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Gov’t May Not Go Easy on United-Continental Merger

Airline mergers are often announced with a tone of finality, despite the fact that agreeing to a merger is only the first, small step toward completing one. Numerous hurdles remain to be cleared, none of which can be taken for granted: Combining crew seniority lists, blending frequent flyer programs, and so forth.

However, the one aspect of merging two airlines that has been taken for granted, more or less, is antitrust approval from the Department of Justice (DOJ). But now that might be changing, and in potentially significant ways, just in time for the United-Continental merger.

The Wall Street Journal reports that the Obama administration has signaled its intent to be “tougher” on antitrust cases. While it’s not likely that the DOJ will block the United-Continental merger, it may require more concessions from the two carriers before signing off on the deal. As an example, the Journal suggests the DOJ might ask the merged carrier to give up gates and slots at hard-to-enter airports.

More broadly, some major government players in the air travel sector, and the merger process, seem a bit leery. Representative James Oberstar (who leads the House Subcommittee on Aviation that will hold a hearing on the merger June 16) penned an editorial in yesterday’s USA Today urging the DOJ to reject the deal. Last year, the DOJ also advised against an international deal between Continental, United, and several Star Alliance partners, citing concerns over higher fares and reduced competition.

Perhaps most importantly, this is not simply a case of two businesses combining. This is two major airlines consolidating their operations just weeks after another major airline consolidation finally wrapped up. If the United-Continental deal goes through, United and Delta will control a shade over 40 percent of the domestic market. That’s a lot of clout to rest with just two airlines, a fact that is certainly not lost on the DOJ.

Make no mistake: The merger will likely be approved. But it will be interesting to see if the government has the wherewithal to extract substantial concessions from the airlines and, in doing so, maintain at least a semblance of competitive balance.

Readers, do you think there’s reason enough for the government to put the kibosh on this merger, or at least make United give up something in return for approval?

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