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Consumers Union

JANUARY 24, 2007
12:37 PM

CONTACT: Consumers Union
Mark Cooper of CFA at 301-384-2204

Consumer Groups Call on Congress to Reject Airline Mergers

WASHINGTON - January 24 - In testimony before the Senate Commerce, Science and Transportation Committee, the Consumer Federation of America and Consumers Union called on Congress and federal antitrust officials to stop the merger wave that is threatening to engulf the airline industry.

“Mergers like USAIR-Delta that are being proposed will result in rising prices and reduced service because they eliminate competition on thousands of routes where there are already too few competitors to prevent price gouging and abuse of market power,” said Mark Cooper, Director of Research of the Consumer Federation of America, who delivered the testimony on behalf of the two organization. “The hostile takeover of Delta by USAir should be rejected as the first line of defense against a future wave of mergers.”

“Market power is best analyzed on a market-by-market basis, since it is the lack of competition at the point-of-sale that triggers abuse,” said Gene Kimmelman, Vice President for Federal and International Affairs at Consumers Union, said. “We have not opposed every merger that has come down the runway, but the current mergers between major airlines clearly have massive anticompetitive effects.

“The mergers that are being discussed among the major airlines are all about increasing market power by eliminating competition and restricting flights on thousands of routes that low cost carriers have not and will not serve,” Cooper added. On a market-by-market basis we believe that a US Airways-Delta merger will violate the Merger Guidelines because the vast majority of passengers affected by a US Airways-Delta merger will likely be trapped on routes with far too few alternatives to create an effectively competitive market.”

The testimony points out that lack of head-to-head competition in the airline industry imposes a heavy burden on consumers by reducing choices and ultimately increasing prices. As travelers fall more and more under the control of one airline, the ability of new entrants to crack markets is reduced. It becomes harder and harder to attract passengers to flight segments and the necessary scale of entry gets larger and larger. The inconvenience, and in many cases, the impossibility of inter-airline travel, give the airline enhanced market power over the traveler. Travelers thus suffer the typical effects of the abuse of market power – fewer choices, higher prices and lower quality. Low cost airlines selectively enter the high volume routes, leaving much of the country with little competition. The past history of mergers suggests that consumers will end up with higher prices, less service and the industry will remain in turmoil.

“If these mergers are allowed, Congress must give up the fiction that competition can exist on a nationwide basis to lower prices and improve service in the airline industry,” Kimmelman concluded. “There are large parts of the country in which consumers would be exposed to pervasive market power and Congress will have to step in with much greater consumer protection.”

Click here for a copy of the testimony.


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