Flying Is a Mess Right Now, but Elizabeth Warren Is Wrong To Blame Airline Mergers
Why does Elizabeth Warren think that JetBlue buying Spirit Airlines will be bad for consumers?
With high inflation and a rebound in demand following the pandemic, plane ticket prices have gone through the roof this summer. Air traffic controller shortages and airline staffing issues are also causing flight delays and cancellations. Some airlines have responded by canceling routes (which also angered customers), while others have contended with striking pilots.
Sen. Elizabeth Warren (D–Mass.) thinks she has a plan to fix all this dysfunction. It involves intervening in a sale between two major companies and wielding the Department of Transportation's authority to make an end-run around court challenges.
JetBlue is considering buying Spirit Airlines, a deal worth $3.8 billion. But Warren thinks such a deal would not be "consistent with the public interest" and must be thwarted.
"DOT has significant and historically underutilized authorities to protect competition in the domestic air travel market to ensure any route transfers are 'consistent with the public interest,' and I urge you to consider utilizing these authorities as you continue your commendable consumer-protection efforts," Warren writes in a letter to the DOT. She goes on to argue that
"Title 49 explicitly grants DOT the authority to block any transfer of a route-operating certificate if such a transfer would not be 'consistent with the public interest.' Among the factors the Secretary of Transportation is required to consider when making this assessment is the effect of the transfer on 'competition in the domestic airline industry.' DOT, however, has historically interpreted its authorities under 49 U.S.C. §41102 as only authorizing it to block international route transfers. This reading of the statute is incorrect."
Typically, the DOT defers to the Justice Department on issues concerning airline mergers and antitrust. "The Justice Department must go to court to prove that competition would be harmed by a merger," explains Bloomberg's Leah Nylen. "The DOT, however, can just decide that the merger is not in the public interest, an authority it has had since the Federal Aviation Administration was created in 1958."
Warren, possibly worried about the success of a Justice Department court challenge, wants the DOT to instead act unilaterally.
She points to the fact that American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines control 80 percent of the domestic market and claims that consumers are suffering as a result. Warren then lists examples of mergers and acquisitions in recent memory—Delta's 2008 acquisition of Northwest; United's 2010 acquisition of Continental; the American-U.S. Airways merger in 2013—while trying to make the case that such "consolidation has contributed to the increase in delays, cancellations, and involuntary rebookings that airline passengers experience today."
But the senator fails to establish a causal relationship between large airlines purchasing smaller ones a decade ago and pandemic-driven changes in air travel today. Are we to believe that too few pilots and air traffic controllers would not be a problem if America had more small airlines? Or that airline mergers in the 2010s are the main culprit behind inflation in 2022? Neither of these counterfactuals is testable, but they also don't make much sense on their face. Warren's letter also neglects to mention smaller airlines that competently serve specific regions and less-traveled routes, like Alaska, Allegiant, and Frontier, which have struggled with the same labor-market funkiness, inflation-related price hikes, and uptick in demand that other airlines have. It's not as if the four major airlines have made it so viable competitors can't exist, as Warren implies.
Warren is correct that the U.S. has only two ultra-low-cost carriers (ULCCs): Frontier and Spirit. Spirit (market share of 4.9 percent) being acquired by JetBlue (market share of 5.3 percent) would leave Frontier (market share of 3.3 percent) as the last ULCC offering. But Warren makes a point in favor of the merger when she notes that ULCCs are important precisely because their entrance into a given route market means "airfares across all flights in that market fall by 21%." In fact, creating a "low-fare challenger to the dominant big four airlines" is exactly what JetBlue says it's trying to do with this deal.
Warren unintentionally demonstrates how market forces are the fairest and the most efficient means of delivering consumer cost savings. Allowing ULCCs to emerge and compete—and sometimes be gobbled up or inspire others to adopt parts of their model—is essential if we care about consumers having options. Warren should not interfere with this regenerative process.
There may be other reasons why JetBlue is interested in Spirit as well. JetBlue has planned to cut 37 routes this fall and winter after already cutting 20 routes earlier this summer. A Spirit deal will beef up JetBlue's route map, protecting flight availability at Newark and Fort Lauderdale, places where JetBlue is cutting back but where Spirit already has a hub. It's hard to see how consumers will be hurt by restored routes, lower fares, and a strong, cheap competitor to the big four.
The DOT letter is a pitch-perfect case study in Warrenism: the insistence that government agencies must intervene to protect so-called "consumer welfare" when businesses are already independently making decisions that are likely to give consumers more options.
