, raise prices and limit competition. By the end of 2002, both airlines were in Chapter 11, which was hardly a boon to competition.

... industry competition is increasing as fewer but stronger competitors compete in more markets. The Journal's Scott McCartney found that over a recent 12-year period airline ticket prices rose more slowly than general inflation, even while fuel prices were rising.

If one of the giants charges monopoly prices on a route, a stronger player is more likely to compete than a weaker one."