Here is his viewpoint.....
VIEWPOINT February 15, 2008, 12:02AM EST
Airline Consolidation? Hell No
The chairman of the House Committee on Transportation &
Infrastructure says a merged Delta-Northwest or United-
Continental would hurt consumers
by James L. Oberstar
Mergers in the airline industry are nothing new. Most of the
air carriers flying today are the products of one or more
mergers over the past three decades or so. Yet this latest
round of rumored mergers, which includes a United (UAUA)-
Continental (CAL) scenario, as well as a Delta (DAL)-
Northwest (NWA) combination, is significant. It would mean
further consolidation in the airline industry, further
reductions in choice for consumers, and probably fewer
flights, fewer jobs, and higher fares.
Congress deregulated the airline industry in 1978. Prior to
that date, airlines had to get Federal approval for fares
and routes from the Civil Aeronautics Board (CAB).
Deregulation lifted those restrictions and allowed the
marketplace, not the government, to determine where an
airline flies and how much it charges to take you there.
Deregulation held out the promise of a market-driven
industry that would give rise to a host of new entrants,
bringing more competition, lower fares, and better service.
The immediate aftermath of deregulation saw the expected
flurry of airline startups and new market service. That
activity, however, was short-lived.
PAN AM IS BUT A MEMORY
The mid-1980s experienced the first round of merger mania in
the airline industry, as the bigger fish began devouring the
smaller ones. Delta bought Western. Northwest swallowed
Republic. Allegheny changed its name to US Air (LCC) and
bought Piedmont. Frank Lorenzo merged Texas International
and New York Air with Continental and People Express, then
bought once-proud Eastern, which faded into bankruptcy.
Airlines that didn't grow, withered. Others tried to grow
too fast and imploded. Pan Am, for so many years America's
flagship international carrier, merged with National. TWA,
another U.S. carrier with a strong overseas trade, bought
Ozark. Pan Am sold its prime Pacific routes to United. Carl
Icahn bought TWA and sold its prize asset, the London
Heathrow route, to American (AMR). Now, TWA itself has been
absorbed by American, and Pan Am is just a memory.
Meanwhile, the surviving carriers fattened up on the carrion
of the failed and failing airlines. The Transportation Dept.
did little to stop this rush toward market consolidation, or
even slow it down. Former Transportation Secretary Elizabeth
Dole and her successors never met an airline merger they
didn't like. Samuel Skinner, Transportation Secretary under
President George H. W. Bush, stated there would still be
competition even if the industry consolidated down to three
major carriers.
FEAR OF A THREE-AIRLINE FUTURE
I was then, and still am, extremely fearful of a three-
airline future. With only three major airlines, there would
be enormous incentives for each carrier to refrain from
competing with the others at their strong hubs and routes.
This strategy would likely lead to the greatest mutual
profitability, while strong competition across the board
could prove suicidal to the airlines. Moreover, as each
major carrier became larger and stronger, it would become
increasingly difficult for new competition to gain a
foothold in a market.
For example, let's take a look at a potential Northwest-
Delta merger. Northwest operates major hubs at Detroit and
Minneapolis-St. Paul. Not surprisingly, the airline's
busiest route, in terms of passengers carried, is between
those two markets.
Delta's home hub is Atlanta. Its most popular route is
Atlanta-Orlando. Although Delta does not dominate service
into and out of Orlando International Airport the way it
does at Atlanta's Hartsfield-Jackson, the airline does
dominate the Atlanta-Orlando route, and Atlanta is the most
popular point of origin for flights to Orlando. Does anyone
believe a merged Northwest-Delta airline would result in
more competition, better service, and lower fares on such
routes? I certainly do not.
WARNING OF DOMINO EFFECT
In 1998, we had the opportunity to preview airline
consolidation when the General Accounting Office, now the
Government Accountability Office, examined the impact of
proposals by the six largest U.S. carriers to form three
alliances. The GAO found that if all of the proposed
alliances were implemented, competition could be reduced for
about 100 million passengers each year. In response,
Congress gave the DOT authority to review various aspects—
such as frequent flyer programs—before an alliance could be
implemented. By this action, Congress clearly expressed its
interest in ensuring competition in the airline industry
remains intact.
Two years later, United and US Airways announced plans to
merge. I called on the Secretary of Transportation and the
Assistant Attorney General to examine the merger vigorously,
to look beyond the merger itself, and to consider the domino
effect it would set in motion as other airlines sought to
merge in order to compete. If the United-US Airways deal had
been approved, the government would have been hard pressed
to deny other airlines the same right to consolidate, and
Sam Skinner's prediction of three major airlines would have
come true.
Now, in anticipation of the current round of mergers, I have
asked the GAO to conduct a new analysis of airline
consolidation and its effects on competition, service, and
fares. The report should be completed in the coming weeks.
The House Committee on Transportation and Infrastructure
stands ready to hold a hearing once a merger plan is
announced, to shine a bright light on the consolidation
proposal for all to see. I, and others in Congress, also
intend to use any tools at our disposal to prevent further
consolidation.
LONG-TERM LOSSES FOR WORKERS
The airline business is, without a doubt, a tough tiger to
tame. Many have tried, and many have failed. The industry
even fired Donald Trump.
Yet, I refuse to believe more mergers are the answer.
Mergers may mean short-term profits for investors, but they
inevitably mean long-term losses for workers and consumers.
The merged carrier is never greater than the sum of its
parts. It is always less, often much less. As the executives
planning these mergers are polishing their golden
parachutes, employees of the affected airlines are worrying
about the potential loss of their pensions, their seniority,
even their jobs.
This is not what we were promised when we deregulated the
airline industry in 1978. If Transportation and Justice will
not act to cool this merger mania, then Congress should.
We should just say no. Hell no!
Representative James L. Oberstar (D-Minn.) is Chairman of
the House Committee on Transportation & Infrastructure. He
has been directly involved in the oversight of the airline
industry since 1987.
Bye Bye--General Lee
