Safety

BEFORE THE DEPARTMENT OF JUSTICE

AND THE FEDERAL TRADE COMMISSION

DOCKET ID FTC-2022-0003

COMMENTS CONCERING THE U.S. AIRLINE INDUSTRY

RESPONSE TO “REQUEST FOR INFORMATION ON MERGER

ENFORCEMENT”

PREPARED BY WILLIAM J. MCGEE

ON BEHALF OF THE AMERICAN ECONOMIC LIBERTIES PROJECT

APRIL 2022

Overview

The American Economic Liberties Project (AELP) commends the

Antitrust Division of the U.S. Department of Justice (DOJ) and the U.S.

Federal Trade Commission (FTC) for seeking public comment on “how

the agencies can modernize enforcement of the antitrust laws

regarding mergers.”

We believe this effort is long overdue, and we

offer these comments in regard to the domestic airline industry,

which in recent decades has devolved into an ever-shrinking

oligopoly that offers diminished flight options throughout the

country, higher fares in markets not served by low-cost carriers,

incessant fees, and an overall degradation in customer service.

U.S. Department of Justice, U.S. Federal Trade Commission; “Request for Information on Merger

Enforcement”; January 18, 2022; (www.ftc.gov/news-events/news/press-releases/2022/01/federal-

trade-commission-justice-department-seek-strengthen-enforcement-against-illegal-mergers)

We also were heartened in July 2021 by President Biden’s Executive

Order on “Promoting Competition in the American Economy,”

particularly because this document specifically referenced the airline

industry. The EO cited “reduced competition” and its effects on

service, fees, and refunds.

It’s past time for the DOJ and the FTC to recognize and address the

pernicious effects of rubber-stamping merger after merger in the

airline sector. Three decades ago, there were 11 legacy network

airlines in the United States, whereas today more than 80% of the

domestic market is dominated by the “Big Three”—American Airlines,

Delta Air Lines, and United Airlines—alongside Southwest Airlines,

which increasingly is failing to operate as the low-fare leader it once

was. The series of mergers, acquisitions, and shutdowns that

eliminated US Airways, Continental Airlines, Northwest Airlines,

America West Airlines, Trans World Airlines, Pan American World

Airways, Midway Airlines, and Eastern Air Lines have harmed millions

of Americans. This has been compounded by the acquisitions of

dozens of smaller carriers in recent years, including Virgin America by

Alaska Airlines, AirTran Airways and American Trans Air by Southwest,

and a three-way consolidation between Republic Airways, Midwest

Airlines, and Frontier Airlines. Additionally, there have been multiple

mergers among regional airlines contracted to operate on behalf of

major airlines.

Such harm hasn’t been limited just to air travelers, but

also to communities affected by cessations of service, downsizing and

elimination of airport hubs, massive lay-offs, and the loss of corporate

headquarters that have damaged entire cities and even regions.

We remain concerned that the criteria used by the DOJ and other

government agencies to evaluate and approve airline mergers and

The White House; “Executive Order on Promoting Competition in the American Economy”; July

9, 2021; (www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-

executive-order-on-promoting-competition-in-the-american-economy/)

Airlines for America; “U.S. Airline Mergers and Acquisitions”; updated April 12, 2002;

(www.airlines.org/dataset/u-s-airline-mergers-and-acquisitions/)

acquisitions in recent years have fallen short in key ways, which we

detail below. However, the need to revamp the criteria is more critical

than ever; such measures are currently being put to the test by two

competing efforts to acquire ultra low cost carrier (ULCC) Spirit

Airlines. A bid was first announced by ULCC Frontier Airlines in

February, quickly followed by a higher bid from low cost carrier (LCC)

JetBlue Airways in April.

As AELP stated in March in a joint letter to the DOJ and the U.S.

Department of Transportation (DOT), co-signed by eight other

organizations, concerning the Frontier offer: “This merger will likely

lessen competition in the airline industry, and thus violates the

Clayton Act.”

The counter action by JetBlue is even more

problematic, given JetBlue’s larger command of the domestic market.

It is incumbent upon the DOJ and the FTC to recognize that the

consumer, labor, and societal harms caused by airline consolidation

are not always anticipated or captured by the existing narrow

methodologies. What follows are specific responses to key questions

posed in the Request for Information.

Purpose, Harms, and Scope

The Clayton Act’s purpose is to prevent mergers and acquisitions

whose effect “may be substantially to lessen competition, or to tend

to create a monopoly.”

Further, the Act’s language specifically

addresses “interlocking directorates,” described as “the same person

making business decisions for competing companies.” This raises two

critical issues in viewing the domestic airline industry:

American Economic Liberties Project, et al.; “Letter to Secretary Buttigieg and Assistant Attorney

General Kanter”; March 10, 2022; (www.economicliberties.us/wp-content/uploads/2022/03/Spirit-

Frontier-Letter-Final_3.10.pdf)

U.S. Federal Trade Commission; “The Antitrust Laws”; (www.ftc.gov/advice-

guidance/competition-guidance/guide-antitrust-laws/antitrust-laws)

* First, it must be recognized that the Big Three are in effect an

oligopoly; their actions on fare increases, fee introductions and

increases, products, customer policies, procedures, and service

enhancements are more often than not in lockstep. These three

airlines also

fail

to lower fares, lower or eliminate fees, or

introduce service enhancements in virtual lockstep.

* Second, it must also be recognized that Wall Street investors

are in effect violating the interlocking directorate clause by

denying start-up capital to new-entrant airlines that will disrupt

the marketplace, provide lower fares, and take market share

(and subsequently profits) from major airlines. The proof lies in

the 14-year dearth of new scheduled airline service in the

United States (see below), broken only because both Breeze

Airways and Avelo Airlines obtained outside financing for their

respective start-ups in 2021.

The Clayton Act’s concern that mergers “may” substantially lessen

competition is not in question; recent history has amply

demonstrated that it’s not a question of “may” but rather a question

of “when” instead. AELP believes that all airline mergers “lessen

competition” and this has already occurred—repeatedly and

exponentially—with each successive merger and acquisition that has

been approved in recent decades. This was particularly apparent

when the “Big Six” major network carriers became the Big Three with

the rapid, reactive, and defensive mergers of Delta and Northwest in

2008, United and Continental in 2010, and American and US Airways

in 2013.

Consider the harms already inflicted on consumers and communities

by the multi-tiered mergers that formed the current Big Three, viewed

through the prism of the contraction of route networks, particularly

the “fortress hubs” that generate the bulk of passenger traffic for

network hub-and-spoke airlines.

As consolidation expanded, major hubs were closed in St. Louis

(formerly TWA); Las Vegas (formerly America West); Boston, Nashville,

and Raleigh-Durham (American); Memphis (formerly Northwest);

Cincinnati (Delta); Cleveland (formerly Continental); Pittsburgh and

Dayton (formerly US Airways); and many other metropolitan areas

nationwide. A 2020 study by the DOT’s Office of Inspector General

(DOT-IG) stated: “For example, five medium-sized communities—

Cincinnati, which saw a 77.1% decline; Pittsburgh; Greensboro;

Cleveland; and Milwaukee—lost over half of their departures, often

resulting from an airline shifting the focus of its network away from

an airport after a merger.”

Many of these facilities were closed despite considerable public

investment via capital projects and tax breaks. In the case of the St.

Louis closure, American’s daily flights plunged from 200 to 36. In

2011, one journalist noted that mega-hubs continue to serve the

largest markets, “But smaller cities face a tougher future.” And the

economic effects on labor have been dramatic, including direct lay-

offs by airlines and aviation companies, as well as downsizing and

closures of regional offices by corporations requiring multiple flight

frequencies, nonstop routes, and jet service not outsourced to

regional aircraft. Additionally, the loss of a hub can deter other

corporations from opening new facilities in such regions. These

hardships urgently require further economic analysis, and they fit the

DOJ’s definition of “not the kind of question which is susceptible of a

ready and precise answer in most cases.”

U.S. Department of Transportation, Office of Inspector General; “Changes in Airline Service Differ

Significantly for Smaller Communities, but Limited Data on Ancillary Fees Hinders Further

Analysis”; May 27, 2020;

(www.oig.dot.gov/sites/default/files/Airline%20Service%20to%20Small%20Communities%20Final

%20Report_0.pdf)

Reynolds National Center for Business Journalism; “The Economic Toll on Former Airline Hubs”;

November 14, 2014; (businessjournalism.org/2014/11/the-economic-toll-on-former-airline-

hubs/); CNN.com; “Fewer Hubs Mean Fewer Options for Fliers”; May 16, 2011;

(www.cnn.com/2011/TRAVEL/05/16/fewer.airline.hubs/index.html)

Types and Sources of Evidence

AELP strongly believes the current guidelines’ framework has been

interpreted unduly narrowly by focusing on the predicted price

outcomes of mergers. The Big Three’s oligopoly has had deleterious

yet unexamined effects on the airline passenger experience. Simply

put, the nation’s major airlines no longer compete on customer

service or product enhancements for passengers in economy or

coach classes. And the degradation in airline service is made possible

by a lack of choice, particularly in the many regions of the country

where there are no ULCC or LCC options.

Consider the following:

• Aircraft seating has shrunk on all domestic fleets from the Big Three

to the ULCCs. In recent decades seat pitch (i.e. legroom) has

decreased, in some cases by 2” to 5”, and seat width has decreased by

up to 2”. Such squeezing is exacerbated by two conflicting trends.

First, airline passenger load factors are at all-time highs not seen

since World War II, with the virtual elimination of empty middle seats

between strangers on most flights. A Boeing engineer calculated an

unoccupied adjacent seat provides an addition 4.25” in width. Second,

in 2018 the Centers for Disease Control and Prevention confirmed

that average Americans have grown larger in recent decades. Those

higher load factors also have put the squeeze on redemption of

frequent flyer miles and points. Each successive merger worsens this

scenario, as twice the number of “elite” members are fighting for half

as many available seats.

USA Today, Bill McGee; “Think Airline Seats Have Gotten Smaller? They Have”; September 24,

2014; (www.usatoday.com/story/travel/columnist/mcgee/2014/09/24/airplane-reclining-seat-

pitch-width/16105491/); Centers for Disease Control and Prevention, National Center for Health

Statistics; “Mean Body Weight, Height, Waist Circumference, and Body Mass Index Among Adults:

United States, 1999-2000 Through 2015-2016”; December 20, 2018;

(www.cdc.gov/nchs/data/nhsr/nhsr122-508.pdf)

• Rather than introducing improvements to inflight service, in recent

years the Big Three have actually downgraded the experience by

introducing bare-bones “Basic Economy” service designed to

compete with the ULCCs. Unwitting consumers booking on American,

Delta, and United continually discover that Basic Economy can mean

even tighter seats, restrictions on carry-on baggage and early

boarding, and the inability to select seat assignments. It’s also been

documented that Basic Economy was designed as a low fare bait-

and-switch, since analysts note the Big Three actually discourage the

purchase in an effort to upsell to higher classes of service.

• The mistreatment of passengers and the indifference to customer

service by airlines that have cut costs and outsourced passenger

interfacing jobs has become the new normal, and no objective source

can argue that commercial flying has not degraded in the United

States over the last two decades. This phenomenon was spectacularly

highlighted in April 2017, when paying passenger Dr. David Dao was

beaten and then involuntarily dragged from an aircraft because

United Express oversold the flight. In a subsequent House

Transportation Committee hearing in May 2017, Consumer Reports

testified: “A lack of competition and consumer choice allows carriers

to disregard the interests and concerns of their passengers in ways

that would have been unthinkable when there were 12 or 10 or even

8 major airlines in the United States competing for customers.” The

proof that consumers were unable to “book away” from United came

a month later, when—despite persistent, high-profile condemnation

from Congress, major media, social media, and the American public—

United’s stock price actually rose.

Bloomberg, “Why Airlines Don’t Want You to Fly Basic Economy”; November 16, 2018;

(www.bloomberg.com/news/articles/2018-11-16/why-airlines-don-t-want-you-to-fly-basic-

economy)

Consumer Reports/Consumers Union; “Testimony of William J. McGee, Aviation Consultant,

Consumers Union, Before the House Committee on Transportation and Infrastructure”; May 2,

2017; (https://advocacy.consumerreports.org/wp-content/uploads/2017/05/Consumers-Union-

• By any unbiased measure, airline service has deteriorated. DOT

statistics on canceled flights have reached unprecedented levels in

the last year, and this has been exacerbated by extremely lengthy

average wait times to reach outsourced airline call centers. The DOT’s

monthly Air Travel Consumer Reports quantify the misery: There were

102,550 consumer complaints in 2020, the highest number on record

in the 35 years the DOT has tracked such data, and a 568.4% annual

increase. In 2021, complaints receded to 49,958, which was still an

increase of 225.9% over pre-Covid 2019.

• All domestic airlines—with only one exception—followed Spirit’s

nickel-and-diming lead in 2007 by charging for first checked bags.

Only Southwest does not charge for first and second checked bags.

With most “ancillary fees,” there is tremendous duplication in the U.S.

airline market.

• All domestic airlines—without exception—have operated in unison

by defying a Congressional mandate to avoid charging fees to

families with children under 13 to sit together inflight. Not one carrier

has attempted to differentiate itself by eliminating such fees.

• All domestic airlines—without exception—collectively withheld at

least $10 billion in flight refunds for passengers unable to fly during

McGee-05-02-2017-House-airline-hearing.pdf); United Airlines; “Historical Price Lookup”; Weeks

of May 8-June 8, 2017; (https://ir.united.com/investor-resources/historical-price-lookup)

U.S. Department of Transportation; “Air Travel Consumer Report: December 2020, Full Year

2020 Numbers”; February 25, 2021; (www.transportation.gov/briefing-room/air-travel-consumer-

report-december-2020-full-year-2020-numbers); U.S. Department of Transportation; “Air Travel

Consumer Report: December 2021, Full Year 2021 Numbers”; February 28, 2022;

(www.transportation.gov/briefing-room/air-travel-consumer-report-december-2021-full-year-

2021-numbers)

FareCompare.com; “History of Airline Fees: Bags, Food & More”; August 23, 2017;

(www.bloomberg.com/news/articles/2018-11-16/why-airlines-don-t-want-you-to-fly-basic-

economy)

Consumer Reports; “Consumer Reports Urges Airlines To Let Kids Sit With Parents Without

Extra Fees”; March 2, 2021; (https://advocacy.consumerreports.org/press_release/consumer-

reports-urges-major-airlines-to-let-kids-sit-with-parents-without-extra-fees/)

the Covid-19 pandemic in 2020 and 2021. Not one carrier stepped up

and defied industry behavior, even though millions of passengers

were restricted from flying by medical experts and international,

federal, state, and local restrictions. Airline indifference is apparent

not just with customers, but even with lawmakers. Sen. Ed Markey (D-

Mass.) “blasted” carriers for brazenly refusing to respond to

Congressional queries and stated: “Seven airlines accounting for more

than 70 percent of the domestic market have refused to individually

respond to our questions.”

Coordinated Effects

Competition and consumer advocates have long voiced apprehension

over the airline industry allegedly colluding on issues such as fixing

prices, introducing ancillary fees, and cutting travel agency

commissions. The “conscious parallelism” concerns raised in the

Request for Information are particularly acute with airlines, since their

schedules, fares, and fees are often shared by third-party ticket sellers

such as online travel agencies. (Note: This is

not

to suggest that there

are not independent, long-standing, and systemic issues with airline

pricing transparency, particularly in regard to the opaqueness of

many ancillary fees.)

However, proving such allegations has been difficult. For example, a

class action lawsuit filed against Delta and AirTran in 2009 charged

that they had colluded on baggage fees. The court dismissed the

case, but stated: “[U]nlawful conspiracies may be inferred when

collusive communications among competitors precede

Senator Ed Markey; “Senators Markey and Blumenthal Blast Airlines’ Inadequate Response to

Their Request to Eliminate Expiration Dates for All Pandemic-Related Flight Credits”; June 1, 2021;

(www.markey.senate.gov/news/press-releases/senators-markey-and-blumenthal-blast-airlines-

inadequate-response-to-their-request-to-eliminate-expiration-dates-for-all-pandemic-related-

flight-credits)

changed/responsive business practices, such as new pricing

practices.”

It’s imperative that such actions be thoroughly investigated,

particularly since airlines offer consumers one of the most complex

pricing models in the free market, with some 7 billion airfares

constantly changing daily.

Presumptions

As noted above, there has been an exponential factor at play in the

rapid corporate concentration of the U.S. airline industry. Each

subsequent merger has caused greater harm than the merger

preceding it, as the market has shrunk and the remaining players

have grown stronger. Yet conversely—and shockingly—government

approvals have become easier rather than harder.

This was made apparent in the five-year period between 2008 and

2013, when the Big Six devolved into the Big Three, each jockeying

for greater market share and the title of “largest airline in the world.”

Remarkably, after the Delta-Northwest merger in 2008, the executives

advocating for the United-Continental merger in 2010 and then the

American-US Airways merger in 2013 actually pointed to earlier

mergers as justification for increasing consolidation further.

As Chairman James Oberstar said to United and Continental

executives at a House Transportation Committee hearing in 2010:

“What we saw just recently was a further step in that consolidation,

when the previous Justice Department looked the other way, sort of

brushed aside my objections that approval of Delta and Northwest

McGill University, Institute of Air & Space Law; “Competition and the Antitrust Laws”; 2013;

(www.mcgill.ca/iasl/files/iasl/aspl614-competition_and_antitrust-laws.pdf); Atlanta Journal-

Constitution; “Judge Dismisses Lawsuit Over Airline Baggage Fees”; March 30, 2017;

(www.ajc.com/business/judge-dismisses-lawsuit-over-airline-baggage-

fees/BNwFA7MJXRGjjZ57egdnbL/)

would result in a cascade of mergers. That has happened. You have

proposed one. You did not object to Delta-Northwest because you

were waiting in line with your own hat in hand.”

This can best be described as the legal argument offered by young

children who plead with their parents by pointing to their older

siblings: “But you let them do it so now you have to let me!”

Remarkably, this faulty argument worked for airlines. Indeed, in

testimony before the Senate Judiciary Committee, Douglas Parker—

then Chairman of US Airways and currently Chairman of American—

stated: “Although it will be the largest airline in the United States, the

new American Airlines will have less than 25% of domestic available

seat miles and will compete against the nationwide networks of Delta,

with 21% share; United, with 19%; and Southwest, with 19%.”

Market Definition

The Request for Information specifically references potential harm to

competition through means other than price increases, “but instead

from other longer-term of non-price factors such as a loss of

innovation, changes to product quality or variety, or creation of new

entry barriers.” The loss of innovation and changes to product quality

were addressed above. But the harm caused by new entry barriers is

tremendous, even though it remains one of the least examined side

effects of airline industry consolidation.

One of the primary tenets of the Airline Deregulation Act of 1978 was

that it would usher in more competition and more new-entrant

airlines that would compete on service and fares, thus benefiting

U.S. House of Representatives, Committee on Transportation and Infrastructure; Hearing on

“The Proposed United-Continental Merger: Potential Effects for Consumers and Industry”; June 16,

2010; (www.congress.gov/event/111th-congress/house-event/LC6802/text?s=1&r=13)

U.S. Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and

Consumer Rights; Hearing on “The American Airlines/US Airways Merger: Consolidation,

Competition, and Consumers”; March 19, 2013; (www.govinfo.gov/content/pkg/CHRG-

113shrg98440/html/CHRG-113shrg98440.htm)

American air travelers and communities nationwide. This is clearly

stated in the opening paragraph of the Act’s conference report,

directing the Civil Aeronautics Board to consider “the encouragement

of entry into air transportation markets by new air carriers.”

For a short time in the 1980s, that pledge was fulfilled. But there has

been a steady decline for more than three decades now, even among

smaller, non-scheduled, and air taxi carriers; there were 96

commercial air carriers in 1995, and that number fell to 61 in 2021.

Subsequently, competition has been stifled and consumers have

suffered. The architects of airline deregulation would be horrified to

realize there are fewer domestic carriers in 2022 than in 1978.

Furthermore, between 2007 and 2021 there was not a single new-

entrant scheduled passenger airline launched in the U.S., the longest

stretch since the industry was founded in 1914, including during the

regulated era. Both Breeze and Avelo began flying in 2021 amid pent-

up demand due to Covid-19. Former Spirit CEO Ben Baldanza—the

inventor of airline ancillary fees in the United States—stated: “In a

strong economy, big airlines are good at putting pressure on new

carriers by both lowering their prices and adding capacity. But in the

current environment, especially after taking a lot of taxpayer money,

the largest U.S. airlines will have to be more careful about how hard

they try to snuff out these two new airlines.”

Ironically, the barriers to entry that the framers of deregulation

sought to erase have been replaced by even higher barriers to entry

in 2022—only now they are erected by the market, not by the federal

government. This is because while the DOJ and other government

agencies carefully scrutinize

how

domestic airlines spend capital, not

U.S. Congress; “S.2493, Airline Deregulation Act”; October 24, 1978;

(www.congress.gov/bill/95th-congress/senate-bill/2493)

Statista.com; “Number of Air Carriers in the United States from 1995 to 2021”; March 28, 2022;

(www.statista.com/statistics/183428/number-of-us-air-carriers-since-1995/)

Forbes.com; Ben Baldanza; “What the New Airlines Avelo and Breeze Mean for U.S. Aviation”;

May 21, 2021; (www.forbes.com/sites/benbaldanza/2021/05/21/what-two-new-airlines-avelo-

and-breeze-mean-for-us-aviation/?sh=31510c9323ba)

enough attention is paid to

where

such capital is derived. The plain

truth is that major financial investors own numerous shares in airlines

that ostensibly compete with each other. This leads to two irrefutable

conclusions:

* Investors don’t want major airlines to compete with each

other, particularly when it involves cutting fares.

* Investors don’t want major airlines to be challenged by new-

entrant carriers, especially ULCCs and LCCs, which undoubtedly

will drive down fares for consumers—and therefore drive down

profits for Wall Street.

No less a figure than Warren Buffet, Chairman of Berkshire Hathaway,

reversed himself on airline investing in 2016. Many years earlier he

had lost a large sum in airline shares and famously commented on

the Wright Brothers: “Indeed, if a farsighted capitalist had been

present at Kitty Hawk, he would have done his successors a huge

favor by shooting Orville down.” So what happened to change his

mind about investing in an airline? Actually, he decided to invest in

not one, not two, not three, but

all

of the four largest airlines in

America—American, Delta, Southwest, and United.

Furthermore, Wall Street investors punish airlines for pro-consumer

initiatives. Take the case of Southwest, the only carrier in the nation

not charging fees for first and second checked bags, as well as ticket

changes. In 2014, JetBlue was the penultimate carrier in the country

not charging fees for first checked bags, but it succumbed to pressure

from investors, leaving Southwest the lone holdout on bag fees. As

Tim Wu noted shortly after in “Why Airlines Want to Make You Suffer”

in The New Yorker: “Wall Street analysts, however, accused JetBlue of

being ‘overly brand-conscious and customer-focused.’”

Analysis of

industry consolidation is ineffective if it does not take into account

CNBC; “Buffett’s Berkshire Takes Stake in Four Major Airlines”; November 14, 2016;

(www.cnbc.com/2016/11/14/buffetts-berkshire-takes-stakes-in-four-major-airlines.html)

The New Yorker; Tim Wu; “Why Airlines Want to Make You Suffer”; December 26, 2014;

(www.newyorker.com/business/currency/airlines-want-you-to-suffer)

the unbearable pressure of those providing the operating capital,

while also recognizing that the interests of investors are diametrically

opposed to the best interests of the very customers that this

customer service industry is theoretically serving.

Wall Street also punishes airlines for pro-labor actions. When

American gave its workforce a raise in 2017—primarily to achieve

parity with Delta and United employees—investors immediately

devalued American’s stock, and made it clear this was unacceptable

behavior. JPMorgan airline analyst Jamie Baker stated: “We are

troubled by AAL’s wealth transfer of nearly $1 billion to its labor

groups…American’s agreement with its labor stakeholders establishes

a worrying precedent, in our view, both for American and the

industry.” Left out of this narrow equation is that airline wage

increases might actually 1) improve service and the customer

experience for paying passengers and 2) help stimulate the national

economy so that more middle class workers can pay for discretionary

items such as…air travel.

That said, even if securing capital was not an issue, there are still

many other competitive barriers to entry for new airlines, especially as

consolidation has strengthened the majors. As Dr. Diana Moss,

President of the American Antirust Institute, told the Senate in

reference to airline mergers in 2013: “Rather the relevant

consideration is whether existing participants in the industry find it

more difficult with higher concentration and hub dominance to

access the inputs (e.g., hubs, slots, gates, etc.) needed to enter and

compete on airport-pair or city-pair routes that are adversely affected

by the US Airways-American merger.”

Vox; “American Airlines Gave its Workers a Raise; Wall Street Freaked Out”; April 29, 2017;

(www.vox.com/new-money/2017/4/29/15471634/american-airlines-raise)

U.S. Senate, Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and

Consumer Rights; Follow-up Questions on “The American Airlines/US Airways Merger:

Consolidation, Competition, and Consumers”; March 19, 2013;

(www.judiciary.senate.gov/imo/media/doc/031913QFRs-Moss.pdf)

Potential and Nascent Competition

The issue of a “nascent competitor” evolving into a “competitive

force” is particularly relevant in light of the announced merger bids

for Spirit by Frontier and JetBlue. Frontier’s analysis repeatedly states

that a combined Frontier-Spirit will “deliver $1 billion in annual

consumer savings” to passengers.

Even if the math here is correct—

very

big “if”—it’s absurd to assume that any cost cutting from this

merger would flow unimpeded to consumers. The only beneficiaries

of airline mergers are executives and investors.

Furthermore, Frontier asserts that merging with Spirit will “deliver

even more reliable service.” Given their record number of flight

cancellations and consumer complaints recently, this claim is

laughable. In the latest DOT Air Travel Consumer Report for March

2022, among the 17 U.S. carriers ranked on consumer complaints, the

nation’s three ULCCs finished dead last—Spirit at 15

, Allegiant at

, and Frontier at 17

It’s imperative that the DOJ and the FTC fully analyze and estimate

not only the untapped potential due to mergers, but also the bogus

and inflated claims of unrealistic potential benefits due to mergers.

Special Characteristics Markets

There are two key questions raised here, the first concerning past

mergers and the second concerning price discrimination.

Frontier Airlines; “Everyone Wins With Even More Ultra-Low Fares”; February 2022;

(https://evenmoreultralowfares.com/wp-content/uploads/2022/02/Frontier-Spirit-Transaction-

Infographic.pdf)

U.S. Department of Transportation; “Air Travel Consumer Report”; March 2022;

(www.transportation.gov/sites/dot.gov/files/2022-04/March%202022%20ATCR.pdf)

• Past mergers. The question about “consummated mergers” and

“post-merger evidence” is absolutely critical, and AELP is grateful that

the DOJ and the FTC are considering this issue. As our comments

have made clear, the path toward unsustainable airline industry

consolidation has been strewn with inflated estimates, half-truths, and

broken promises.

AELP strongly urges the DOJ and the FTC to place a moratorium on

all future airline mergers and acquisitions until a thorough

examination has been conducted of the mergers that have taken

place since 2001, particularly the “mega-mergers” that consolidated

the Big Six into the Big Three—Delta-Northwest, United-Continental,

and American-US Airways. The author of these comments testified

multiple times in both the House and the Senate against these

mergers, and witnessed first-hand how airline executives offered

vague answers, and even vaguer promises, to direct questions about

cutting service, laying off employees, closing hubs, and raising fares.

• Price discrimination. The airline pricing model is broken in the

United States. First, there is the opacity and confusion of the booking

process, as consumers struggle to obtain bottom-line fares inclusive

of both mandatory and “optional” ancillary fees. Second, there is the

cost of flying itself.

Airlines and their lobbyists repeatedly assert that airfares are falling.

As Airlines for America often asserts, “average domestic round-trip

airfares” are lower now when adjusted for inflation.

This conclusion

obscures two key factors:

* Comparisons of base fares from years past fail to account for

the many ancillary fees that airlines have “unbundled” from

ticket prices, so apples-to-apples comparisons are nearly

impossible for consumers to calculate.

Airlines for America; Data & Statistics; “Domestic Round-Trip Fares and Fees”; April 9, 2020;

(www.airlines.org/dataset/annual-round-trip-fares-and-fees-domestic/)

* The key word in “average airfares” is

average

. In fact, the

differential in average fares across the United States is

considerable.

Since 1996, the DOT has published the quarterly Domestic Airline

Fares Consumer Report.

The report details actual fares paid in the

1,000 largest domestic city-pair markets, roughly half of all domestic

passenger traffic. For years now these reports have demonstrated not

only the complexity of airline pricing, but the broad range between

lowest and highest fares.

Consider the most recent report, detailing the 3Q of 2021. The

fluctuations in fares paid by passengers on the same route can be

considerable. Between Atlanta and Charlotte, 52% of passengers on

Delta paid more than three times the minimum fare. Between

Washington, DC and Huntsville, it was 42% of passengers on United.

Between Salt Lake City and Spokane, it was 35% of passengers on

Delta. Between Chicago and Greenville, it was 23% on United.

Few

other industries offer such wide pricing disparities for identical

products.

Then there are the effects of how competition—as well as a virtual

lack

of competition—affects airfares. The same 3Q 2021 report also

highlights the largest year-over-year price increases and decreases on

routes throughout the country. Not surprisingly, the highest price

gouging occurred between cities not served by LCCs and/or ULCCs

last year. The worst case was Milwaukee-New York, a route where

U.S. Department of Transportation; Domestic Airline Fares Consumer Report; 1996-2021;

(www.transportation.gov/office-policy/aviation-policy/domestic-airline-consumer-airfare-report-

pdf)

U.S. Department of Transportation; Domestic Airline Fares Consumer Report; Third Quarter

2021; (www.transportation.gov/sites/dot.gov/files/2022-

01/Domestic%20Airline%20Fares%20Consumer%20Report%202021_Q3.pdf)

average fares rose 482%, prior to LCC JetBlue entering this year.

And

conversely, the largest decrease occurred between Santa Barbara and

Las Vegas, which in 3Q 2021 saw average fares fall by a whopping

41,640%! Why? Because in April 2021 LCC Southwest launched the

first nonstop flights on this route.

As the DOT reports prove every single quarter, it simply cannot be

overstated how critical the effects of ULCCs and LCCs are on pricing.

A 2016 MIT study asserted a ULCC presence reduces base airfares by

21% by all airlines serving that route, and an LCC presence reduces all

fares by 8%.

The unarguable fact is that the Big Three hike fares

when there is no ULCC or LCC head-to-head competition, and lower

fares when there is such competition. This is yet another malevolent

effect of airline consolidation, particularly when the Big Six merged

into the Big Three. The odds of a major carrier introducing lower

fares—as they once did when there were more major airlines and

therefore competition was much more spirited—have disappeared

through these mergers.

This was documented by the U.S. Government Accountability Office in

2013: “At the same time, capacity reductions in certain markets from a

merger or acquisition could also serve to generate additional revenue

through increased fares on some routes. Some studies of airline

mergers and acquisitions during the 1980s showed that prices were

Milwaukee Business Journal; “JetBlue Airways Will Begin Milwaukee Service March 27”; February

2, 2022; (www.bizjournals.com/milwaukee/news/2022/02/02/jetblue-airways-will-begin-

milwaukee-service-march.html)

Visit Santa Barbara; “New Southwest Airlines Flights to Santa Barbara Take Off in April 2021”;

January 21, 2021; (https://santabarbaraca.com/press_releases/new-southwest-airlines-flights-to-

santa-barbara-take-off-in-april-2021/)

Massachusetts Institute of Technology; “The Emergence and Effects of the Ultra-Low Cost

Carrier (ULCC) Business Model in the U.S. Airline Industry”; October 17, 2016;

(https://dspace.mit.edu/bitstream/handle/1721.1/104869/ulcc-paper-draft-

revFINAL.pdf;jsessionid=B0775022ED165FAFDF3A9F0809460539?sequence=1)

higher on some routes from the airline’s hubs soon after the

combination was completed.”

Conclusion

At one time more than a decade ago, many competition and

consumer advocates warned Congress and the DOJ that the U.S.

airline industry was quickly approaching “Too Big To Fail” status. That

day has already arrived, as witnessed by the government assistance

and bailouts the industry requested from Congress and received from

taxpayers in the wake of the 9/11 terror attacks, economic and fuel

crises, and the Covid-19 pandemic.

Taxpayer relief was not even in question in 2020. The only question

was how much, which turned out to be a record $54 billion. Yet

despite only one caveat—maintain staffing levels throughout the

pandemic—several domestic airlines defiantly trimmed staff, while

refusing to provide customer refunds despite DOT guidance

and

canceling thousands of flights due to staffing shortages.

The

airlines’ open insolence of consumers, Congress, and the DOT is in

large measure the result of uncontrolled industry consolidation.

We urge the DOJ and the FTC to consider and act upon the issues

AELP has raised above. And we urge these agencies to strengthen the

merger enforcement and policy guidance that previously allowed

such consolidation to take hold. We thank you for your consideration.

—William J. McGee

On Behalf of the American Economic Liberties Project

18 April 2022

U.S. Government Accountability Office; “Airline Mergers: Issues Raised by the Proposed Merger

of American Airlines and US Airways”; June 19, 2013; (www.gao.gov/assets/gao-13-403t.pdf)

Washington Post; “Taxpayers Spent Billions Bailing Out Airlines; Did the Industry Hold Up its

End of the Deal?”; December 14, 2021;

(www.washingtonpost.com/transportation/2021/12/14/airline-bailout-covid-flights/)