BTC Endorses Texas AG's Support of DOJ Lawsuit

american airlinesAn opinion piece penned by Texas State Attorney General Greg Abbott in The Dallas Morning News defending the U.S. Department of Justice's (DOJ) decision to oppose the merger of American Airlines and US Airways gained the support of Kevin Mitchell, chairman, the Business Travel Coalition (BTC).

Mitchell, who also supports the DOJ's controversial position, said Abbott's arguments "succinctly and powerfully makes the case for why he felt duty-bound to oppose the merger." Mitchell also linked the divisive merger issue to the pending Department of Transportation's decision on disclosure of airline fees.

"Importantly, in laying out the facts about an uncompetitive airline industry where airlines act in tandem to impose - and then increase - the extra fees and charges travelers must pay, he has underscored the dynamics of that industry that are the reason the U.S. DOT (Department of Transportation) should promptly publish its much-anticipated rule concerning the disclosure of extra fees and charges to consumers."

In his commentary on Abbott's views, Mitchell said the DOT has been urged by commentators, including BTC, to issue a rule that would protect consumers and "help restore some measure of competition by requiring airlines to make full, fair and timely disclosure of their extra fees and charges in any channel through which they sell their tickets."

"In addition to the fact that major airlines have developed the ability to play what Attorney General Abbot calls “follow the leader” pricing on new and higher fees, there is another compelling reason why DOT must address this issue. It is that consumers of air travel, unlike consumers in most all other sectors of the economy, have literally no protections under state consumer protection laws and no private right of action in federal court in the case of deceptive or unfair practices by airlines."

Mitchell note that State AGs can take no enforcement actions at the state level on behalf of consumers and consumers can’'t bring their own cases either. "That is because airlines fought for and Congress imposed the federal preemption doctrine when it deregulated the airline industry and consolidated all consumer protections at the DOT."

"As the airline industry has become more concentrated and cozy, this special responsibility of the DOT to safeguard consumers' interests has become more critically important," Mitchell said.

Key extracts cited by BTC from the Dallas Morning News Opinion piece (August 15, 2013) by Attorney General Greg Abbott follows:

Why I challenged the American Airlines-US Airways Merger

Why in the world would Texas file a legal action challenging the merger of American Airlines with US Airways? The answer is simple: We believe that actions by the airlines and their officials violate antitrust laws. In fact, the legal violations appear so overt that it would offend my oath of office not to take action.

The legal action is based on evidence such as internal emails, investor presentations and other comments by top executives of the airlines. Those documents reveal their thinking about how shrinking competition in the airline industry and, hence, the merger —will allow the airlines to pile even more bag fees, ticket change fees and increased fares on customers. American and US Airways compete directly on thousands of heavily traveled routes. The merger would allow the new company to shed that competition and distort the marketplace while harming competition for nearly 200 Texas routes.

But don’'t take my word for it; take the word of the airlines: The president of US Airways, the company American is trying to merge with, said that consolidation among airline competitors helped pave the way for airlines to hike fares. He later noted that it’s “impossible to overstate the benefit” of mergers in giving airlines the ability to impose new fees. He also said that they were “able to pass along to customers” “three successful fare increases” because of mergers and consolidation in the airline industry.

This is just a small sampling of troubling things. First, the airline executives'’ own words raise antitrust concerns. Second, the goal of the airlines appears to undermine free markets. The combined airlines will be able to extract higher fees and impose more onerous fares only because the free market system will be so distorted.

Free markets work best with competition in the marketplace.

What the proposed merger seeks is not competition in the free market, but it expressly seeks the elimination of competition so the airlines no longer need to compete for customers. It turns the free market on its head. Kevin Mitchell, chairman of the Business Travel Coalition, said that the merger casts “a spotlight on how uncompetitive and cozy U.S. airlines have become.”

As the Department of Justice said: When you have fewer competitors, in this case, just three legacy airlines,— it'’s much easier for them to play follow-the-leader. One takes the bag fee up, and the others go along. If you reduce the number of airlines, you make it easier for the remaining players to participate in tacit coordination rather than real competition.

For airlines, the free market is morphing into an oligopolistic market. Competition is giving way to price and market control by a limited number of players who appear intent to agree on price increases rather than competing for customers. That is what typically happens when competition is removed from the marketplace.

See the full opinion piece at http://btcnews.co/19mGJge

 

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