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We’ve Got Spirit, Yes We Do

Time To De-Merge Some Airlines?
Nov. 3, 2015

When the dreadful and the hideous marry, what will their children be like?
That’s the question we’re asking after speculation of a Spirit-Frontier Airlines merger was raised last week.
Spirit’s stock price decline – currently down over 40 percent from a high of $85 last December – has prompted new speculation of a corporate hook-up.
The majors have been muscling in on Spirit’s territory by grabbing more of the ultra low-cost market share. 
Last year, Delta launched its Basic Economy class, aka ‘economy minus’, and American followed suit last week with a stripped down, fee-for-all, basic fare class.
As a result, Wall Street analysts are worried about Spirit’s domination of the low-cost market.
Frontier and Spirit are widely considered to be the most likely pair to merge, resulting in a big upside for Spirit shareholders.
They’re also considered the two worst airlines in the United States.
If you’re thinking there’s no way the Justice Department will approve of another airline deal, think again.
The same was said about Delta-Northwest, United-Continental, Southwest-AirTran and American-US Airways. And look where we are now.
Would the Justice Department allow yet another airline merger to go through, after allowing so many that have generally resulted in nothing but fare increases for the flying public?
The surprising answer is that the government may actually favor such a deal. Spirit claims that their business model is built around allowing the public to be able to afford to fly.
On top of that, Spirit and Frontier share less than 10 percent overlap in their route networks. So, their argument may be that a combination of the two would not reduce competition on many routes, but instead allow a stronger competitor to stand up against the mega carriers.
Where is the Consumer Financial Protection Bureau in all this? These trends should concern everybody, particularly lawmakers in Congress and the antitrust division of the Department of Justice.
It’s increasingly clear that airline consolidation does not lead to greater efficiency.
Instead, consolidation has contributed to the trend of some airlines earning super-normal returns.
Since officials approved the last two big airlines mergers – United and Continental, and American and US Airways – four national airlines now carry the vast majority of domestic passenger traffic, down from six in 2009.
And with fewer competitors to worry about, these consolidated airlines can easily raise prices without worry they’ll lose customers. They can also actively collude to fix prices.
Currently, the Justice Department is investigating whether the big airlines have agreed not to add more flights to keep planes full and fares high.
This is a symptom of something larger and more fundamentally wrong in our government and country.
It isn’t just the mergers. It is how the law was changed to allow this. President Roosevelt fixed this problem over 100 years ago by breaking up the big monopolies and putting in place laws to prevent this happening again. The point back then was concern for anti-competitive effects damaging our economy and country.
Yet now it has happened again? How?
We’ve not taken the laws off the books, we’ve just ignored them, and elected people who would look the other way.
But we can do something about these abuses.
Instead of mergers, maybe it’s time to talk about de-mergers.

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