Why the Government Can't Allow U.S. Airways and American Airlines to Merge

The Justice Department (with the help of several states) is attempting to block a merger that would create the world's largest airline, but some experts think war they are fighting — for more competition and lower fares — has already been lost

The Justice Department (with the help of several states) is attempting to block a merger that would create the world's largest airline, but some experts think war they are fighting — for more competition and lower fares — has already been lost. Despite already getting approval from European regulators, the government filed an antitrust lawsuit this week that is intended to scuttle the $14-billion merger between U.S. Airways and American Airlines. And unlike previous merger lawsuits, where the parties eventually compromised on certain demands and the deal proceeded, experts say that this time the DOJ is determined to make sure the merger never happens.

The argument against the merger is that the airline industry has already consolidated too much. There have been three major mergers in the last 10 years, and another would mean that just four companies would control 80 percent of the U.S. market. Although the earlier mergers were deemed necessary to save struggling companies and keep planes in the air in the midst of an economic crisis (and American is currently in bankruptcy), in retrospect they were terrible deals for consumers. They have stifled competition, raised fares, and made service worse than ever. That's why some are predicting that the lawsuit is not just a negotiation ploy to wring concessions out of the new company — they feds are actively determined to stop it.

On the other hand, Scott Mayerowitz of the Associated Press argues that it's already too late. Even before the merger talk began, the cost of an average round-trip ticket (inflation adjusted) rose more than $25 in five years. Baggage fees and change fees are all on the rise and cutbacks on food service and other amenities are rampant. The five major airlines are already locked into a complementary pricing scheme (some might "collusion") that keeps price changes and sales in lockstep across the industry. The DOJ lawsuit even cites U.S. Air as one of the mavericks. In 2009, they lowered prices one their version of route that was extremely profitable for Delta. Rather than lower prices to compete on their level, Delta went after a favorite U.S. Airways route, setting up a "mutually assured destruction" scenario where everyone loses.

So even if you agree — as many do — that deal is bad one for the public, stopping it is unlikely to change the trends in the industry that are moving toward more consolidation and less innovation. It might actually make the existing giants United and Delta and Southwest more powerful. Running an airline has always been a tough way to make money, but gouging more people on their way home for Thanksgiving won't fix that.