More than a Third of House Dems Oppose Obama’s American-US Airways Merger Lawsuit; What Real Pro-Competition Policy Looks Like
Bipartisan opposition to the Obama administration’s reckless assault on the pending merger of American Airlines and US Airways is growing. While the end of the partial government shutdown dominated yesterday’s news cycle, 68 House Democrats (over one-third of the House Democratic caucus) signed a letter to President Obama urging him to end his administration’s opposition to the airline merger. Led by Reps. Marc Veasey, D-Texas, and Ed Pastor, D-Ariz., the members of Congress “believe that DOJ’s concerns as outlined in the complaint filed last month are not an adequate representation of all of the facts” and call on the administration “to reconsider its efforts to prevent the American and US Airways merger from going forward.” I previously noted organized labor’s strong opposition to the lawsuit and one of the six state attorneys general that joined the DOJ lawsuit has since dropped out.
Despite uninformed support for the Department of Justice’s hardball antitrust tactics from progressive bloggers like Matthew Yglesias, the DOJ complaint suffers from serious flaws. Actual aviation experts, such as Brookings Institution transportation economist Clifford Winston, have noted that the new American Airlines is following the natural evolution of U.S. aviation into a truly global network that has been enabled by partial deregulation.
The so-called consumer advocates who blindly oppose the merger would better represent consumers by calling for further deregulation of the airline industry to increase competition. In the interest of being “part of the solution,” I offer two no-brainer policy reforms to achieve this end.
First, Congress should repeal the protectionist policies that outlaw foreign carrier competition along domestic routes. Under current law, airlines must obtain a certificate of convenience from the Department of Transportation in order to operate in the U.S. (49 USC § 41102). It reads in part, “The Secretary of Transportation may issue a certificate of public convenience and necessity to a citizen of the United States authorizing the citizen to provide any part of the following air transportation the citizen has applied for” (emphasis added). “Citizen” is defined in statute (49 USC § 40102(a)(15)) as:
(A) an individual who is a citizen of the United States;
(B) a partnership each of whose partners is an individual who is a citizen of the United States; or
(C) a corporation or association organized under the laws of the United States or a State, the District of Columbia, or a territory or possession of the United States, of which the president and at least two-thirds of the board of directors and other managing officers are citizens of the United States, which is under the actual control of citizens of the United States, and in which at least 75 percent of the voting interest is owned or controlled by persons that are citizens of the United States. (emphasis added)
This anti-consumer law is why we don’t have low-cost foreign carriers such as Ryanair operating along U.S. routes. Virgin America, often associated with British serial entrepreneur Richard Branson, is mostly owned by a U.S. investor partnership led by Cyrus Capital Partners. Under current law, Branson’s Virgin Group is permitted to own just 25 percent of the airline. This is stupid.
Second, Congress should eliminate the federal cap on passenger facility charges (currently $4.50 per enplanement). Federal policies force airports to be heavily reliant on airlines for funding. The effect of these policies is that airports have little leverage in negotiations with airlines over gate access, the result being a proliferation of long-term exclusive- and preferential-use gate leases. The impact on competitiveness and air fares is large. Exclusive- and preferential-use gate leases (as opposed to common use open entry) result in gate under-utilization by allowing incumbent airlines to essentially prohibit most new entry from outside carriers. It is estimated that air fares are more than $5 billion higher annually (in 2013 dollars) because of artificial barriers to airport access. This is also stupid.
In addition, noise restrictions, slot restrictions, excessive and generally nonsensical environmental review of airport expansions and construction, and the federal government’s continued mismanagement of air traffic control all contribute to reduced airline competition and increased fare prices. Instead of attacking the rationalization of a network industry they clearly do not understand, progressives like Yglesias should focus on current laws and regulations that reduce competitiveness in civil aviation if they actually give a damn about consumer welfare.