Are US Airways/Delta Anti-Trust Concerns Valid?

Now that it’s been a few days since the merger was announced, I thought I’d back up and take a look at the most questionable part of the deal – whether or not it would pass anti-trust review.

If you assume that the shareholders are motivated by how they can squeeze the most money out of a bad situation, then US Airways should be able to succeed on that front. Then it goes to anti-trust review, an issue which US Airways actually addresses directly in their investor presentation which you can find .

In their argument (page 23), both the rise of low cost carriers (LCCs) and synergies of the merger should be enough to push this through governmental review. First, they say that the increased presence of LCCs around the country means that there is enough competition to keep fares low. They also say that the synergies occuring from the merger are how they plan on improving the bottom line, not by raising fares, even in markets where there is no competition.

Well, we could choose to believe that if we want, but why not dig in further? How much of an effect would it really have on competition? Are Delta and US Airways really competing hard right now and would this even make a difference? It’s tough to say for sure, of course, but I think US Airways does have a good argument here.

The first thing to look at is which markets are really affected. In my opinion, the South is really the area likely to be the hardest hit because that’s where you’re most likely to find flights by both US Airways and Delta but nobody else. Let’s look a small example here using the North Carolina cities of Jacksonville and New Bern. Both cities see eight daily flights to Charlotte on a mix of US Airways Express turboprops and regional jets. That is the only service into New Bern, but Delta Connection also flies a couple of regional jets per day into Jacksonville. Raleigh/Durham is the closest big metro area to both cities – 98 miles from Jacksonville and only 15 miles further to New Bern, so the impact of having lower fares at a nearby airport should be the same for both.

If there really is a fare benefit of competition, we should see it here. Thanks to FareCompare.com, I can look up fares in these cities. Below I’ve displayed the lowest fares offered for travel in February of 2007, after the holidays and before any Spring Break traffic would be traveling.

New Bern Jacksonville
Atlanta $258 $258
Chicago $254 $254
Los Angeles $389 $389
New York $228 $238
Washington $238 $248

You might expect New Bern to have higher fares since there is no competition for US Airways there, but in fact that’s not true. Jacksonville, which has Delta flights, is either the same or slightly higher priced than New Bern.

I would expect that if US Airways bought Delta, they would probably reduce the number of flights from the combined ten per day to at least eight a day, but as you can see in New Bern, that wouldn’t necessarily impact pricing.

To be honest, markets like this are few and far between. There aren’t many cities around that are only served by Delta and US Airways these days, and those that are really aren’t very far from an alternate big city airport with more flight options and specifically, LCC options. In my opinion, the anti-trust concerns shouldn’t stop this deal.

Sadly, I don’t make the decisions, and my insight into the current climate in Washington isn’t that great. It’s entirely possible that the decision won’t fit with common sense, but I certainly hope that it does.

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