Thursday, May 27, 2010
The U.S. Government Accountability Office issued a new report today, Airline Mergers: Issues Raised by the Proposed Merger of United and Continental Airlines, GAO-10-778T (May 27, 2010) (available here). From the summary:
Earlier this month, United Air Lines (United) and Continental Airlines (Continental) announced plans to merge the two airlines and signed a merger agreement. This follows the acquisition of Northwest Airlines by Delta Air Lines (Delta) in 2008, which propelled Delta to become the largest airline in the United States. This latest merger, if not challenged by the Department of Justice (DOJ), would surpass Delta's merger in scope to create the largest passenger airline in terms of capacity in the United States. The passenger airline industry has struggled financially over the last decade, and these two airlines believe a merger will strengthen them. However, as with any proposed merger of this magnitude, this one will be carefully examined by DOJ to determine if its potential benefits for consumers outweigh the potential negative effects. At the Committee's request, GAO is providing a statement for the record that describes (1) an overview of the factors that are driving mergers in the industry, (2) the role of federal authorities in reviewing merger proposals, and (3) key issues associated with the proposed merger of United and Continental. To address these objectives, GAO drew from previous reports on the potential effects of the proposed merger between Delta and Northwest and the financial condition of the airline industry, and analyzed Department of Transportation (DOT) airline operating and financial data.
As GAO has previously reported, airlines seek to merge with or acquire other airlines to increase their profitability and financial sustainability, but must weigh these potential benefits against operational costs and challenges. The principal benefits airlines consider are cost reductions--by combining complementary assets, eliminating duplicate activities, and reducing capacity--and increased revenues from higher fares in existing markets and increased demand for more seamless travel to more destinations. Balanced against these potential benefits are operational costs of integrating workforces, aircraft fleets, and systems. DOJ's antitrust review is a critical step in the airline merger and acquisition process. DOJ uses an integrated analytical framework set forth in the Horizontal Merger Guidelines to determine whether the merger poses any antitrust concerns. Under that process, DOJ assesses the extent of likely anticompetitive effects of reducing competition in the relevant markets--in this case, between cities or airports. DOJ further considers the likelihood that airlines entering these markets would counteract any anticompetitive effects. It also considers any efficiencies that a merger or acquisition could bring--for example, consumer benefits from an expanded route network. Finally, it examines whether one of the airlines proposing to merge would fail and its assets exit the market in the absence of a merger. One of the most important issues in this merger will be its effect on competition in the airline industry. For example, GAO's analysis of 2009 ticket data showed that combining these airlines would result in a loss of one effective competitor (defined as having at least 5 percent of total traffic between airports) in 1,135 markets (called airport pairs) affecting almost 35 million passengers while creating a new effective competitor in 173 airport pairs affecting almost 9.5 million passengers. However, in all but 10 of these airports pairs there is at least one other competitor.
Wednesday, May 26, 2010
United Airlines CEO Glenn Tilton has said that he is "very optimistic" that the pending Continental/United merger will receive clearance from the Justice Department before the close of 2010. See John Crawley, UAL CEO Optimistic Can Address CAL Merger Concerns, Reuters, May 25, 2010 (available here). From the story:
Tilton said the companies have already had "initial conversations" with Justice Department staff and he expects a "full and robust review" of the transaction.
Antitrust officials focus on how the proposal would impact competition, if at all. Antitrust experts, analysts and industry consultants see few if any regulatory problems and widely anticipate government approval. However, they say United and Continental may be required to divest some assets at one or more airports, possibly in the New York area where Continental is strong at Newark, to enhance competition.
Tilton would not discuss specific antitrust matters. He and Continental CEO Jeff Smisek are scheduled to appear before U.S. Senate lawmakers at two hearings on Thursday to answer questions about the merger.
Tilton and Smisek's appearance will be part of the Senate Committee on Commerce, Science, & Transportation's "The Financial State of the Airline Industry and the Implications of Consolidation in the Industry" hearings. See here for further information.
Tuesday, May 25, 2010
Blog readers may be interested to read Adam Warren et al.'s Airports, Localities and Disease: Representations of Global Traveling During the H1N1 Pandemic, 16 Health & Place 727 (2010) (available from SSRN here). From the abstract:
During summer 2009, the UK experienced one of the highest incidences of H1N1 infection outside of the Americas and Australia. Building on existing research into biosecurity and the spread of infectious disease via the global airline network, this paper explores the biopolitics of public health in the UK through an in-depth empirical analysis of the representation of H1N1 in UK national and regional newspapers. We uncover new discourses relating to the significance of the airport as a site for control and the ethics of the treatment of the traveller as a potential transmitter of disease. We conclude by highlighting how the global spread of infectious diseases is grounded in particular localities associated with distinctive notions of biosecurity and the traveller.