Tuesday, August 31, 2010

More on Continental/United

The Justice Department's decision to clear the Continental/United merger last Friday is not a big surprise.  Once the European Commission approved the tie-up in July, the writing was on the wall that the DOJ would follow suit.  As the airlines and industry analysts stressed throughout the deliberations, the two carriers have complementary rather than overlapping route networks; the merger raised less competition concerns than a United/US Airways deal would have.  Also, regulators, industry insiders, and consumers are well aware that U.S. airlines have struggled to survive since 9/11.  Given the recent dip in demand coupled with the escalating cost of fuel, allowing consolidation remains the best option for restoring stability to the U.S. aviation sector.  Despite its tough talk of "vigorous antitrust enforcement," the DOJ's Antitrust Division is not insensitive to commercial realities.

The deal is a victory for airline consumers on two fronts.  First, consumers will have access to an integrated Continental/United route network which stretches to the Asia-Pacific, Latin American, and European markets.  And, second, the airlines' decision to relinquish takeoff and landing slots at Newark to Southwest Airlines means that price-sensitive consumers will have low-cost service options to one of the busiest airports in the country.  Southwest's expanded presence in the New York-area market should also discipline prices.

Some consumer groups, lawmakers, and analysts will continue to disagree with the wisdom of allowing the merger to proceed.  That's to be expected.  What's unfortunate is that these interested parties are not directing their energies toward pressuring the Obama Administration to take the U.S. air transport market's largest artificial barriers to entry: cabotage and foreign ownership restrictions.  If consumers are worried that fewer airlines will mean higher prices, then the Government should respond by opening the market up to foreign-owned airlines that are ready, will, and able to provide air services.


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