When Will Minnesota Say no to Airline Monopolies?
In January 1986, Northwest Orient announced its intention to buy Republic Airlines. Minnesota politicians from both political parties immediately gave the merger their blessing, even after the Department of Justice recommended the corporate marriage be "disapproved in its entirety" because it would "substantially lessen competition," raise prices and worsen service.That summer, the federal Department of Transportation overruled the Justice Department and gave NWA the greenlight to go ahead with its $884 million acquisition. DOT declared itself unconcerned about a lessening of competition because other carriers had easy entry into the Minneapolis market. Ten years later, NWA controlled almost 80 percent of the flights out of not only Minneapolis, but Detroit and Memphis. In a report issued that year, DOT in effect confessed its error. Passengers using the Minneapolis airport, it concluded, were paying over 40 percent, or $400 million, more for their tickets than passengers traveling on comparable flights to or from another hub not dominated by a single airline. As for service, well, Northwest travelers have seen the elimination of movies and music on all flights. Meals are becoming a fond memory.Two years after the DOT report, Northwest has announced it will take over Continental Airlines. On October 23rd, the Justice Department sued to prevent the acquisition. Declared antitrust chief Joel Klein, "This acquisition would lead to higher ticket prices and worse service for the over four million passengers traveling on the routes dominated by the two." The merger, for example, would give Northwest 100 percent of the direct flights from Minneapolis to New York or Houston or Cleveland. Attorney General Skip Humphrey has formally supported the Justice Department's position. Other pro-competition politicians are silent. Why?What would have happened if the Republic merger had not been approved? On the minus side, Minnesota would have had fewer airline management jobs since Republic probably would have been purchased by another airline not headquartered here. On the plus side, customers would be saving $400 million a year with better service.Northwest argues that the ticket premium (they seem to concede there is a premium, but argue about the amount) is offset by the additional convenience of having a hub with many non-stop flights. But DOT's analysis compared prices here to those in other hubs that also have numerous non-stop flights. Indeed, according to the DOT, air travel at most hubs is competitive. Only a few are closely guarded "fortress" hubs like Minneapolis where competition is quickly scuttled. Just ask Reno Airlines, which earlier this year sued NWA for engaging in practices which forced it to stop competing. And what if Minnesota were not a hub? The idea sends chills down many a politician's spin. Yet Portland, Oregon has not withered away because it lacks major league hub status. The cost of becoming a non-hub would be in having more one-stop flights. The benefit might include cheaper fares. And there would be another less easily quantifiable benefit as well. Quiet.Some half of the 30 million passengers that come into the Minneapolis airport never leave the airport. They're simply passing through. Most of those flights would be eliminated if Minnesota were not a major hub. During the recent strike, when about a third of the flights were operating, stories in the Detroit, Memphis and Minneapolis newspapers described how hundreds of thousands of people had rediscovered the joys of peaceful outside barbecues and the solitude of city lakes. On the negative side of the ledger, any analysis of the impact of Northwest's merger with Republic must include the enormous political and economic clout it has gained. Witness the 1991 $838 million bailout of the company by the state. Or the virtual shutdown of many upper midwest cities during the recent strike.Northwest's strongest rebuttal to this analysis is, "Why pick on us? Everyone is doing it. If we don't get bigger, we'll be trampled by those airlines that do." That's a valid point. The 1978 deregulation of the airlines was supposed to promote competition. It has done just the reverse. Twenty years ago, there were 36 big air carriers. The top 10 had less than 50 percent of the market. Today, 23 big carriers remain. The top l0 own 92 percent of the market. If the NWA-Continental merger goes through, the top four could control 70 percent of the air travel market.The feds clearly have aided and abetted this massive concentration of power. But that fact should not lead us to encourage them to do more of the same. Just the opposite. We should demand that they truly serve the public interest by using the antitrust laws to curb monopoly power.