Preventing the U.S. Airways - American Airlines Merger Will Not Help Consumers

The U.S. Justice Department is suing to prevent the planned merger of American Airlines and U.S. Airways on the grounds that it would undermine competition within the aviation industry. Share prices in American Airlines dropped dramatically following the announcement, since the merger was seen as the company's best hope of avoiding bankruptcy.

The U.S. Justice Department is clearly pleased to be seen to be fighting the good fight to ensure that American consumers are protected from a merger that the department says will lead to them "paying higher airfares and receiving less service." While it is touching to see the U.S. government's willingness to take the side of the consumer against vested interests in the airline industry, one has to wonder where this nobility was in 2007 when it undermined any prospect of real competition in the American aviation industry by castrating the EU-U.S. Open Skies Agreement.

It's all very well getting concerned about the competitive impact of a merger between two airlines, but in a market dominated by just four real players the reality is that competition in the industry is already about as stiff as boiled bread.

The 2007 negotiations with the EU had the potential to change the rules of the game and ensure a better deal for American passengers. The treaty allowed any European or American airline to fly between any airport in Europe and any airport in the U.S. In addition, the EU agreed to allow U.S. airline companies to fly between European airports. However, American negotiators then refused to offer a similar concession allowing European airlines to fly between American airports.

This unequal agreement benefited the American aviation industry since they could continue to charge inflated prices for domestic flights without fear of competition from the large European industry, in which budget airlines — such as Ryanair and Easyjet — have been locked in a price war with old-fashioned national carriers for years. For American passengers it has meant that prices remain high.

The American government is meddling twice when it would be better not to meddle at all. By preventing the merger of American Airlines and U.S. Airways it may force a potentially viable company into bankruptcy, and ultimately leave the industry just as uncompetitive as if it had not acted at all.

If the American government opened up its domestic market to foreign companies prices would fall, and there would be no need to prevent a merger that might help a company on the edge of collapse transform itself into a powerhouse of the global aviation industry.