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Tuesday, June 15, 2010

Airline Industry Mergers: Issues of Congressional Interest

John W. Fischer
Specialist in Transportation Policy  

Michaela D. Platzer
Specialist in Industrial Organization and Business

The announcement that United Airlines and Continental Airlines would seek authority from the Department of Justice (DOJ) to merge would seem to indicate that consolidation continues in the airline industry. The announcement was well received by many within the aviation industry community. This is especially the case within the financial community, where there seems to be considerable support for industry consolidation. Nonetheless, there has been opposition to the merger in some quarters. Some consumer advocates are questioning the need for the merger, and some Members of Congress, notably House Committee on Transportation and Infrastructure (T&I) Chairman James Oberstar, have spoken out against its approval. Other interests, such as organized labor, are also wary of the merger and seek additional details about the specifics before they will support it.

Airline mergers do not always go as planned and/or realize their stated goals. The stockholders, employees, customers, and served communities often have competing interests in the merger process. Some stakeholders may support a merger at the outset of discussions, but change their mind over time, and the reverse, of course, is also true. This report briefly looks at the impacts and issues of a United-Continental merger from a congressional perspective. Several major issues associated with the merger are discussed, including its potential effect on airfares, its effect on routes and services, whether employment is likely to increase or decrease, whether existing United-Continental airport hubs will retain their status in the future, how the United-Continental merger will affect further consolidation in the U.S. airline industry, and whether the merger will have a significant impact on industry profitability.

Congress does not have a direct role in the merger approval process, having legislatively charged the executive branch with that task. The authority to approve or disapprove airline mergers rests entirely with DOJ. The Department of Transportation (DOT), and more specifically the Office of the Secretary of Transportation (OST), is a participant in the proceeding and makes recommendations to DOJ based on its evaluation of the effect of a proposed merger on airline industry competition.

Most congressional interest in this proposed merger will likely focus on how it might play out at the district level, in terms of whether service at the local airport will be affected, how it will affect local employment, and other economic effects that could impact the district. Some Members, especially those serving on transportation-related committees, may take a broader view, seeking to ascertain how the merger will affect competition (as measured by factors such as service, fares, and the presence/absence of competing airlines in certain market pairs) nationwide and internationally.

Date of Report: June 9, 2010
Number of Pages: 15
Order Number: R41277
Price: $29.95

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