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Congressman goes to battle on United-Continental deal

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Congressman goes to battle on United-Continental deal

Unread post by bimjim » Tue May 25, 2010


Congressman goes to battle on United-Continental deal
By: Michael Fabey
May 24, 2010

Congressman James Oberstar’s unflinching determination to thwart airline mergers might finally pay off this year as he digs in against the United-Continental deal.

While the Minnesota Democrat failed to stop Delta from absorbing Northwest, the House Transportation and Infrastructure Committee chairman has party politics on his side this time, analysts say.

"He’s a ranking Democrat, and that’s the game in town right now," said analyst Darryl Jenkins, founder of the airline industry economic website the Airline Zone. "The political appointees, at the end of the day, are the ones who make the decisions, and they can be swayed by people like him."

The Oberstar camp sees it the same way. Although Congress has no official role in the merger approval process, "he’s not without his influence in the administration," said Jim Berard, a key transportation committee staffer.

And Oberstar plans to use that influence, his office and whatever other means he has at his disposal to block this merger.

His motive is that Oberstar thinks there is no merger that is good for the U.S. airline industry or the flying public. This type of consolidation, he told the Justice Department in a May 12 letter, is the "antithesis" of the deregulation plan that he and the rest of Congress set in motion in 1978.

"A series of airline mergers will reshape our airline system and be the death knell of deregulation," he said.

That has been the Oberstar mantra through the years.

"He’s certainly been consistent if nothing else," said airline industry analyst Robert Mann of the RW Mann & Co. consultancy. "Whether he’s talking about domestic or international operations, it doesn’t matter. And I’m sure he means it. He’s been consistently concerned."

Jenkins agreed. Oberstar is taking this anti-merger stand while major constituents — labor, for example — support the deals. "He’s a true believer; there’s no one pulling his strings on this," Jenkins said.

But he and other industry watchers also worry that Oberstar’s anti-merger beliefs have become an obsession.

"Yes, he’s obsessed," Berard said. "He’s obsessed for good reason. He voted for deregulation. He’s heard all of the promises."

But Oberstar told the Justice Department that what he has seen instead is the consolidation of larger network carriers into a mere handful of airlines. In the process, the merged carriers have locked in service covering vast portions of U.S. airspace.

"The carriers will concentrate their efforts on fortress hubs and on the routes they dominate," he said. "There will be less service and fares will rise."

Some industry analysts share his concerns.

"We can continue to keep doing what we’re doing and lose service to small communities," Mann said.

Concern about loss of service in smaller communities is one reason state attorneys general are joining forces to investigate the impact of the proposed United-Continental merger.

Even in the hubs and key markets where the dwindling network carriers are focusing their energies, passengers still will likely suffer, Oberstar said.

In the case of United-Continental, Oberstar said, "The two carriers’ networks overlap on 13 routes between some of America’s largest markets: the New York metropolitan area; Washington, D.C.; San Francisco; Los Angeles; Denver; Houston; Chicago; and Cleveland, among others."

And, he noted, the Justice Department objected to a broad grant of antitrust immunity to United and Continental on international routes where the two Star Alliance partners are cooperating.

"If antitrust immunity for these markets is unacceptable," he asked, "how can we now accept a merger that would have at least the same effects as antitrust immunity in reducing competition in important markets?"

If this merger is approved, Oberstar said, the pressure will be immense for further consolidation, leaving passengers with still fewer options.

Other analysts argued that a trio of strong, merged airlines is better than a handful of weaker carriers perpetually teetering on the edge of bankruptcy.

Some wonder if the industry would be better off without the traditional network carriers, whose business model, they said, is being supplanted by low-cost-carrier plans.

"The network carriers are a declining breed," Mann said. "And maybe it’s time to ask, ‘Do we want these guys around?’"

Oberstar has attacked that reasoning.

"Although some might argue that the presence of low-cost carriers in certain markets would offset historical regulatory concerns associated with mergers, I caution against an overreliance on the theoretical mitigating effects of low-cost carriers," he told the DOJ. "Low-cost carriers do not serve many of the same markets served by large network carriers and, in fact, have expressed their own interest in participating in consolidating activity."

Oberstar notes that the Justice Department stood firm against the proposed Northwest-Continental merger in 1998 and a United-Continental merger in 2001.

"Regrettably," he said, the DOJ "departed from its policy of preventing anticompetitive activity when it approved the Delta-Northwest merger. But the department’s recent comments on the United-Continental application for antitrust immunity as well as comments from other carriers’ applications for the same legal privilege evince a renewed sensitivity to the importance of competition."

Attorney General Eric Holder told Congress that his department would scrutinize the merger proposal but not delay in deciding whether to oppose the deal.

Analysts called Holder’s comments a sound bite. They said United and Continental have their work cut out for them.

"I didn’t think of Holder’s comments meaning anything," Mann said. "Either they’re going to do a good job reviewing this or not."

The Oberstar team plans to keep up the pressure. His panel’s aviation subcommittee has a hearing scheduled for June 16.

"The chairman certainly has a bully pulpit he can use," Berard said. "There are things we can do. We can ask the Government Accountability Office to look into this. These are things in our arsenal."

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