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Abbott, Holder Team Up to Bash Airline Merger

Attorney General Greg Abbott, who’s running for governor, ought to be looking over his shoulder in North Texas, now that he’s made the bone-headed move of trying to help Eric Holder’s Justice Department deep-six the American Airlines/US Airways merger. Abbott, who must believe he’s bullet-proof among Republican primary voters, claims to be looking out for small Texas airports that might lose service under the deal. Holder says the proposed combination would raise ticket prices, especially in places like Washington, D.C. They’re both messing with a solid plan that would save jobs and keep the DFW economy strong. And, they’re overlooking the power of the free market to birth nimble new competitors catering to “underserved” airline consumers—if there were such consumers in the first place. Tom Pauken, I think you’ve just been handed a hot campaign issue.

23 comments on “Abbott, Holder Team Up to Bash Airline Merger

  1. I was shocked when I saw that Texas was part of this law suit. I think my exact words after reading the headline that the merger had be stalled by DOJ and a list of states attorney generals were, “Well I know Texas isn’t taking part in this … I wonder what state could defend doing this…?” Naive.

  2. The Wright Amendment has cost Dallas area consumers millions over the years due to lack of competition and AA was very aggressive in destroying the competition. It goes away soon which is a good thing. Abbott is wrong on this issue. Pauken won’t be. Holder as usual is wrong.

  3. One point the Justice Department filing makes is that roughly a quarter of a million travelers in and out of DFW each year take advantage of discounted airfares presently offered by U.S. Airways. Once the merger goes through, those fares will likely disappear. They also make the point that literally dozens of routes out of DFW (including most major markets) will become de facto monopolies under the HHI criteria that the Justice Department has traditionally applied when evaluating potential mergers.

    While there are no doubt significant benefits to the DFW area as a result of the merger (the stabilization and potential growth of a major employer), there will also be huge costs to the local economy in terms of higher airfares. None of the North Texas media have covered that side of the story.

  4. One point the Justice Department filing makes is that roughly a quarter of a million travelers in and out of DFW each year take advantage of discounted airfares presently offered by U.S. Airways. Once the merger goes through, those fares will likely disappear. They also make the point that literally dozens of routes out of DFW (including most major markets) will become de facto monopolies under the HHI criteria that the Justice Department has traditionally applied when evaluating potential mergers.

    While there are no doubt significant benefits to the DFW area as a result of the merger (the stabilization and potential growth of a major employer), there will also be huge costs to the local economy in terms of higher airfares. None of the North Texas media have covered that side of the story.

    In addition, thanks to Sen. Kay Bailey Hutchison and Rep. Eddie Bernice Johnson, the possibility of “nimble new competitors catering to ‘underserved’ airline consumers” being birthed by a free market won’t happen in North Texas. The manner in which the Wright Amendment was unwound created a North Texas oligopoly with an anti-trust exemption— in North Texas, there is no such thing as a “free market” for air travel. Severe restrictions are placed on the ability of potential new entrants to freely operate from their choice of airports (as is allowed in the rest of the U.S.). A much, much larger AA will be able to revert to its long standing habit of temporarily slashing fares on affected routes anytime a potential new carrier enters the market. Once the interloper leaves, they will jack fares up to high levels— it’s the same playbook AA ran for decades and explains why (with the exception of U.S. Airways, for now) airfares in and out of this market are so high.

  5. In connection with the “removal” of the Wright Amendment, AA pulled a bit of a “fast one.” In return for allowing Love Field to accommodate flights from outside a small region, AA insisted on the tear down of a large number of gates at Love Field, never to be added again. In addition, they effectively obtained a ban on air service to/from any other airports in North Texas— requiring all future flights to operate out of DFW. To tie it all up with a bow, they received a special, North Texas only, exemption from federal anti-trust laws, allowing them the freedom to operate as a monopolist in North Texas without any form of price regulation or fear of prosecution.

    To be sure, it is fantastic having AA’s corporate headquarters here in North Texas. However, DFW consumers and businesses pay a heavy price for the privilege in the form of higher airfares. To date, US Airways has acted as a “safety valve,” allowing travelers limited options to fly out of DFW without paying the high fares demanded by the majors. As the lawsuit points out, that safety valve will likely disappear post-merger.

  6. Glenn writes, “Tom Pauken, I think you’ve just been handed a hot campaign issue.”

    Three can play at that game, Glenn. Pauken will ultimately gain no traction against AG Abbott, but there will soon be a Democratic candidate for gov, too, most likely a certain state senator who represents a decent chunk of DFW real estate. Easy on the eyes, with a fascinating backstory and a Harvard law degree, Wendy Davis will weigh in on this issue in due course, proving that she’s not simply a one-issue player.

  7. Davis bucking the Obama Justice Department on this would be interesting and refreshing, Jackson. But the question is, is she smart (and independent) enough to do it?

  8. umm, that safety valve that US air gives also takes an extra stop to get the cheaper fare.

  9. One of governments few legitimate roles in the marketplace is to foster a competitive arena, we’ve become so used to crony capitalism (which is what these mergers are, they’re allowed or not allowed based solely on the party’s ability to pony up $ ) that we’ve come to think that an ever dwindling number of companies in any given area is “competition”. Holder is as corrupt as they come and Abbott is just one more worthless politician and there’s no doubt they’re both just paying back their moneyed interests, but they happen to be right here, not only should this merger not be allowed to happen, the others should be broken up, that would allow competition. All you need to read is Crandalls defense in Glenn’s other post that essentially says this anti-competitive merger should be allowed because other anti-competitive mergers were allowed, that tells you all need to know about what’s going on. These mergers are a corrupt scam between big business and even bigger government and the consumer is the one that loses.

  10. wrong, it should be allowed based on previous DOJ approvals. When they allowed the first mega carrier approval, they opened the market. Now you have to be a mega carrier or LCC to compete. There is no room anymore for a legacy like AA or US. So while they are worried about the consumer being hurt by the merger, maybe they need to look at what would happen in 5 years when both these airlines are liquidated in Chapter 7

  11. You just repeated Crandalls excuse that this anti-competitive merger should be allowed because others were allowed, it’s still less than compelling, but hey, let’s just keep this alliance of cronies between big biz and big govt and maybe one day everything will be Taco Bell, happy days.

  12. Indeed (unless one is traveling to either Charlotte, Phoenix or Philadelphia). The point is, a quarter of a million DFW-area travelers don’t mind making that sacrifice to get a cheaper airfare. Once the merger goes through, that cheaper option will disappear, according to the DOJ analysis.

  13. U.S. Airways is already an LCC (as a matter of fact, their ticker symbol is “LCC”) and they generated over $600 million in profits last year. While AA has had its issues, through bankruptcy, alone, they have managed to clean up their balance sheet. The only remaining change they need is fresh blood in the senior management team. In 5 years, there is no reason that both airlines won’t continue to be profitable.

  14. The analysis is flawed. They claim that they overlap on thousands of routes, which is just not true. For the first time ever, they included connecting routes in the analysis to come up with the thousands or routes. If they had done that previously, they never would have allowed Delta/TWA or United/ Continental.

  15. yes I did, how is it wrong? If the new level of competition, set by the DOJ is mega carriers, then why hold them back?

  16. Because it’s not competition, in fact, it’s the opposite of competition. If you want to foster competition then break up the previous consolidations, not force new ones and shine some sunlight on pols and their cronies.

  17. I don’t recall what AA’s alternatives were to the U.S. Air merger to emerge from bankruptcy but it seems like this play is coming pretty late in the game. It is too late to bring up any anti-competition arguments in this market as corrupt politicians have prevented competition here for decades. Hopefully the merger will clean house at the top of AA and they can focus on running an efficient airline that is consumer friendly.

  18. I hope she’s smart enough to do so. Personally, I could argue it either way, as the old joke goes, but supporting the merger would be a “three-fer” for Wendy, and drawing distinctions matters greatly in politics:

    1/ it would pit her against her immediate opponent, AG Abbott, 2/ It would align her with a major DFW business interest, which could have the ancillary effect of generating campaign contributions, and 3/ it would show voters that she’s not a typical Democrat who instinctively genuflects toward the alter of those big, bad Washington liberals.

  19. One other quick thought, Glenn. You instantly saw the issue as a case of Wendy “bucking the Obama Justice Department,” while I listed bucking Greg Abbott as the #1 reason to support the merger. Big difference. Wendy Davis — or whoever becomes the Democratic candidate for gov — won’t be running for elective office in D.C., but rather against Greg Abbott. Besides, a look at his positions on a host of topics has him hewing closely to far-right Republican orthodoxy (on guns, women’s rights, etc.) as practiced today by his national party. A full 90% of Americans (including most Texans) supported background checks, but conservatives in Washington didn’t, therefore Abbott doesn’t. It seems cheeky to tar a Democrat in the provinces with the stench of fealty when Republicans in the provinces are ministers of the trade themselves.

  20. I think your analysis may be above my pay grade, Jackson. In order for Davis to “buck” Obama’s Justice Department she’d also have to buck Abbott’s position on this merger, naturally. But so far–unless I’ve missed it–she’s been mum, even though AA is in her own backyard. Whether she’s running for senate or governor, seems like she should have issued a thought on the topic by now. I still see opposing the DOJ move as a winner for Davis as she attempts to define herself as an independent “moderate” thinker on multiple issues (and tries to get away from the “Abortion Barbie” tag). Abbot can probably win being a far-right Republican, but I don’t think Davis can win if she’s defined successfully as a pro-abortion left-winger.

  21. Her silence, now more than 24 hours after the lawsuit made news, is the answer. She’s a one-issue player. She is the state senator for Fort Worth but can’t muster herself to voice a reaction to major and potentially crippling litigation affecting the largest employer in her district. As of 11 pm Wednesday night, there is no statement on her official website, which by the way is stupendously ugly (http://www.davis.senate.state.tx.us), and no meaningful Google News results from searching “‘Wendy Davis’ ‘American Airlines'”.

    Let her stick to abortion politics. That seems to her thing.

  22. Tom Pauken was a co-founder of DallasBlog– one of the primary purposes of which was to serve as the home for all pro-Wright Amendment propaganda. Being pro Wright Amendment is about as anti free market as one can get.