Political tide turns against airline mergers
In her waning days as Secretary of Transportation, Elizabeth Dole is watching the political tide turn against the massive airline industry consolidation she helped orchestrate. The recent decision by an administrative law judge to recommend against the merger of USAir and Piedmont airlines shocked the two companies and put the Department of Transportation in a difficult situation. The judge's decision, though subject to being overruled by the DOT, may signal a change in the department's view of big airline mergers, industry analysts say.Skip to next paragraph
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``There is no doubt the department is coming under a lot of pressure and a lot of criticism for not taking a tougher line earlier with all of these mergers,'' says Peter Cappelli, an economics professor at the University of Pennsylvania's Wharton School. ``The sense of the public now is that they have gone too far.''
Long lines, lost luggage, and a recent tragic accident have pricked the public consciousness deeply, and Congress has begun to respond with a spate of consumer-protection bills.
And as air fares rise, so does pressure to show that DOT is not just a rubber stamp for the airline industry. This, despite the fact the department has yet to say ``no'' to a major airline merger.
Even Alfred Kahn, former head of the now-defunct Civil Aeronautics Board and a staunch proponent of deregulation has recently come to be critical of the department's enforcement of the United States's antitrust laws.
``It seems to me, DOT never met a merger they didn't like,'' Mr. Kahn, now a Cornell University economics professor told the Associated Press. ``What they did in effect was let the elephants go through, and now they're straining at a gnat.''
The opinion of Kahn and others that reasonable enforcement of the nation's antitrust laws is needed to preserve competition and prevent virtual market monopolies comes late in the game, as does legislation introduced earlier this year in the Senate to strip DOT of its power to approve mergers.
The department's merger authority is presently scheduled to be reassigned to the Justice Department's antitrust division in 1989.
Even though it is really just a tiny indicator, the negative ruling on USAir-Piedmont by administrative law judge Ronnie Yoder, an employee of the DOT, was seen by many analysts as an important political message.
The ruling gives the DOT a reason to later deny (if it wishes) what is increasingly seen to be a politically unpopular move to allow yet another merger. The problem is one of fairness, because judging by all previously allowed mergers there is really no reason to deny this one, analysts say.
Last summer Judge Yoder endorsed the merger of Northwest Airlines with Republic Airlines even though Northwest would then dominate several major city hubs and many routes in its region.
``It is strange that Yoder recommended approval of the Northwest-Republic merger and then turns around and rejects USAir-Piedmont,'' says Paul Karos, a securities analyst, L.F. Rothschild, Unterberg, Towbin. ``No two carriers that could have gotten together had more overlapping routes than Northwest and Republic.''
Mr. Karos says the deal Yoder approved of has resulted in Northwest holding an 80 to 85 percent market share in Minneapolis, an 85 percent market share in Detroit, and an 80 percent share in Memphis. In contrast, the USAir-Piedmont deal would not result in anything like the market power held by Northwest, he says.
``The administration has gone so far down the road with approving mergers that if it used the same standards on this one as it did the others - it would be approved,'' says Frank Spencer, a professor at Northwestern University's Kellogg School. ``It would be easy for the law judge to listen tentatively to the complaints ... but law judges throughout history have frequently been overruled,'' he says.
Airline industry analysts say the big mergers that will most affect consumers in coming years have already been consumated - a total of 11 in the past two years. After several years of fare battles and heavy competition, the industry has settled into a more comfortable routine. Fares are up, fare battles are an ugly memory, and despite problems keeping the flying public happy the industry is expecting record profits.
``There is no doubt the government ought to feel pressure,'' says Professor Capelli. ``But at this point the USAir-Piedmont deal is about the last big merger. It seems like they're trying to close the barn door after the horses are already out.''