Hey, wait a minute. Wasn't airline deregulation supposed to bring lower prices and increased competition?
So how is it that, 35 years after the law was passed that deregulated the airline industry, we stand today with two megacarriers, United and Delta, while a third proposed megamerger — of American and US Airways — was all but done before the Justice Department sued to block it last week?
In the last few years especially, ticket prices have skyrocketed and consumer choice has diminished. As for what it's like to fly these days, well, the less said the better.
The answer, in part, is that deregulation worked all too well at first, and then it didn't work well at all. The natural tendency of companies to seek monopoly power took over, and nobody tried to stop it until now, when it is really too late.
Remember those early years after deregulation? Everybody seemed to be starting up an airline. The legacy carriers like United and American expanded into dozens of new markets. The number of people who flew increased geometrically.
With the rise of discount tickets, flying became something many Americans could finally afford. Supporters of deregulation could proudly say that it had worked as envisioned.
The only problem was that the competition was ruinous for airline profitability. As the big airlines fought fiercely to hold on to their turf — losing money in the process — many of the smaller startups went out of business. Even large airlines like Eastern and Pan Am failed. Others entered bankruptcy proceedings and engaged in protracted battles with their unions to lower their employee costs.
The first decade of this century was, if anything, even tougher. First came 9/11, which caused people to stop flying. Then came volatile fuel prices. Then came the Great Recession.
The airlines responded by doing exactly what you would expect. They began consolidating. There have been four major mergers since 2005. Delta and United are now the largest airlines in the country, with a global network that appeals to the big corporate customers who are the lifeblood of the industry.
What did consolidation give the airlines? Pricing power. As the number of airlines dwindled, so did the number of routes and flights, as the airlines concluded that their health depended on cutting back the number of seats they offered. That's why airlines have been able to raise prices: Demand hasn't slackened nearly as much as supply has.
The U.S. airline industry today is an oligopoly, with two dominant carriers. (Southwest is No. 3.) Oligopolies, by their very nature, are anti-competitive. But it's a little late to be complaining. The government could have attempted to prevent such an outcome when the Delta and United mergers were announced. Instead, it stood passively by and let the industry consolidate.
Will consumers be further harmed if American and US Airways merge? It's certainly possible. But just about every industry analyst says that prices will continue to rise regardless, and limiting the supply of seats will continue.
They also say that American, which counted on this merger to emerge from bankruptcy, will struggle to compete successfully with United and Delta if it can't establish that same kind of global network those two have put together.
"We learned what happened to competition in prior acquisitions," said Bill Baer, the Justice Department's antitrust chief, according to The Wall Street Journal.
Indeed, we did: Competition dwindled. Prices went up. Consumer choice went down. Blocking the American-US Airways deal is a little like closing the barn door after the horses are long gone.
Joe Nocera writes for The New York Times.