The other title I came up with got nixed because it was too long: “The DOJ tries to block the AA/USA Merger. The logic is so dumb, only our Government could come up with such a thing.” Regardless of the title, I must ask if I’m the only person who thinks the merger is a good thing? Furthermore that blocking it is anti-capitalist?
Yes, you may have heard that just when the AA/USA merger looked to be a done deal, the Department of Justice came to save the day. Their speculation is that prices will go up which is bad for consumers.
Why this is so incredibly stupid only a Government could think of it?
1) Newsflash DOJ: AA is currently in Bankruptcy!
Bunch of morons. If you think AA and USA merging is bad for consumers… what if one of our biggest airlines went under?
The logic of our own Government is beyond me.
But really, it’s not that AA or USA are doing so well that they gobbled up the other airline. Hardly. The fact is, that there are too many airlines! Sorry to say it. This is a matter of survival for both airlines, and they know it. Neither airline is “as good as they once were”.
But I’ll come back to the darwinian nature of business in a second.
2) Will prices really go up because of the merger?
How many routes do they really share? How much less competition will there really be? Will prices actually go up?
Prices are already going up folks, and they needed to.
From 2000 to 2010, the average price of a ticket dropped. In 2010, ’11, and ’12, prices went up roughly 20%. A very large increase. Is this solely due to the single merger of United and Continental? Hardly.
Did the Delta/Northwest merger cause prices to drop 12% from 2008 to 2009? Also, no. Does anyone remember anything else happening in 2008? Oh, right… our economy crashing. That’s right, I remember now.
Airlines have surprisingly low profit margins, which is why a lot of airlines fail (or get acquired). People don’t want to pay more for airfare than they did the year before, yet gas prices soar. In fact, since 2000, gas prices have gone up 400% and airfare has gone down. The department of Transportation has many charts tracking average airfare prices (like this one) and not only chart year by year change but change since 2000. On average the prices have indeed gone up since last year, but the average airfare (adjusted for inflation) has actually gone down since 2000!
So consider that prices needed to go up. Even giving a little bit of margin of safety for profit to airlines could result in better products. Have you noticed that on an AA cross country flight you get a juice and on a 1 hour Cathay flight you get a full meal?
3) It’s not how capitalism works
Quick history lesson (info here).
- Alaska acquired Jet America Airlines and Horizon Air
- Northwest purchased Republic Airlines
And in 1987:
- American acquired Air California
- Canadian Pacific Airlines, Eastern Provincial Airways, Nordair, and Pacific Western Airlines merged to form Canadian Airlines
- Continental merges with People Express, Frontier, and New York Air
- Continental acquires PBA and Britt Airways from People Express merger
- Delta merged with Western Airlines
But really airline mergers have been going on for… quite a while. It’s really okay.
Yet, for every airline being merged, there is another one being created. Why? Because that’s how capitalism works, it is self correcting. When you have too many airlines, the weak ones die off. Tampering with this process means you have the weak surviving which means that you have crappy products being supported on tax payer dime.
On the other end, if prices get too high another airline has space to be born. Remember Skybus? An airline that had the unfortunate fate of starting months before the economy collapse. It didn’t last long.
Point is, that if airfare prices are unnaturally high (as the DOJ fears), a discount airline would thrive. But it can’t thrive when the big ones get hand outs… and later the ones that didn’t get blocked from surviving. In 2001/02 and 2009 the airline industry received major handouts. $15 Billion in 2009 to “save” the airline industry. The CEO of Delta pleaded that “Almost no airline is strong enough to survive for long.” Not coincidentally, Delta also experienced a merger after.
Only our Government would pay for something and then be against it – like legacy airliners (or, insert name of Middle Eastern country here)).
4) Nothing illegal is happening… Or close to it!
We as a nation have decided that monopolies hurt consumers as the prices they charge can be manipulated. However, I was also under the impression that a monopoly was when one company owns the industry.
The fact that there are still a dozen other major airlines around (and dozens of small ones and dozens of international airlines) makes me think this isn’t anything close to a monopoly.
So the government now is deciding which markets the price will go up in and banning mergers? Off speculation or prices going up? And how much higher are they going up? Is there a price too high?
The entire thing is ridiculous, in my opinion.
Want to know what else is bad economically. My AAMRQ stocks going from $6 to $3 over night! (Grant it, I bought in at $.40, but still). This is really why I’m mad (the truth comes out). But really, the stocks would go down because AA is in jeopardy. Which again, is why this entire thing is so insane.
The Government is saving the airline industry from having too few airlines by not letting AA survive?
It just makes my head hurt.
And I understand there are political forces at work. And I’ll be the first to admit, I don’t know politics. I avoid that stuff like Delta SkyPesos. Honestly. And this is why I don’t like politics… as it requires it’s own set of logic.
I’m pretty sure that there is a logic test you have to fail to be a politician. Proof?
Just to show how well a politician understands travel, geography and… Guam. Please, please watch this video. Perhaps we should address the issue of Guam tipping over before we move on to smaller issues like American Airlines monopolizing the entire travel industry.
Look, I’m not saying that airfare won’t be higher (if they are you have plenty of mergers to blame it on), but I’m saying it will be regardless. And the idea that service drops because of a merger is ridiculous. Service drops because they don’t need good service to survive (i.e. 2009 bailouts).
I hate to say anything political, but my stock is down (well still up 500%, but still) and now I’m likely to say anything. But what if the problem with the airlines isn’t too few government interventions… but too many?