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Airline deal not taking consumers into account

Friday, August 16, 2013 - Updated: 4:08 AM

The federal Justice Department tossed a misguided wrench into the merger plans of US Airways and American Airlines, arguing that the public's interest is ill-served by a commercial passenger-airline industry dominated by three or four mega-airlines.

Wrong. The public interest is far more poorly served by financially weak airlines artificially hamstrung by government lawyers who think they understand market forces but clearly do not.

The lawyers concluded that the public is better off with two large and healthy "legacy" airlines in Delta and United; one healthy discount airline in Southwest; one limping, bankrupt legacy airline in American; and one midsize contender in US Airways -- as opposed to a market contracted into three large and financially strong legacy carriers (Delta, United and the new, merged American) and discount player Southwest.

Arizona Attorney General Tom Horne joined the Justice lawyers in their suit. Left unchallenged, the merger would reduce competition and raise prices, Horne said.

If this vision constitutes a better market for consumers, it is at best marginally so.

Price and service negatives for consumers can (and often do) result from airline consolidation.

Since 2008, the airline's parent company has lost more than $8 billion. American's enormous debt burden, pension costs and other factors leading to its bankruptcy are not appreciably changed by one or two profitable quarters.

The Justice lawsuit presumes a "government knows better" understanding of the future of the commercial passenger-airline industry. That ignores the rise of aggressive discount carriers such as Allegiant and Spirit airlines, to say nothing of expansion-minded Southwest.

The feds may be waving a "consumer interest" flag, but they are just as capable of acting out of self-interest as the airlines are.

The longer-term consequences appear to include an industry dominated by a pair of stable legacy carriers, as opposed to three, and a handful of also-rans handicapped by a government that presumes to know more about market forces than the market does.

That doesn't strike us as a deal in the best interest of consumers.

-- Arizona Republic

     

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