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The Truth is Out: Airline Mergers Do Indeed Result in Higher Prices

If you weren't sure where to come down on the airline merger debate, a position is becoming clearer. Yesterday the Department of Justice put its own foot down on the union of American Airlines and U.S. Airways. The DOJ hasn't blocked an airline merger since 2001, but something broke. It has had enough.

This may be why: The AP's Scott Mayerowitz reports that airfares have gone up, even when adjusted for inflation. In 2008, the average cost of a domestic ticket, including fees, was at $351.48, and now, it's at $378.62.

Before 2005, there were nine major carriers to choose from the United States, all jostling each other for dominance. If this merger were to be approved, there would be only four. And most of those have an outsized regional dominance.

As the AP points out, "In seeking to stop the American-US Airways deal, the government contends that airlines already follow each other's moves in setting prices and adding new fees. They even bully each other out of offering sales."

We have all seen that in action. When one airline puts their rates up, they all do. People have accused them of collusion for years, and more than one observer has spat the T-word at them (trust), but one thing is clear: It's not the behavior of a freely competitive market.

The TV news shows routinely ask Wall Street types for their opinions on the airline mergers, and of course they cheerlead them, because they stand to to gain the most in dividends. The airlines' PR departments also do a valiant job of suggesting the world will be a better place after they are permitted to blend (and, although they never advertise it, save money by slashing flights and firing people).

Indeed, the Government Accountability Office threw American Airlines' spin in question. While AA claimed that only 12 non-stop routes overlapped with US Airways, closer inspection by the GAO revealed that in fact, 1,665 airport-pair markets would be impacted by the merger, affecting 53 million passengers.

Notice that the airlines issue no statements that promise you'll save money if they merge. Notice that the promises made to them are weightless and vague ones of "convenience" and "a broader airline network." In its statement promising a fight yesterday, American Airlines claimed the merger would give consumers "more choices."

That's tricky language, because he means the new giant airline will spread its tentacles to more cities—customers would have more choices of cities to buy tickets for within his airline, but not necessarily competitive choices, fare-lowering choices, for the individual routes they need to go to.

Our airline routes are a vital part of our national infrastructure—all it the Overstate Highway System—and there is good to be gained from keeping routes affordable to all. Mergers, like many things airlines do, do the most good for the wealthiest flyers and shareholders, but the people lower to the ground, such as casual flyers or people who live in hub cities who are mostly consigned to using a single, competition-free carrier, suffer in unpublicized ways.

Cynics will argue that in this case, there has to be a merger because American Airlines has been dancing with bankruptcy. When its merger was announced, it was about to ask the government to void its contracts with its unions. But it is no less wrong-headed to put the welfare of a non-sentient corporation above that of the American people. If American Airlines stands a chance of flying at all, if it's a business whose survival is worth the kind of charity that would bend the rules for a merger and spite a population, then surely it could find a buyer.