Each priority had an advocate during the recent ABA Section of Antitrust Law teleconference “Airline Mergers: First-Class Results or Middle-Seat Misery?”
Economist Mark A. Israel of Compass Lexecon considers the effect on consumers when two airlines merge. He said it alters the entire flight network, unlike a merger of soft drink manufacturers, where the individual products stay the same.
He said airline mergers can affect consumers by changing which airports are served, the number and combinations of flights available and the services provided by the airlines.
“The low-cost carriers are rightly lauded for bringing a lot of competition to the industry, but the one thing the low-cost carriers don’t do is serve smaller communities,” Israel said.
Diana L. Moss, vice president of the American Antitrust Institute, a Washington, D.C.-based education and research group that advocates for fair competition, also lamented decreased competition in more remote parts of the country. “If you live in a small Midwestern town, you’re captive to that part of the network. Some consumers had choice before a particular merger.”
While Moss acknowledged that driving airline traffic to larger hubs comes with costs, she said she would like to see more attention paid to what she termed “net efficiencies.”
Richard “Ben” Hirst, Delta Air Lines senior vice president and general counsel, said there are two kinds of efficiencies obtainable from an airline merger: operational efficiencies, such as combining information and reservation systems and saving money on facilities overhead, and scale efficiencies, such as taking advantage of increased size to “push back” in negotiations with the highly concentrated supply side of the airline industry.
Hirst said that since Delta’s 2008 merger with Northwest Airlines, there are more flights, a higher percentage of on-time flights and less mishandled baggage.
“Across the board, the airline is operating far more efficiently post-merger,” he said.
Moss pointed out Delta fare increases after the Delta-Northwest merger, but Hirst said they were due to rising fuel prices, with fuel accounting for 40 percent of an airline’s costs.
“If there were a science that allowed us to determine and predict accurately what the effect of a merger would be to a consumer in a particular market, it would be one thing, but I think it’s pretty clear that’s not the case,” Hirst said. “This is a very dynamic industry which tends to ameliorate whatever effects there are on a particular market.”
Israel recommended letting data show whether consumers have benefitted by looking at whether there are more combined customers after a merger and how competitors react.
Click here for an audio recording of the panel discussion, moderated by Christine Wilson of Kirkland & Ellis LLP.