DOJ blinked because it had to

For reasons that may never be publicly acknowledged, the US Department of Justice came dangerously close to being exposed as being a crowd-pleaser with staggeringly little fundamental knowledge of antitrust law when it hovered on the brink of taking American Airlines and US Airways to trial over their merger proposal.

In the end, DOJ blinked because it had to. It settled with the airlines, avoiding what surely would have been a public debacle for the government had the trial it sought gone to court.

There never was an antitrust case. Certainly not in the made-for-public-consumption statements issued when DOJ filed its lawsuit in August to stop the merger, which largely focused on such things as ancillary fees, which may be unpopular but which do not constitute antitrust violations. Even for those who drank the antitrust Kool-Aid, there was a large and ominous hint to DOJ’s shaky legal foundation when it sought to postpone the court hearing until March 2014. If DOJ’s case was so strong, why delay?

Perhaps because DOJ –maybe even the White House – sought primarily to exploit this opportunity and score a popular anti-airline vote? Everyone loves to hate the airlines, right?

There is only one rational explanation for the DOJ lawsuit, which is that Doug Parker’s team may have pushed too hard and too arrogantly against divesture of prime slots at Washington DC and New York airports. ATW does not know if this was the case, but American and US Airways must have known going into this merger proposal that slot give-ups would be part of the deal – a difficult but necessary and fair means to an end. And so the onus was on DOJ negotiators to strike that deal, not to fabricate an antitrust case.

The only time such a lawsuit might have made sense was years ago, when the first and second US airline mega-mergers of Delta/Northwest and United/Continental were proposed and which sailed through DOJ. This third – and clearly final – mega-merger can only increase competition in an existing and approved consolidated market. Even the European Commission – which has a natural tendency to paint any US corporate merger as anti-competitive– approved the AA-US Air deal, recognizing the consumer good it will bring to bear in the transatlantic market.

By getting this close to a court hearing, the US government exposed two fundamental truths about its highly damaging attitude to the airline industry.

First, it has one rule for other service and transportation industries – including hotels, restaurants and trains – and an entirely different rule for airlines. Second, the concept of the US airline industry being deregulated is laughable. Government has an important role in ensuring and regulating air transportation safety and consumer fairness, but it way overplays its hand when it micro-manages how airlines run their businesses. That is what DOJ attempted to do with American and US Airways.

ATW has no interest in promoting one US mega-merged carrier over another, but there is clearly a strong competitive case for allowing the only un-aligned legacy major carriers to join forces and balance the marketplace. In competition, three is better than two. And while DOJ said it did not regard the merged Southwest-AirTran as a competitor to AA-USAir, this was just another telltale sign of DOJ’s ignorance of the industry.  In the US, which is the only market DOJ has jurisdiction over, Southwest is a huge and fiercely competitive rival.

For American and US Airways, the hard work of fighting for its share of the market at a price it can afford is just beginning. But in a rare coup for the airline industry, the marketplace will decide if they are worthy of that trust – not the government.