The American Antitrust Institute (AAI), based in Washington, D.C., issued a white paper analyzing how the proposed merger of Delta Air Lines and Northwest Airlines could harm competition and consumers. The AAI, an advocacy group, said the $3.1 billion deal would create the single largest airline in the U.S. and worldwide.
The merger, staunchly defended by both Delta and Northwest as well as by many industry analysts, is currently being reviewed by the Department of Justice. The 19-page AAI white paper says the merger would have a variety of potential adverse competitive effects. This includes the potential for restricted seat availability, higher fares, degraded service quality, and less choice for consumers, AAI says.
“The AAI finds that efficiencies claimed by Delta and Northwest are likely to be defeated by larger network size," the paper states. "In addition, entry by legacy networks and low-cost carriers cannot be counted on to discipline post- merger price increases." The paper was authored by AAI vice president and senior fellow Diana Moss.
Moss noted that while the AAI does not have access to the quality of data and information that the DOJ does in a merger investigation, “[their] analysis of public information shows that there are too many indicators that the merger would harm competition and consumers and should therefore be blocked.” The AAI has a history of opposing mergers it feels are against the public interest.
The white paper argues that the proposed merger would adversely affect both city-pair and system-based markets. “City-pair analysis is the backbone of DOJ airline merger review,” said Moss. “But we also believe that the merger would eliminate head-to-head competition between the Northwest and Delta systems in the broader, system-based market for air travel, something that isn’t typically considered.”
AAI president Albert Foer stated, “The dismal airline industry climate does not establish a good case for haste or exception in reviewing the Delta/Northwest merger application. We think pressure on the airlines to downsize, when paired up with eliminating rivals through merger, does a disservice to consumers.” Foer previously testified on the merger before the House Transportation Committee. Delta and Northwest have argued that the merger will benefit the industry and the public and deserves support and DOJ approval.
The AAI notes that the proposed merger must be considered against a complex and changing industry, including high fuel costs, diminished passenger demand and industry wide reductions in scheduling, aircraft and personnel. Despite this, AAI says the DOJ should not hastily approve the merger. Antitrust laws are not suspended during an economic turndown, the AAI says.