ProPublica has an illuminating and infuriating story out Tuesday about the 2013 merger between American Airlines and US Airways, a display of corporate muscle that shows all the ways antitrust fights have gone wrong for consumers during the Obama administration.
The revolving door, the influence of corporate money in politics, horse-trading, a government outgunned, outmanned, and outplanned by airline lawyers and lobbyists—all were present in the fall of 2013 when the Department of Justice quickly moved to settle its own case to block the merger.
Among politicians, Justin Elliott’s story reveals, Chicago Mayor Rahm Emanuel behaved particularly shamefully, publishing a widely shared letter of support for the merger that was written by lobbyists. Later, the Democrat received $53,000 in first-time campaign contributions from American Airlines executives.
Meanwhile, Tom Horne, a Republican then serving as attorney general in Arizona and a co-plaintiff in the suit, told ProPublica that lobbyists threatened to spend $500,000 to unseat him if he didn’t drop the suit. (It was resolved before his campaign was underway.)
Of course, craven politicians and moneyed lobbyists are a dime a dozen. The more damaging conclusion is that the DOJ is woefully vulnerable to the enormous political and financial pressure of antitrust suits, even in an administration that claims to be taking a hard line on anti-competitive consolidation.
As Elliott points out, Obama—like Hillary Clinton today—ran on the promise of renewed antitrust enforcement. But in some ways, his administration has run closer to George W. Bush’s lax approach than to Bill Clinton’s. He has also presided over a record-breaking wave of mergers, as companies combine at nearly three times the rate they did during the early ’90s.
Globally, 2015 was the busiest year on record for mergers. The trend has been especially pronounced in the U.S. As the Economist reported last month, the share of GDP generated by the 100 biggest U.S. companies is up from 33 percent in 1994 to 46 percent in 2013. The number of listed U.S. companies fell by half between 1997 and 2013. Two companies control more than half of all U.S. sales in beer and in music. Three companies control 99 percent of the pharmacy business. Following this year’s merger of Charter, Time Warner, and Bright House, two companies control between 70 and 90 percent of the U.S. broadband industry.
Has the spate of airline mergers, which has left four companies in control of more than 80 percent of the commercial air-travel market, hurt consumers? That was the case made by, well, Attorney General Eric Holder, in August 2013, in a complaint about the AA–US Airways merger. “The American people deserve better. This transaction would result in consumers paying the price—in higher airfares, higher fees and fewer choices,” he said.
As you’d expect, the official line is that the massive PR campaign, the letters, the spending ($275 million from AA alone on bankruptcy and antitrust lawyers), et al. did not influence the DOJ’s quick change of heart. “The lobbying had absolutely no effect on us, and that’s true from the staff level right up to my boss,” William J. Baer, the head of the antitrust division, told the New York Times after the settlement was announced.
But the concessions achieved in the settlement have done little to challenge the problems that Holder perceived in airline consolidation that summer. Three years later, many of his (initial) concerns have been validated. With fuel prices falling by two-thirds in 2014 and 2015, the latter year was the best for U.S. airlines in 40 years. A 10 percent drop in the average fare since 2014 has been easily countered by $10.8 billion in fees, up 24 percent in that time. According to a report prepared by a former DOJ antitrust lawyer, fares went up 7 to 17 percent in city-pair markets where the AA–US Airways merger significantly reduced competition.
Not such a “pro-competitive merger” after all.