Tuesday, December 5, 2023

Something to Know - 5 December

Forget all the other news noise for today.   Here is a story that is near and dear to my sentiments.   As one who was an "airline guy" for over 38 years, and whose dad and and brother were in the same airline employment game, I have saw what shenanigans took place before the airline industry was deregulated, and even closer to the real-time shenanigans after it was deregulated.  The airlines are no different than any other big corporate monopoly players.  See what is going on with this story:


The Bigger Airlines Get, the Worse They Become

Dec. 4, 2023

Mr. Wu is a law professor at Columbia, a contributing Opinion writer and the author of "The Curse of Bigness: Antitrust in the New Gilded Age." He served on the National Economic Council as a special assistant to the president for competition and tech policy from 2021 to 2023.

If there's one lesson we've learned from the recent history of the airline industry, it's this: The bigger airlines get, the worse they become. The prices get higher, the seats smaller, the service ever snarkier.
The mergers over the past 15 years that produced the "big three" of United Airlines, Delta Air Lines and American Airlines (eliminating Continental, Northwest and US Airways) — which, along with Southwest Airlines, now dominate the market — have not done Americans any favors. We've ended up with airlines that offer less for more and have become better than ever at getting bailouts from Congress.
That's the context in which JetBlue Airways is now seeking to buy Spirit Airlines, the nation's largest ultra-low-cost airline. The deal, if permitted to go through, would make JetBlue the fifth-largest airline in the country and further reduce competition in the industry.
Anticompetitive mergers are illegal under federal antitrust law, so the Justice Department has sued to block the deal. At trial last month in federal court in Boston, JetBlue argued, contrary to common sense and basic economic logic, that eliminating an ultra-low-cost carrier would bring prices down. In fact, it was revealed at trial that JetBlue's own analysts have estimated that when Spirit stops flying a route, the average fare goes up 30 percent.

This should be a straightforward case. The judge presiding over the trial, William Young, who will make the final determination, ought to side with the government.
But that doesn't mean he will. In recent decades, corporate executives have repeatedly attempted blatantly anticompetitive mergers in the hope — very often realized — that the case would come before a favorable judge. The strategy has proved to be low risk and immensely profitable over the past two decades, not to mention personally enriching for many executives.
As a result, we now have an economy of consolidated sectors, including not just airlines but also such key areas as health insurance, big tech and agriculture. Consolidation often yields high corporate profits, as well as higher prices for consumers and lower wages for employees, contributing to economic inequality and fueling a pervasive popular feeling that the system is unfair.

Congress never meant for the merger laws to be so lax. The Clayton Antitrust Act of 1914 and the Anti-Merger Act of 1950 command the executive branch and the courts to ban mergers that "substantially lessen competition," so as to stop "economic concentration in the American economy."
Yet since the 1980s, the judiciary has fallen into the bad habit of deferring not to the original letter or spirit of the federal antitrust statute but rather to the testimony of economic experts paid to argue that nearly any given merger might actually be good for consumers. In the hands of highly talented economists, even mergers that anyone can see will limit competition can be depicted as somehow generating more of it.

Most of the time, however, mergers that seem bad really are bad. A comprehensive meta-analysis of 50 studies covering more than 3,000 contested mergers in the United States in recent decades found that "most studied mergers result in competitive harm, usually in the form of higher price." Whether it's the combination of Ticketmaster and LiveNation to dominate event ticketing, the acquisition of Sprint by T-Mobile, the buyout of Instagram by Facebook or the consolidation of meatpacking and agricultural products, too many plainly competition-stifling mergers have been greenlit.

And now we have the effort to eliminate Spirit. How does JetBlue purport to argue that the merger won't substantially lessen competition? Its lawyers and lobbyists have constructed a narrative about how, after it acquires Spirit, a larger JetBlue will compete more effectively with Delta, United and American — and thus eventually bring prices down.
But this story of the little guys joining forces to fight the big guys is a made-for-trial fantasy. JetBlue's largest shareholders are also, it happens, major owners of United, Delta and American. It is in neither the investors' nor JetBlue's management's interests to pick a fight with the big guys. They would benefit more from working in harmony to reduce the number of seats available, keep prices high and downgrade frequent flier points. That is the proven path to profit in the industry.

That JetBlue operates at the mercy of its main investors has been clear since 2014. There was a time, back at the turn of the century, when JetBlue was a genuinely innovative airline. Its first chief executives, David Neeleman and David Barger, were idealists of a sort, delivering leather seats in economy class with comfortable legroom. The early JetBlue was popular: small and friendly and cheaper than, say, American.
It was also profitable — but not profitable enough. In 2014, Wall Street analysts turned on JetBlue and its chief executive at the time, Mr. Barger, accusing the company of being too consumer focused. Investors demanded more fees and the cutting of less profitable routes. Unfortunately for customers, Wall Street won, Mr. Barger was thrown out, and JetBlue started charging fees for all sorts of things. It is now just as money grubbing and unexceptional in service as the bigger airlines.

What JetBlue wants now is what Delta, United and American have: the ability to participate in what looks like price fixing without going to jail for it. For years, the big airlines have been accused of coordinating on prices and jointly controlling the supply of airline seats on key routes. Corporate earning calls have even been shown to result in reduced seating capacity. That yields high profits in good years. In bad years, the airlines turn to Congress for multibillion-dollar bailouts. Airlines like Spirit pose a problem for this cartel; JetBlue is looking to do everyone a favor, and to join in the profits, by eliminating it.

Companies cannot be expected to discipline themselves when the rewards from reducing competition are so large. That's why we have laws to protect the public — specifically, those that prohibit mergers that substantially lessen competition. But we don't really have these laws if the judiciary follows economic fashion instead of congressional directive.
Enforcement agencies like the Justice Department and the Federal Trade Commission have also contributed to this failure over the years, but these agencies, to their credit, have recently seen the error of their ways. The courts need to follow suit and respect what Congress wanted when it passed the law.


Q. What is the difference between a law-abiding gun owner and a criminal?

A.  The .2 of a second that it takes to pull a trigger.

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