http://www.usdoj.gov/atr/public/speeches/217987.htm
It in large part has to to with overlapping routes and market share for any given city/city pair/region. It is telling when you look at the reasons cited for the dissaproval of the UAL/USA merger below and why the AWA/USA deal was approved. After reading this it is also easy to see how the governement likes to regulate a "deregulated" industry and why no one airline has gained much pricing power, traction or profitablitly on a large scale. Read on...
Highlights:
The last major domestic airline merger DOJ investigated was in 2000-2001, United's proposed acquisition of US Airways. United-USAir provides several examples of competitive problems that can arise in airline mergers:
We have a very different example in this year's merger of America West and USAir, in which DOJ announced, after a short investigation, that it would not take any action. America West-USAir was largely an end-to-end combination. America West operates primarily in the western United States, with hubs in Phoenix and Las Vegas. US Airways operates primarily in the eastern United States, with hubs in Philadelphia, Pittsburgh and Charlotte and substantial presences in Washington and New York City. There's a reason some clever investment banker code-named this deal "Project Barbell." There were few nonstop overlaps, and even there other carriers also provided service. DOJ has found that integration of airlines with complementary networks like these can achieve efficiencies that benefit consumers. We believed that the America West-USAir combination, creating the fifth largest domestic carrier, could enable the merged airline to offer U.S. consumers better service to more destinations throughout the country.
Debbie McElroy asked me to speak about airline merger policy and the effects of airline bankruptcies, high fuel prices, and the other problems that unfortunately have become business-as-usual in your industry.
The Department of Justice Antitrust Division is responsible for enforcing the federal antitrust laws, and we have the authority to review mergers to determine if they may lessen competition. In that context, you will not be surprised that DOJ does not have a merger policy that is specific to the airline business, or any other particular industry for that matter. This is not meant to sound contrarian; you should be pleased that the Justice Department does not have an aviation grand plan. As for most U.S. industries, and for aviation since deregulation, the organizing principle is competition. And therefore the market should identify good merger partners, produce winners and losers, and of course decide what airlines fly where and how much they charge. The government antitrust role is to maintain competitive markets by seeking to block anticompetitive mergers in court, and otherwise to stay out of the way.
DOJ does have a view on how to determine whether a merger may lessen competition. Our approach is outlined in our Horizontal Merger Guidelines, available on the DOJ website. And our lawyers and economists have as much experience analyzing airline markets as anyone in government. I hope my explanation of our legal analysis seems sensible when viewed from your business perspective.
The statute that applies to mergers is Clayton Act § 7, which prohibits mergers and acquisitions that may substantially lessen competition in any U.S. market. In reviewing a planned merger, DOJ works to predict whether the combination will create or enhance market power or facilitate the exercise of market power. Market power is the ability to profitably raise prices over the long term, without losing sales such that the price increases become unprofitable. The goal of antitrust enforcement is to protect consumers by maintaining competitive markets, which produce high quality and low prices.
The so-called "relevant market" in which we evaluate whether a particular merger will lessen competition is not the whole industry. Rather, we have to look at the markets in which passengers buy air travel. These markets are the particular origin and destination city pairs (and occasionally airport pairs) on which passengers fly. It is competition in particular city pair markets that is relevant to competition for passengers. If a passenger wants to fly from Washington to Myrtle Beach, he's pleased that Air Wisconsin is competing to keep service up and prices down. And it doesn't help that passenger that American Eagle flies to Buffalo, much less that Horizon is competing from Santa Barbara to Portland. If all carriers flying Washington to Myrtle Beach merge and raise prices, the passenger cannot turn to American Eagle's Buffalo service or Horizon's Santa Barbara-Portland service for a competitive alternative.
It in large part has to to with overlapping routes and market share for any given city/city pair/region. It is telling when you look at the reasons cited for the dissaproval of the UAL/USA merger below and why the AWA/USA deal was approved. After reading this it is also easy to see how the governement likes to regulate a "deregulated" industry and why no one airline has gained much pricing power, traction or profitablitly on a large scale. Read on...
[SIZE=+3]DEPARTMENT OF JUSTICE[/SIZE]
[SIZE=+1]Antitrust for Airlines [/SIZE]
Remarks by
J. Bruce McDonald
Deputy Assistant Attorney General
Antitrust Division
U.S. Department of Justice
J. Bruce McDonald
Deputy Assistant Attorney General
Antitrust Division
U.S. Department of Justice
presented to the
Regional Airline Association
President's Council Meeting
Regional Airline Association
President's Council Meeting
November 3, 2005
Airline Mergers
Highlights:
The last major domestic airline merger DOJ investigated was in 2000-2001, United's proposed acquisition of US Airways. United-USAir provides several examples of competitive problems that can arise in airline mergers:
- United had a large base of operations at Washington Dulles, and USAir at Washington Reagan and BWI. Therefore they were the only two significant competitors for nonstop service from the Washington area to a number of cities, such as Rochester and New Orleans.
- Similarly, the two were the most significant nonstop carriers in a number of hub-hub markets, including Philadelphia-Los Angeles, Philadelphia-San Francisco, Philadelphia-Denver, and Pittsburgh-Washington.
- With their strong east coast hubs, these were the only two carriers, or two of three, connecting some northeastern cities (such as Burlington and Albany) with some southeastern cities (like Greensboro and Roanoke).
- More generally, the merger increased concentration in large business centers along the east coast, possibly affecting bidding for corporate and government contracts.
- Finally, the merger would have lessened competition in several transatlantic markets.
We have a very different example in this year's merger of America West and USAir, in which DOJ announced, after a short investigation, that it would not take any action. America West-USAir was largely an end-to-end combination. America West operates primarily in the western United States, with hubs in Phoenix and Las Vegas. US Airways operates primarily in the eastern United States, with hubs in Philadelphia, Pittsburgh and Charlotte and substantial presences in Washington and New York City. There's a reason some clever investment banker code-named this deal "Project Barbell." There were few nonstop overlaps, and even there other carriers also provided service. DOJ has found that integration of airlines with complementary networks like these can achieve efficiencies that benefit consumers. We believed that the America West-USAir combination, creating the fifth largest domestic carrier, could enable the merged airline to offer U.S. consumers better service to more destinations throughout the country.
Debbie McElroy asked me to speak about airline merger policy and the effects of airline bankruptcies, high fuel prices, and the other problems that unfortunately have become business-as-usual in your industry.
The Department of Justice Antitrust Division is responsible for enforcing the federal antitrust laws, and we have the authority to review mergers to determine if they may lessen competition. In that context, you will not be surprised that DOJ does not have a merger policy that is specific to the airline business, or any other particular industry for that matter. This is not meant to sound contrarian; you should be pleased that the Justice Department does not have an aviation grand plan. As for most U.S. industries, and for aviation since deregulation, the organizing principle is competition. And therefore the market should identify good merger partners, produce winners and losers, and of course decide what airlines fly where and how much they charge. The government antitrust role is to maintain competitive markets by seeking to block anticompetitive mergers in court, and otherwise to stay out of the way.
DOJ does have a view on how to determine whether a merger may lessen competition. Our approach is outlined in our Horizontal Merger Guidelines, available on the DOJ website. And our lawyers and economists have as much experience analyzing airline markets as anyone in government. I hope my explanation of our legal analysis seems sensible when viewed from your business perspective.
The statute that applies to mergers is Clayton Act § 7, which prohibits mergers and acquisitions that may substantially lessen competition in any U.S. market. In reviewing a planned merger, DOJ works to predict whether the combination will create or enhance market power or facilitate the exercise of market power. Market power is the ability to profitably raise prices over the long term, without losing sales such that the price increases become unprofitable. The goal of antitrust enforcement is to protect consumers by maintaining competitive markets, which produce high quality and low prices.
The so-called "relevant market" in which we evaluate whether a particular merger will lessen competition is not the whole industry. Rather, we have to look at the markets in which passengers buy air travel. These markets are the particular origin and destination city pairs (and occasionally airport pairs) on which passengers fly. It is competition in particular city pair markets that is relevant to competition for passengers. If a passenger wants to fly from Washington to Myrtle Beach, he's pleased that Air Wisconsin is competing to keep service up and prices down. And it doesn't help that passenger that American Eagle flies to Buffalo, much less that Horizon is competing from Santa Barbara to Portland. If all carriers flying Washington to Myrtle Beach merge and raise prices, the passenger cannot turn to American Eagle's Buffalo service or Horizon's Santa Barbara-Portland service for a competitive alternative.
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