By David Ingram
WASHINGTON, Feb 26 (Reuters) - In 1995 two antitrust authors
laid out a scenario that was a long shot: What if the only major
airlines that survived industry turmoil were American, Delta,
Southwest and United?
Eighteen years later, the suggestion may come true.
As Steven Morrison and Clifford Winston wrote in the book,
"The Evolution of the Airline Industry," gone now are such
former standalone airlines as America West, Continental,
Northwest and TWA.
Two of those remaining, AMR Corp's American Airlines and US
Airways Group, have proposed a merger that is undergoing review
by the U.S. Justice Department's Antitrust Division. The
resulting company is expected to take the American name.
The two authors did not exactly predict the outcome.
Instead, the scenario was one of about 10 possible industry
structures they imagined as an exercise in how hypothetical
changes would affect fares, Winston said in a telephone
interview on Monday.
There was also a difference. The book assumed that airlines
would exit the industry instead of merging with competitors, as
Still, the long-ago scenario may turn out to be spot-on,
depending on what the Justice Department says.
"We were envisioning a Big-Three-and-Southwest scenario,
during a period when a number of carriers had serious financial
problems, and said, 'Suppose this continues?'" Winston said.
An economist, Winston works as a senior fellow at the
Brookings Institution, a centrist policy group in Washington.
His co-author on the 1995 book, Morrison, is an economics
professor at Northeastern University in Boston.
Winston will be one of five witnesses on Tuesday during a
congressional hearing on the proposed American-US Airways
merger, which would link two of the five largest carriers in the
United States and result in the largest. Delta Air Lines Inc,
Southwest Airlines Co and United Continental Holdings Inc round
out the top five.
Also appearing before the U.S. House of Representatives
antitrust subcommittee will be US Airways Executive Vice
President Stephen Johnson and American Airlines Senior Vice
President Gary Kennedy.
Lawmakers will hear skepticism about the deal too.
Christopher Sagers, a law professor at Cleveland State
University, said in prepared testimony submitted to the
subcommittee that there would be little to keep fares from
rising higher on at least some routes.
"The post-merger legacies will effectively be operating
within a four-firm oligopoly," Sagers wrote, "and widely
accepted economic theory predicts that they cannot be expected
to seriously compete on any except their most competitive
In his own prepared testimony, Winston said the U.S.
government should move to increase competition by allowing
non-U.S. airlines to compete on domestic routes, something they
are prohibited from doing now.
Citing the 1995 book, he also discussed the results of an
imagined market with four airlines. With Southwest not yet a
dominant national player, it would pressure the three major
airlines to keep prices low, resulting in a modest fare increase
of 8 percent, the two authors found then.
In reality, the carriers of the past two decades have become
more efficient, and their real yields have fallen, Winston
argued in his prepared testimony.
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