Congressman Oberstar Opposes the United – Continental Merger
Do you agree or disagree with his position?
Congressman James Oberstar, Chairman of the House Committee on Transportation and Infrastructure, offers an opposition viewpoint to the merger of Continental and United. His opinion is published in USA Today Op/ Ed section and can be found in its entirety at
http://www.usatoday.com/news/opinion/editorials/2010-05-14-editorial14_ST1_N.htm
While I agree with Congressman Oberstar on many issues relating to our industry, especially holding the FAA accountable and his support of General Aviation through the GA Caucus, I disagree with his position on the proposed merger.
The following is an excerpt of his piece in USA today:
This (the merger) is the very antithesis of the structure I voted for when Congress deregulated the industry in 1978. Deregulation promised robust competition and innovation — not market domination by a few powerful carriers.
Beyond encouraging future mergers, the proposed United-Continental merger itself presents problems. The two carriers’ networks overlap on 13 routes between some of America’s largest markets. The two carriers also compete in a number of international markets.
The Justice Department has already expressed its concerns over a reduction in competition between United and Continental. Last year, the two airlines applied for antitrust immunity to collaborate on international service. The department said granting immunity would reduce competition and raise fares in markets where United and Continental claim big shares. As a result, the Transportation Department removed several foreign markets from the immunity.
If antitrust immunity in these markets is unacceptable, how can we now accept a merger that would have the same effect of reducing competition on important domestic and international routes?
The Justice Department should demonstrate that same degree of caution now and put an end to this merger madness.
The problem with his position is that the airlines through this “robust competition” over the past 32 years have not offered better service and done very little to innovate. They have offered lower fares and consequently have been doomed to aggregated losses as an industry since deregulation.
The investors (stockholders) in the airlines have taken a beating and I have to wonder why anyone would ever buy stock in an airline in a long-term hold position. Robert Crandall, former CEO of American, says don’t buy stock in airlines, they are a bad deal. For the airline industry to survive something has to give on the profit (or lack thereof) problem
It seems that the Congressman and many others in DC consider the airlines much like a utility that needs regulation to keep them from monopolizing markets and raising fares. That is contrary to the position of deregulation that should allow the market to work it out.
The other assumption that many are making, that I believe to be flawed in its logic, is that the consumer has no other choice, so we have to keep the airlines in check. Travel by airlines is not like a utility such as electrical power where we don’t have a choice. The traveling public can drive, take trains in some cases and also fly in private aircraft. Or they can choose not to travel it all. Our nation is blessed with a multi-faceted transportation system.
I continue to believe that the airlines should be allowed to work this out in a free market way and let the traveling public determine the airlines success by choosing to or not to buy seats at whatever price the airlines think they can charge.
What do you think?
4 Responses
to “Congressman Oberstar Opposes the United – Continental Merger”
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- Jun 18, 2010: Dan Bleich
For once, I beg to differ. It is clear that in this case, for this particular industry, the market has failed to sort itself out. Working in this industry does not seem to pay off for anyone -whether it be the employees or the shareholders. Lets face it, the airlines are unable to truly innovate and differenciate themselves because people aren’t willing to pay $10 more for convenience. The mentality of getting from point A to B persists while purchasing tickets, while the complaints about lesser overhead space or lack of food don’t quite kick in until their travel day. As an airline pilot, I see this every day on virtually every leg.
With the cost of oil dictating, I truly believe that commercial aviation will prosper only when the airlines have a choice of hedging oil versus nuclear power or fuel cell energy. Until then, could we please go back to those good ol’ days of Regulation so I can get paid?
The only ones I see profitting off of mergers is those who propose them. When the boards of these airlines stop paying these greedy managers to cut and run like Tilton will surely do, this madness will stop. The ones who suffer the most will be the employees. These managers could give a rats ars about the employees. It’s all about themselves. They could care less who they stomp on. Hopefully one day the employees will rise up and tell the managers to fly their own damn planes. Then we will see how far they get.
As an outsider, I see two airlines that have been in and out of bankruptcy protection, have they comes out leaner, more efficient or importantly profitable? The answer to all these questions is no! I think think that possibly the good senator is being polite, is there just not too much capacity in the network? Are there too many aircraft flying half empty across the States? Should one of the majors be allowed to collapse?
I see the same happening over here in Europe, there are airlines recognised across the world, and they are being artificially supported, they have not been and are not profitable. What comes over a businessman, who has built a profitable business in another sector, who will support a airline? In any other sectore he would have closed it down!
Just an outsiders view!
Malcolm