The Deal: Gauging the Benefits of Airline Mergers
A big problem for the airlines is that the federal government's merger guidelines have a high bar for proving that those kinds of efficiencies will outweigh the harm of lost competition. The DOJ's Antitrust Division and the Federal Trade Commission have historically been wary of efficiency claims and a 2010 revision of the agencies' horizontal merger guidelines increased the level of proof that merging parties must demonstrate to show that benefits of merger will offset any damage to consumers.
"There is a heavy burden for showing the agencies that efficiency claims can overcome competitive effects and I've never known a case to come out well for merging parties when it comes to efficiency claims," said one antitrust practitioner.
"The government is usually skeptical
But a source familiar with the airlines' thinking predicted that in defending the merger they will argue that the benefits consumers would receive don't have to be proven according to the general guidelines but instead should be measured according to an economic methodology used in the DOJ's 2009 approval of Delta Air Lines Inc.'s acquisition of Northwest Airlines Corp. and spelled out in a paper published later that year by DOJ economists Ken Heyer, Carl Shapiro and Jeffrey Wilder.
The economic analysis allowed DOJ economists to place a dollar value on schedule improvements and other service enhancements that could make the merged carriers more attractive to consumers. The methodology also allowed agency economists to compare the forecasted demand for the combined carriers' likely post-merger schedules to the forecasted demand for Northwest and Delta flights if the airlines remained separate. In that merger the model showed that the merged carrier was likely to attract more customers and therefore increase consumer welfare.