I’ll have what the DOJ is having, please

What’s the Department of “Justice” smoking? According to this Reuter’s article, “the U.S. Justice Department opposes broad antitrust immunity for Continental Airlines Inc (CAL.N) to join UAL Corp’s (UAUA.O) United Airlines and other members of the Star alliance, documents showed.”

That doesn’t make any sense to me, but I’m sure they have a plausible explanation, especially since the airline industry lost over five billion dollars ($5,000,000,000) last year, right?

antitrust enforcers said approval is likely to harm competition on some international routes, including flights between U.S. cities and Canada and China.

Well, yeah, that’s kind of the point of partnerships, isn’t it? At the same token, I don’t see why they singled out Canada and China. I don’t see any massive capacity reductions to either of those destinations as a result of Continental entering a partnership with United and joining the Star Alliance.

The proposed agreements also could harm domestic competition and raise fares on some routes, Justice Department lawyers wrote in public comments.

So what are ya’ll proposing, that we continue to let the airlines run their course in a recession and probably top last year’s losses? Yeah, that sounds like a plan. After all, we could just bail them out if that doesn’t work.

The DOJ also said Continental, United and the other carriers have offered “little in the way” of consumer benefits arising from the alliance.

Well, yes and no. There are certainly more benefits to them than to us, but I wouldn’t call the deal completely one-sided. Consumers have a lot to gain from alliances” Just look at all the reciprocal benefits we get out of alliances, from reciprocal award availability to reciprocal lounge access to priority boarding on other airlines to more direct flights. I’d say the development of alliances is the best thing to come out out of the airline industry in the past ten years.

Comments

  1. Consumers lose more (less competition, fewer flights, accumulated miles!) if an airline goes under. Or if an airline is forced to shrink in bankruptcy or in attempting to conserve cash and avoid bankruptcy. It’s not us vs. them, consumers benefit from strengthened players here.

    And consumers are also shareholders, either directly or through mutual funds and retirement plans.

    The current DOJ is late to the party and wants to have its say. They don’t actually want to block anything, the line that they’ve “offered “little in the way” of consumer benefits” really means that the two airlines haven’t gone to the DOJ with concessions to hand to the politicians in order to secure their blessing for the deal. It’s Washington-speak 🙂

  2. One could also view this as a message being sent to the major airlines… one of you needs to go for you all to survive.

  3. Well, parts of the airline industry is certain in trouble at the moment. But the government shouldn’t take (or accept) that as an excuse to let short-term thinking dictate long-term policy. The immunity that the airlines are asking for will extend beyond the current economic downturn.

    I certainly benefit from airline alliances by earning miles on partner airlines etc. But how far do you want to carry this concept forward? If alliances are so great, why not just merge all US airlines into one (USFlot) and let me earn miles no matter what carrier I fly.

    Note that I am not saying that the DOJ is right in this case. But I would also not accuse them of smokin’ something without spending time analyzing the issue thoroughly (but that’s not part of the mission statement of most bloggers).

  4. @ Gary — Spot on.

    @ Chris — I think you’re giving them too much credit. 😀

    @ Oliver — Fair enough, with one major exception — Continental is currently in an alliance and has a VERY close relationship to Northwest. We know that relationship is ending, but I don’t think we’re getting any closer to consolidation. It’s not like Continental is currently unaligned and is now deciding to find a partner due to the recession. It’s a long term change which should mean very little to the DOJ, in my opinion. Actually, it’s really Delta and Northwest’s merger that allowed this to happen. Now *that’s* consolidation.

  5. They got the TATL limited exception (Reuters article doesn’t mention this) which covers 90% of what they’d want it for anyway. Right now CO + AC + UA + CA control almost all of the nonstop action to China; most of this is grandfathered in, but adding one more airline that flies an important non-stop route to PEK is just going to make the monopolistic pricing even worse.

    Right now if you look at flight times comparison of TPAC (China) to comparable trips in Europe, it’s pretty clear that TPAC flyers are getting gouged (even moreso than prices indicate – China has minimal taxes compared to Europe). No need to make it even worse.

    TATL, though, it’s pretty clear that the configuration of airlines in various alliances is not going to matter much, given the rock-bottom prices and cutthroat competition already in place.

  6. we all expecting things like this would happen after Obama get his hands on the DOJ. Exactly why DL/NW rushed into the merger. they may have carried out the consolidation in a bad economic situation, but it still beats having to wait 8 more year before the next Republican government, which is exactly what UA, and CO are going to have to wait for.

    It really goes to show how short sighted the system is forcing the CEOs to be.

  7. Sooo…consolidation is needed in the financial industry to help it survive….but we can’t do that in the airline industry. I’m confused.

    Oh wait, the airline industry has lots of union votes. I forgot. Sorry.

  8. How about some real reporting here.

    Is the DOJ able to stop anything?

    Is the DOJ opposing CO joining Star Alliance, or something else?

    What’s the real deal with TATL vs TPAC? Comments here and on FT indicate one was opposed (rejected?) and the other other wasn’t. Which one is it?

    It’s a nice opportunity for laywer/union/liberal bashing but ultimately I see little “reporting” or true analysis in this post and its comments. Some of you guys are frequently bashing journalists for crappy airline industry knowledge and reporting. Here’s your opportunity to do some good work and really explain what the situation is and why you think the decision is wrong. Leave out all the crap about smoking pot and alleged bias of the DOJ — it doesn’t add anything to the credibility of your posts.

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