Lack of competition in the airline industry stems from antitrust law enforcement. That’s what former Delta and Northwest CEO Richard Anderson suggested on the Airlines Confidential podcast this week, when he joined ex-Wall Street Journal airline reporter Scott McCartney and ex-American Airlines CEO Doug Parker.

Spirit Airlines is in bankruptcy. They’ve already said they’re giving up half their fleet. The whole thing was going to be flying if they’d been acquired by JetBlue, but the government stopped that. The Biden Administration said they wanted those planes all flying under an ultra-low cost model, and that’s why they blocked the JetBlue merger that would have saved Spirit.

It’s hard to know whether more Spirit Airlines planes or more of the JetBlue product is better for consumers. But the Biden DOJ replaced consumer judgment through their ticket purchase behavior with thier own judgment through the legal process. And it looks like they’re going to get the opposite of what they intended.

Richard Anderson makes an interesting point about antitrust and counterfactuals.

• American West took over US Airways and then American Airlines
  
• Delta took over Northwest
  
• Continental took over United

And that left us with three large network carriers. But the Clinton Justice Department sued to stop Northwest from combining with Continental in 1998. And if Northwest and Continental had been allowed to combine, Anderson argues, we’d have four large network carriers today:

• Northwest/Continental
  
• And Delta couldn’t have merged with Northwest
  
• United wouldn’t have merged with Continental
  
• American, arguably in conjunction with US Airways

The only way you had consolidation was the failing carrier doctrine. So the only consented merger between 1987 and the Delta Northwest merger closed in whatever, 2010. The only ones that occurred were either bankruptcy auctions, Eastern and Pan Am, and then Doug’s transaction with US Air and America West, which started the ball rolling.

We tried to do a transaction in 98 at Northwest. We bought David Bonderman’s interest in Continental. and the Justice Department sued. And so everything kind of got put on a back burner.

Oddly enough, if we would have gotten that transaction done, there’d probably be four of them spoke carriers today, not three. But that’s how the hand of government works. So consolidation was really important.

The large network carriers were allowed to reach scale, which they needed to become profitable. The ultra-low cost and lower-cost segments were denied that same opportunity, which would have spread fixed costs over more flights and seats.

Right now the ultra-low cost sector is struggling because

1. their costs are rising
2. they haven’t had the partnerships, route networks or products that consumers have increasingly wanted to buy (either directly or through credit card cobrand rewards) and
3. the big network carriers have consolidated, run more efficient operations, and compete better than they used to.

It’s ultimately antitrust that meant to protect low cost flying but wound up disadvantaging low cost flying. There’s an important lesson about trying to plan the market. Does anyone remember when Microsoft was going to rule the world by controlling the desktop browser? The U.S. Department of Justice and 20 state attorneys general filed the antitrust case against Microsoft on May 18, 1998 – less than four months before the launch of Google.

And Google was controlling the world, the federal government filed its antitrust suit against them in late 2020, just two years before ChatGPT publicly launched (and that happened to years before the Google antitrust verdict).