GOP: Justice was ‘overcompensating’ on airline merger

Republicans in the House accused the Department of Justice (DOJ) on Friday of “overcompensating” for allowing previous airline mergers with its attempt to block a proposed US Airways-American Airlines combination. 

The Justice Department agreed to drop its lawsuit against the merger this week after reaching a settlement with the airlines that involves the companies giving up gate space at airports in Washington, D.C., and New York City.

Rep. Spencer Bachus (R-Ala.) said during a hearing of the House Judiciary Antitrust Law subcommittee that the department’s decision to drop its lawsuit raised questions about the agency’s pursuit of the intervention to begin with.

{mosads}”This matter raises questions for some of us, in light of the fact that the department has approved several similar or even more problematic airline mergers in the past,” Bauchus said. “It appears to me to be the case of … overcompensating for past omissions, and that’s just a personal view.”

Bauchus said the Justice Department’s attempt to block the US Airways-American merger could have a chilling effect on future business transactions.

“When an executive agency undertakes an action that appears to suddenly turn new ground, you wind up with confusion and uncertainty and leave businesses wondering whether to expend significant time and resources pursuing a strategy that might be thawed by the government for very unclear reasons,” he said.

The Justice Department alleged in its August lawsuit to block the proposed US Airways-American merger that the potential combination would increase prices for airline passengers.

The airlines countered that they needed to be able to merge to compete with other airlines that have been allowed to combine in recent years like Delta and Northwest, United and Continental, and Southwest and AirTran Airways.

Democrats on the panel defended the Justice Department’s intervention, saying it would have been helpful if the agency had attempted to stop those previous airline mergers in recent years in similar fashion.

“Effective antitrust enforcement is key to ensuring a vibrant, competitive marketplace that rewards innovation and creativity and offers consumers greater choice and lower prices,” Rep. Steve Cohen (D-Tenn.) said. “In the absence of antitrust enforcement, companies has less incentive to compete, more incentive to maintain high profit margins at the expense of consumer welfare just like Delta Airlines in Memphis.”

Cohen said he heard similar claims about maintaining flight service by US Airways and American officials in congressional hearings about their proposed merger when Delta and Northwest airlines combined forces in 2008.

“My constituents, those in Tennessee, are all too aware of the consequences of ineffective antitrust enforcement,” Cohen said. “As I noted back in February and I noted two minutes ago, the merger of Delta Airlines and Northwest Airlines has been nothing short of a disaster for Memphis.

“Before the merger, they had 240 some-odd flights in and out of Memphis or departing Memphis, I think,” the Tennessee lawmaker continued. “Now, they have about 40. Although [Delta CEO Richard] Anderson did come before this committee and say it won’t affect Memphis, ‘we love Memphis,’ but ‘we’ apparently love something else more.”

Cohen said the Justice Department should have also purposed an antitrust lawsuit against Delta and Northwest. 

“Those promises in 2008, no hub closures, which, just as I heard in the assurances for the American and US Air and, hopefully, they will be more fitting and they were tailored to three years,” he said. “And Delta waited about three years before they finally put the lid on that this merged airline would not make that difference. But Mr. Anderson said we’d also have a flight … to Amsterdam and may have a flight to Paris and, wow, JFK was going to be in Memphis, the airline at least. Of course, none of that is true and the Amsterdam flight no longer exists.

“There’s this string of broken promises that could have been avoided if we wouldn’t have permitted that merger,” Cohen continued. “They did everything they could to hurt Memphis and have.”

Assistant Attorney General William Baer defended the Justice Department’s intervention in the proposed US Airways-American merger, saying the agency was attempting to block the combination to protect airline passengers from higher prices.

“Under the agreement, US and American will divest important facilities at seven key airports across the country,” Baer said. “The settlement will enable low-cost carriers to buy those facilities and expand their presence all across the country, injecting a new form of competition into places that have never had it before.”

The Justice Department’s deal with US Airways and American requires the companies to give up 54 flight pairs at Washington’s Reagan Washington National Airport and 17 additional ones at New York’s LaGuardia Airport.

Baer said the low cost airlines have traditionally brought prices down for customers at other airports across the country.

“The low-cost carriers have a tremendous price effect where they’re able to fly today, but there are constraints, slots, gates at various airports,” he said. “And by giving them access to those airports, we have the potential to inject much more extensive competition into that marketplace.”