Hearing of the Regulatory Reform, Commercial and Antitrust Law Subcommittee of the House Judiciary Committee - Competition and Bankruptcy in the Airline Industry: The Proposed Merger of American Airlines and US Airways


By:  Bob Goodlatte
Date: Feb. 26, 2013
Location: Washington, DC

Chairman Goodlatte: In a free market economy like ours, companies are generally free to organize themselves and their assets as they see fit--including by merger. There is nothing wrong per se with mergers, even if they form large companies.

The preservation of free and fair competition, however, is critical to a free market. Competition spurs innovation and ensures that the market allocates resources efficiently. It benefits consumers and fosters economic growth. Because a free market cannot flourish without competition, a merger that decreases competition can undermine a free market.

Thus, antitrust laws set important limits on companies' freedom to merge with one another. Specifically, Section 7 of the Clayton Act prohibits mergers that "substantially lessen competition" or "tend to create a monopoly." This is meant to strike a balance between companies' freedom to organize their affairs while preserving the competition that is essential to a healthy free market.

Recently, two of the remaining four "legacy carriers" in the U.S. airline industry -- American Airlines (which has been in Chapter 11 bankruptcy since late 2011) and US Airways -- announced plans to merge. The resulting entity would be called American Airlines but would be led by US Air's chief executive officer.

Pursuant to the Hart-Scott-Rodino Act, the Department of Justice must review this proposed merger to determine if it is anticompetitive. This is a highly technical inquiry, and the Department should be guided purely by the facts and the law -- not by politics or ideology.

The basic question the Department should seek to answer is how this merger's impacts on competition would affect consumer welfare. Congress has an oversight responsibility to ensure that the Department of Justice conducts its merger reviews in a thorough, fair and reasonably prompt fashion.

The Department should ask whether the merger would enable American to raise ticket prices, or raise other ancillary fees or reduce services, on particular routes, especially routes currently served by both airlines. It should ask whether there is sufficient competition on these routes, such as from low-cost carriers, to keep a post-merger American Airlines in competitive check. It also should ask whether, post-merger, a new carrier could move into a route served by American and begin to compete.

To put it mildly, the airline industry has changed a great deal since it was deregulated in 1978. New airlines with new business models have sprung up to serve consumers. Other airlines have gone bankrupt. Some of the latter have returned from bankruptcy, others have merged, and others have failed altogether. In the last five years, the House Judiciary Committee has held hearings on two major airline mergers: Delta-Northwest in 2008 and United-Continental in 2010.

Five major airlines -- United, Delta, American, US Air and Southwest -- now control an estimated 80% of the domestic market. If this merger goes through, that number will decline to four. Should this be the "last merger" in the airline industry--so far and no farther? Would allowing this merger finally strike the right balance between competition and the cyclical bankruptcies that have occurred in the industry recently?

A major concern anytime there is fluctuation in the airline industry is how smaller airports, which depend heavily on routes to and from larger hubs, would be affected. For travelers leaving from my district, the airport in Charlotte, North Carolina, is a major hub destination, and US Air has invested heavily in Charlotte. Would American maintain or even expand this and other hubs, post-merger?

It is by no means clear that this merger would have all or any of the negative effects that an airline merger can produce. American and US Air maintain that their routes are mostly complimentary, not overlapping, and that the merger will enhance competition by giving the current fourth- and fifth-largest airlines a stronger position from which to compete with the other three.

Congress has no formal role in the Department of Justice's merger review process. Congressional hearings, however, provide important public venues to ask, debate and identify possible answers to these questions, which are of great importance. Rather than rushing to judgment, my hope is that everyone involved will take care to evaluate the evidence and do what is best for competition and consumers.

I look forward to the testimony of the witnesses, the debate among the members of the Subcommittee, and, in the end, a wise decision by the Department of Justice that ensures a competitive future for the airline industry and protects the welfare of American travelers.

Help us stay free for all your Fellow Americans

Just $5 from everyone reading this would do it.