Studies: Airline mergers may hurt consumers

Washington —- Last week, the Justice Department signed off on Delta Air Lines’ combination with Northwest Airlines by concluding the deal should create efficiencies “that will benefit U.S. consumers.”

But at a workshop that Justice sponsored last month, aviation experts presented new evidence that airline mergers may inflict more harm on consumers than previously had been measured.

“A growing body of literature demonstrates that at least some mergers of actual competitors can lead to price increases,” said one of the academic research papers presented at the event. In addition, the loss of potential competitors through mergers can drive fares higher by “substantial and significant” amounts, it concluded.

President Bush’s antitrust regulators originally took a tough stand, objecting in July 2001 to United Airlines’ proposed takeover of US Airways. The Justice Department said the merger “would reduce competition, raise fares and harm consumers on airline routes throughout the United States.” The carriers then called off the deal.

But since the Sept. 11 attacks, the White House has been receptive to mergers, permitting American Airlines’ acquisition of Trans World Airlines later that year, America West Airlines’ purchase of US Airways in 2005, SkyWest Airlines’ acquisition of Atlantic Southeast Airlines in 2005, TPG Capital’s purchase of Midwest Airlines earlier this year, and now the Delta-Northwest deal.

The latest batch of research, however, could provide the incoming Obama administration with ammunition if it wishes to fight future airline mergers.

One study, by John Kwoka and Evgenia Shumilkina of Northeastern University, found that when USAir (now US Airways) merged with Piedmont Airlines in 1987, travelers got hit with higher fares as a consequence of the loss of actual competition, as well as from the loss of potential competition. Once USAir no longer faced the threat of Piedmont entering a market to compete on a particular route, it felt free to raise fares.

“The USAir-Piedmont merger allowed the incumbent to raise prices by an amount between 5 [percent] and 6 percent,” they wrote. “The elimination of a potential competitor can have a very considerable impact on market price.”

A separate study by Rene Kamita, a Justice Department economist, analyzed the impact of the government’s decision to allow Aloha Airlines and Hawaiian Airlines to “coordinate capacity” for 10 months at five Hawaiian airports after the terrorist attacks of Sept. 11, 2001.

Kamita found not only that “prices rose during the period of coordination, but that they remained high until the entry of a new competitor, two and a half years after [antitrust] immunity expired.”

In other words, even a brief period of not enforcing antitrust regulations can harm consumers for a long time, Kamita concluded.