Save Money in this Sunday's paper

Our View

comments

US Airways-American merger should stand

Eric Holder and Warren Buffett must not talk much.

In suing to block the US Airways-American Airlines merger on Tuesday, Holder’s Justice Department argued that both airlines are doing just fine on their own. Without the merger, Justice says, American is poised to come roaring out of bankruptcy and make profits hand over fist.

That’d be news to Buffett, arguably the most successful investor in U.S. history. Buffett has long warned about the difficulties inherent in the airline business, and in May called the industry “a death trap for investors” even with recent consolidation.

The US Airways-American merger is not about creating a cash cow. It’s about surviving in a shrinking pool created in part by the Justice Department itself, which in the past five years approved mergers between Delta and Northwest, United and Continental and Southwest and AirTran.

“Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace,” Holder said. A little late for that, don’t you think, Mr. Holder?

It’s not an industry obsessed with customer service, as any traveler will attest, and sadly this merger wouldn’t change that. It is an industry, though, in which survival hinges on being big enough to compete with newly created behemoths, or small enough to serve a very narrow niche.

As US Airways’ biggest hub, Charlotte has a particular interest in the merger. Experts differ on what the combined airline would mean for the city; some suggest its proximity to American’s hub in Miami could put it in danger. But CEO Doug Parker told the Observer in March that the Charlotte hub would be safe, and in fact might gain flights and destinations. “I can’t imagine it gets any smaller,” he said.

Parker also argued that the two airlines’ route maps are complementary, not overlapping. He said the company would be looking to grow its network to better compete with Delta and United, not shrink it.

Bill Baer, a U.S. assistant attorney general, told the Observer editorial board Tuesday that this merger threatens to reduce competition more than the other recent big ones did – to the point of violating antitrust law. He said US Airways “publicly and privately” has urged consolidation as a way to have closer coordination among the remaining airlines. And, Baer suggested, one more big merger is one too many. “At some point you get fewer and fewer legacy airlines and it’s easier to coordinate more and compete less,” he said. The merger would certainly reduce competition on some routes. But the resulting airline would be better positioned to provide lasting competition to the other big three, including Southwest, and other low-fare airlines.

The other argument – that the merger would result in higher fares – is less certain than it would seem. A PricewaterhouseCoopers report in December found that the other big mergers did not spike fares or drastically reduce competition on most routes. So many factors, such as gas prices, influence airfares that it’s impossible to predict what would happen after this deal.

It’s possible Justice’s suit is a tactic to wring concessions from the airlines, such as giving up gates at Washington Reagan Airport, though Baer told us many of Holder’s concerns can’t be addressed that way. We hope he’s wrong. Parker should offer, Holder should listen, and the deal should ultimately go through.

Hide Comments

This affects comments on all stories.

Cancel OK

The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.

Have a news tip? You can send it to a local news editor; email local@charlotteobserver.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.

  Read more



Hide Comments

This affects comments on all stories.

Cancel OK

The Charlotte Observer welcomes your comments on news of the day. The more voices engaged in conversation, the better for us all, but do keep it civil. Please refrain from profanity, obscenity, spam, name-calling or attacking others for their views.

Have a news tip? You can send it to a local news editor; email local@charlotteobserver.com to send us your tip - or - consider joining the Public Insight Network and become a source for The Charlotte Observer.

  Read more


Quick Job Search
Salary Databases
Your 2 Cents
Share your opinion with our Partners
Learn More
CharlotteObserver.com