The End Of The Rule Of Law, In Financial Markets And The Airline Industry

This past week the Securities Exchange Commission sent a ‘Wells Notice’ to Coinbase, letting them know that the SEC is likely to bring an enforcement action. It’s not exactly clear what the charges will be, but

  • The SEC approved Coinbase to go public in 2021
  • But has now decided that crypto exchanges are illegal
  • They’ve specifically decided that crypto staking is a security, which requires registration, but the SEC hasn’t allowed registration

Coinbase says everything they do was already approved by the SEC, and those documents included discussion of crypto staking. To the SEC, that was all true when crypto was going up. Now it’s going down. Crypto isn’t so popular. So they’re engaged in enforcement not ex ante to protect consumers but ex post after many participants in the market have already blown up.

There are two separate rule of law issues here. One is the obvious, the government said something was ok so Coinbase did it, and then the government says it isn’t ok after the fact and goes after them for having done it. The difference here is that the SEC was fine with Coinbase right before Gary Gensler became chair of the SEC, and not fine after.

The other is ‘regulation by enforcement action’ – instead of clearly laying out what the rules are, and offering a process that allows following the rules, they’re just going after companies for violating them. We’re supposed to figure out what’s not allowed by what the SEC prosecutes.

None of these violations of the rule of law should be new to anyone that watches aviation, however. We’ve already been watching it play out in anti-trust enforcement. Just look at the Department of Justice suing to unwind the American Airlines alliance with JetBlue.

  • The Department of Transportation entered into an agreement to approve the “Northeast Alliance” between American Airlines and JetBlue, indeed wrung concessions out of the two airlines before doing so (giving up takeoff and landing slots in New York, and a commitment to expand supply of seats in the market with larger aircraft under penalty of losing even more slots to other airlines).

  • Then, after the alliance moved forward, the Department of Justice after the statutory deadline to object to the deal had passed. It was approved by default, but DOJ opposition remained a stalking horse for DOT to use.

Cranky Flier did a good job looking at the data and American really hasn’t seen higher fares in New York from the alliance. They don’t have pricing power there. Not only didn’t the government have new information since approving the combination, the information that there has been supports that it hasn’t been anti-competitive.

It’s hardly the first time we’ve seen the government use the anti-trust process to wring concessions that really aren’t competition related, either. When it entered into a deal to approve US Airways taking over American Airlines there were concessions involving slots and gates in markets that would otherwise see increased concentration … but also forcing American Airlines to exit the Dallas Love Field market where no concentration would occur, since US Airways didn’t even have a presence.

The federal government also intervened at Dallas Love Field to reduce competition when it required the destruction of gates and limits capacity, reducing competition. It even required the airport to accommodate Delta flights there – allowing them to squat on gates leased by another airline. The law is what they say it is at any given time, which is why Delta even thought they had a shot at getting the U.S. to abrogate treaty obligations with the United Arab Emirates and Qatar by limiting the flying their state carriers could do to the U.S.

Of course if the government were actually concerned with promoting competition in the airline industry – rather than, in the case of opposing JetBlue-American, doing Delta’s bidding – they would replace slot restrictions with congestion pricing; clamp down on gate squatting on the part of incumbent airlines at government-owned airports; allow foreign-owned airlines to compete in U.S. markets and numerous other policies that would actually introduce competition.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. the DOT should have never granted ATI to AA/B6 in the NEA – the DOJ is suing in part to preserve its right to enforce airline ATI, which the DOT has never been given the right to do IN DOMESTIC MARKETS.

    Feel free to show us one shred of evidence that the DOJ is doing Delta’ s bidding in the NEA. Or admit that bots that scan internet chatter would have come up w/ the same thing – but they don’t claim to provide any kind of thought leadership.

    IN the case of Delta and Love Field, Delta knew the law, 2 judges said that the City of Dallas was wrong and Delta got its own gate – something no party believed they should have.

    the DOJ did intervene in the free market and 2 courts had to remind the DOJ that not only were they legally wrong in awarding gates to ALK at the expense of DL in the first place but ALK didn’t do what the DOJ thought they would or could do.

  2. Love the analysis of the NEA by way of your opening comments about Coinbase.

    I am the Founder of a crypto exchange/company here in the USA (which shall remain unnamed) and have communicated with Brian and his Chief Legal Officer many times in the past few years and past month. Their willingness to put the energy of a multi-billion dollar company behind fighting the SEC for all of us “little guys is unwavering. They’re fully prepared to air all of this out publicly as well, as they shout. They’re the only ones big enough to arm wrestle with the SEC in our industry.

    The way you combined the two into an article was awesome. Well done.

  3. Sorry but correlation doesn’t imply causation. Just because prices haven’t gone up in a certain period does not mean the tie up is not anticompetitive. I would argue the alliance is half-assed until it gets final approval at which time they will ratchet up the pricing.

  4. Ugh. Why are all the frequent flier blogs so right-wing? Like what about collecting miles and using them to the maximal advantage attracts libertarians and nazis?

  5. Also, it’s hardly the end of the rule of law because the government changed its mind about airline consolidation. I think the horse left the barn back when it let rich and powerful people escape prosecution.

  6. You got this completely wrong: The “end of the rule of law” is when companies are allowed to break free market capitalism by creating mono- or oligopolies. Here we see exactly the contrary: the (belated) application of the rule of law to preserve free markets. This has more to do with a change of administration (the prior one didn’t care for like free markets and especially the rule of law unless it favored them) than anything else.

  7. @Jake – “This has more to do with a change of administration (the prior one didn’t care for like free markets and especially the rule of law unless it favored them) than anything else.”

    When what’s legal changes from one administration to another that is – by very definition – no longer rule of law.

  8. Airfare is so ridiculously cheap compared to the costs and didn’t even inflate near the rate the US market did . Leave the airlines alone. I can tell you half of the delays and crap we deal with is due to direct government intervention in our business and an ATC system 30 years behind itself.

    The government has no business in any of these affairs and instead should place all efforts into better supporting safety and timeliness.

  9. @Dave .. I view pretty much all of these guys as far left, some of them more centered. They like promoting government control over airlines . They perceive that means more competition and more free stuff ! That about as left as you can get !!

    Gary has gone away from giving out useful information on about 90% of his posts and most of it’s just speculation without knowledge.

  10. SMR: then why are you here? I think you would enjoy the points guy more as it is run by corporate fascists…..

  11. If one administration de-funds parking enforcement for pre-existing parking rules such that the chances of avoiding a parking ticket are very high, that doesn’t mean that a new administration is changing the rule of law when it re-funds parking enforcement to collect more money under the long-standing parking rules set into law/regulation and decides to up the priority of enforcing pre-existing laws/regulations.

    Enforcement priorities changing over time does not necessarily equate to a disregard for the rule of law when dealing with a system where there is no standing administrative justice principle that a prior decision in favor of an individual or corporation cannot be rescinded even when the prior administrative decision was supported by falsehoods, other misleading representations, or different circumstances.

    Surely even many right-wing Americans still support the idea that applicants for US immigration benefits — inclusive of naturalization as a citizen — or US passport benefits should be able to have those benefits rescinded if an application for such US Government services was ever approved on the basis of willfully false representations on the applications. Does that mean the rule of law is violated when a different Administration decides it a priority to dig into old applications submitted to the US State Department, US DHS or the agencies/institutions previously subsumed into them?

  12. The Coinbase thing is less a function of crypto going up or down and more a function of every crypto project ultimately being a fraud.

  13. Gary, airplanes, like countries, need both a left and right wing. Things just get a little turbulent at the far extremes of each wing.

  14. Regarding the SEC and government comments in your article, l believe it is just this administration that is lost in many ways and can’t get their footing in a number of areas. Look at the Hunter Biden saga for example. Volumes of evidence for an indictment of several types, but let’s focus on Trump. Then we have Fauci and his contradictions on items related to COVID. No it’s a Biden playbook that allows ignoring, misrepresenting, or hiding information the public has a right to be straight with and they are protected by the MSM who is equally confused about the roll they are meant to play.

  15. “IN the case of Delta and Love Field, Delta knew the law, 2 judges said that the City of Dallas was wrong and Delta got its own gate – something no party believed they should have.

    the DOJ did intervene in the free market and 2 courts had to remind the DOJ that not only were they legally wrong in awarding gates to ALK at the expense of DL in the first place but ALK didn’t do what the DOJ thought they would or could do.”

    Tim… there’s so much incorrect here that it’s almost amusing you try writing about it. Alaska was never awarded the gates in the first place over Delta. Virgin America was. Alaska got those gates as a result of their acquisition of VX.
    Delta’s recent court victory was due to United giving away their leased Delta gate to Southwest and Delta being kicked out of Love Field as a result of that, nothing to do with the AA divestiture or anything to do with DOJ, at all. The court never attempted or made any claim that DOJ was wrong to award Love Field gates to VX over Delta. The eventual settlement just happened to work for Delta in an agreement, not a court ruling. AS agreed to give up one gate to Delta since they weren’t utilizing it fully.

    You rarely present facts correctly, but this is pretty low even for your standards. Delta was not vindicated by any court as it pertains to the DOJ awarding two DAL gates to VX.

  16. Max,
    Once again you get the basic facts wrong and miss the entire legal principles as you attempt to prove yourself knowledgeable and someone else wrong.

    Quite simply, Alaska inherited the rights and responsibilities to the Dallas Love Field gates.

    Even though Southwest argued that Delta was squatting on gate 15 and endless numbers of people including Gary repeated that charge, the federal district court in Dallas said that Delta had a legal right to remain at that gate after Southwest paid tens of millions of dollars above market price to acquire United’s 2 gates. Delta remained at gate 15 for years because the federal district court said that standard property laws which otherwise would allow WN to cancel subleases did not apply to the Love Field gates’.

    Delta also argued that it had the right to expand at Love Field under federal airport access rules which require that if gates are not being used to the full minimum gate usage established by the airport (in this case the City of Dallas), the first airline that has requested more space gets it regardless of who holds leases. The federal appeals court in New Orleans agreed w/ Delta and sent the case back to the City of Dallas to fix its defective leases at Love Field.

    When Alaska failed to use its 2 gates – awarded to Virgin America as part of the AA/US merger – and which AS assumed responsibility – DL asked the City of Dallas for one of those 2 gates and the City and Delta settled, giving Delta a lease through the latter part of this decade when ALL Love Field gate leases expire and AFTER all restrictions on AA and WN governing their ability to serve whatever airports in N. Texas they want.

    The outcome will almost certainly be that WN will operate 18 of the 20 gates, Delta will operate one, and AS could stay but will likely return its gate to AA which will have as much space at Love Field as DL. However, AS cannot be forced to leave if they choose to stay. If AS chooses to stay at Love Field, it will be AA’s ability to re-add its own flights that will be limited. At best, AA and DL will each have one gate.

    It doesn’t matter whether you or anyone else understand the legal principles or facts or not but Delta fought the City of Dallas and Southwest and will have access to Love Field as long as Delta wants.

    It was the federal courts that ultimately overruled the City of Dallas and the DOJ’s attempts to interfere in the N. Texas market – which failed based on market reasons.
    The return of the rule of law in the Love Field case came through the federal courts and against the City of Dallas and ultimately the DOJ.

    The bottom line is that Southwest has a competitor that they tried to get rid of and AA has lost at least part of the gate assets at Love Field that it entrusted to Alaska.
    Delta won the case and proved that it understands federal airport access laws and fought to protect its rights under those laws.

  17. I have followed the airline industry for decades and am a knowledgeable truth-teller, cutting through the internet chatter w/ the facts that others often don’t know or want to hear.
    and I do what I do just as much for American or any other airline as I do for Delta

  18. And again, Tim… Your basic initial assertion was wrong. All of my facts were and are correct.
    Your initial statements in this comment section were simply wrong:

    “IN the case of Delta and Love Field, Delta knew the law, 2 judges said that the City of Dallas was wrong and Delta got its own gate – something no party believed they should have.
    the DOJ did intervene in the free market and 2 courts had to remind the DOJ that not only were they legally wrong in awarding gates to ALK at the expense of DL in the first place but ALK didn’t do what the DOJ thought they would or could do.”

    Delta was in no way vindicated from years ago when they tried to get the divested gates by getting a gate at DAL as a result of this recent agreement. The DOJ divestiture to VX had nothing to do with Delta’s recent lawsuit. Thanks for awkwardly trying to backtrack, but you can just say you were wrong and move on. AS was never given the gates by the DOJ over Delta, VX was.
    Again, no court whatsoever told DOJ they were wrong to award the DAL gates to AS, much less Virgin. That’s a load of hogwash and just your usual silly attempt to turn everything into a pro-delta spin.

    Delta’s lawsuit about gate access at Love Field had nothing to do with DOJ divestiture and was simply the result of an agreement between the various federal lawsuit parties. You don’t need to write diatribes to try and cover your incorrect assertions in prior posts.

  19. Max,
    you can pound the keyboard all you want but I never said that Delta and Virgin America were linked at the beginning of this case.
    It was Alaska, as the successor to Virgin America, that failed to use its gates and provided the means by which the City of Dallas had to accommodate Delta in a gate as the federal courts ruled.

    When you stop trying to prove people wrong and accept the basic facts of the case – what was written and not what you want – you can contribute something.
    This commentary attributed to AA execs is much more in line w/ what they have said before – rather than talk about flying to Singapore or Africa – which highlights why those things will probably never happen or if AA tries, they probably will not succeed.

    AA failed at LAX because it tried to fly too much to China and HKG even as those markets didn’t make economic sense and AA simply chased low fare traffic while DL and UA on LAX-PVG had average fares much higher. DL is building LAX as a global gateway because it is not focused on China/HKG.
    AA will simply not succeed at having a presence on the west coast to Asia other than a token Tokyo flight or two.

    AA wants to believe that it can put PHL international on hold and get back to it in the future w/ the 321LRs but low cost carriers continue to take share in PHL domestic markets and make it unlikely that AA will be able to build the domestic feed necessary to make much international work.

    There is no assurance that the 321 on transatlantic routes for AA or UA will work economically esp. on flights over 8 hours that require 3 pilots. The current pilot contract costs are simply too high to support 3 pilots plus all the other operating costs w/ the fares from less than 170 passengers. There are enough airlines that will fly widebodies that can undercut fares via large European hubs.

    As for Charlotte, AA has tried for decades to duplicate what DL has in ATL and CLT is their best alternative after the failures of the RDU and BNA hubs. CLT is a low cost hub but it is also wholly in sufficient for the volume that AA pushes through that hub and AA’s need to use so many RJs makes the economics a lot less favorable than they would have you believe.

    The simple fact is that Delta persisted in insisting that DL had the right to have access to gate space from Love Field and it was Alaska’s failure to use its gates – which belong to American even though AA cannot presently use them – that provided an opening for Delta to permanently have access to the gates.

    Specific to Gary’s commentary, the DOJ tried to force a result in the AA/US merger case by selecting Virgin America. DL was already operating at Love Field and insisted that it had a right to remain there regardless of what happened.

    The outcome is clear no matter how hard you try to argue against what Delta achieved. Ultimately it was the DOJ’s choice of Virgin America that cost American the gate which Delta now operates and will operate as long as Delta chooses to stay at Love Field.

  20. several of those paragraphs obviously relate to what I wrote about AA’s international strategy and not Love Field but the first and last several paragraphs are relevant.

    Whether you like it or not, there is nothing pro-Delta about the facts and outcome which you simply don’t want to accept.

    Delta has managed to insert itself into the American-Southwest duopoly at N. Texas, something no other carrier has managed to do.

  21. Dan,
    my post is not meant for you so it is ok if you don’t read it.
    It is for those people (or that person) that wants to deny the obvious reality which is that Delta succeeded in gaining permanent access to Dallas Love Field with its own gate despite the actions of the DOJ to try to change the competitive environment in the favor of low cost carriers even though Delta expressed interest in acquiring the two AA gates that they had to divest. Delta also overcame the multiple attempts by Southwest to kick and keep Delta out of Love Field.

    Even for the most marginally knowledgeable person about the case, Delta has succeeded as evidenced by having its own gate and doubling the number of seats by this summer with the addition of Los Angeles.

    No matter how hard it is for some to accept, Delta succeeded at what it set out to do and manipulating history or making categorically false statements don’t change what Delta achieved against the odds of most industry naysayers.

  22. nobody said you did have to read.
    You didn’t provide commentary on the subject so it is perfectly ok if the topic goes right over your head.

    There are people who tried to argue the point even if they got it all wrong. I wrote for them.

  23. You and Tyler Cowen need to get over the Coinbase thing. The SEC approving a company to go public is not a statement that everything the company does is legal and it’s hard to not believe that at least one of you knows that and is being intentionally misleading.

    Maybe it’s true that SEC regulating by enforcement is bad – I don’t think its but it’s reasonable to disagree – but then say that instead of making up what approval of an S-1 means.

  24. @Ben the two issues are linked. Exactly what Coinbase was doing was disclosed, no concerns raised, then all of a sudden under a new regime it’s a problem. And it’s not just ‘me and Tyler Cowen’ read Matt Levine on it as well. As for regulating by enforcement, that’s hardly only my own position it’s also the position of SEC commissioner Hester Peirce.

  25. @Gary—Levine doesn’t seem to have much of a problem with it at all. He’s sympathetic to some in crypto, but totally understanding of why the SEC is taking the position that it is. It’s hard not to when everyone turns out to be a fraud!

  26. @Dan – he jokes about it, and is postmodern enough to recognize the power play, he is EXPLICIT that what changed is crypto is less popular and the people in power don’t like it. In other words, his whole analysis is rule of law schmool of law.

  27. @Gary – The people in power have NEVER liked it! And for pretty good reasons!

    Ben also has a point: there is a huge gulf between your own public offering and being a registered exchange for use by US persons. The two are not the same.

  28. Your writing speaks for itself, Tim. No need to keep arguing and trying to reword what you wrote when you can’t even read what you wrote yourself.

  29. “Delta has managed to insert itself into the American-Southwest duopoly at N. Texas, something no other carrier has managed to do.”
    Your weird pro-delta rants are always entertaining but Delta gets one gate at Love Field and all of a sudden they’re disrupting a duopoly, per you. I’d imagine Spirit would disagree about true disruption, but live your passport plum fantasy.

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