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Congressman Oberstar says: “Hell No”; I Say What’s Different

In today’s Aviation Daily, Correspondent Madhu Unnikrishnan published a story entitled “Oberstar Strongly Opposed to Airline Consolidation”. The full text of the story is included at the end of this post.

Congressman Oberstar, I grew up in your congressional district and am quite familiar with the “Socialist Republic of Minnesota” moniker that is sometimes used to describe politics there.

You speak often, and proudly, about deregulation and the consumer benefits derived from the Act. But wasn’t it also designed to allow the free market to work? Wasn’t it designed to force efficiency that would ultimately bestow lower prices on the consumer and to get them flying?

A Lot of Questions About Why “Hell No”

I am attaching a 1979 - 2005 chronology of actions between the State of Minnesota and Northwest Airlines that were compiled by Senate Majority Research. Certainly there are a number of actions included on the list that are anything but free market. As you reflect back on many of these actions that have your fingerprints all over them, how would you measure their success? Certainly you would not make the case that this was the free market at work. Parochial and protectionist -- yes. Free market -- no.

A big question for you today asks: is it more important to have an airline with its headquarters based in Minneapolis/St. Paul or a strong industry carrying the US flag around the globe?

Did the numerous financial aid packages you helped to author keep Northwest out of bankruptcy?: No. Have Northwest workers been subject to the same loss of income and benefits that have been suffered across the industry?: Yes. Northwest’s need to reduce cost and the resultant employee loss of income is a function of the free market that you were part of creating. Are you confident that the current environment ensures the success and staying power of Northwest as an independent entity that will forever employ all its workers that remain?

If there was ever an airline antitrust issue that was bound to impact Minnesota – Minneapolis/St. Paul and Duluth for that matter - it was the Northwest – Republic merger that was announced in 1986 when you were a member of Congress. Why was it OK then to remove a competitor in a hub market and any talk of consolidation today of a fragmented and hypercompetitive domestic market gets a “Hell No” from you?

The Darwinian struggle to survive initiated by Airline Deregulation Act drove Northwest to buy its primary competitor in Minneapolis -- Republic. That new competitive environment created by the ADA caused virtually all incumbent airlines to evaluate the relative size of their respective networks to that of the other domestic competitors in the market. When Northwest bought Republic, the industry was in its infancy and the focus was on the domestic market as network size could not be built organically in the face of deregulated pricing.

Today US airline competitiveness in the global marketplace is in its infancy. All that is different is that now we’re talking about network size relative to the global marketplace. Just like when Northwest bought Republic, today’s networks that are necessary to survive cannot be built organically. Certainly not when airlines lack critical pricing power that stems from a fragmented and hypercompetitive home market.

The size of the commercial aviation market is not confined to the eighth district of Minnesota, the borders around Minnesota or the 48 contiguous states. I know you are sent to Washington to represent your Minnesota district – and you do it well. But in your Chairmanship role, you represent the entire US. I thought that Congress was interested in the success of US industries, particularly those that are inextricably linked to the health of the US economy and assuring that US industry can be as competitive as it can be in the global economy.

That is not what I read and hear in your public statements. Am I wrong on this one: “Hell No”.

Aviation Daily, January 31, 2008

Oberstar Strongly Opposed To
Airline Consolidation

The House Transportation and Infrastructure Committee this week reinforced its opposition to airline consolidation.

Aviation subcommittee Chair Rep. Jerry Costello, D-Ill. said at a news conference that airline consolidation will be on the Transportation Committee’s radar screen this year. He noted the subcommittee will “examine and investigate” any mergers that “develop beyond rumor and discussion.”

But Committee Chairman Rep. James Oberstar, D-Minn., stepped
up the rhetoric on airline consolidation considerably, offering his opinion on the subject as “hell no!”

“Airline mergers do not serve the best public interest,” Oberstar said, arguing that consolidation can cause service to decline in remote areas and will almost certainly cause fares to rise.

The architects of deregulation didn’t predict the hub-and-spoke system would be a result of their actions, Oberstar noted, and he fears that further consolidation will cause the passengers “at the end of the spokes” to suffer cuts in service. Moreover, passengers are benefiting from the lowest fares, in real dollar terms, since deregulation, and this will end if consolidation reduces choice in carriers, he said.

Airlines will take defensive actions against a “mega-carrier,” Oberstar believes, and this will further reduce passenger choice.

The Justice Dept.’s oversight of airline mergers has been “sporadic,”
Oberstar said, but if a merger does happen this year, he said he will press the DOJ to examine it closely for antitrust violations. The U.S. Transportation Dept. also has a role to play in “defending the public
interest in aviation,” and Oberstar said he will “badger” DOT if necessary to prevent its approval of any airline merger.

If any airlines move closer to merging, Oberstar said the Transportation
Committee will hold hearings to “mobilize public opinion against airline mergers.” Consolidation only “benefits airline executives,” he warned.

Costello implored the Senate to move on the FAA reauthorization bill. The passage of the bill is crucial to the committee’s continued “aggressive” oversight of FAA and the airline industry, he said. Costello added that the committee will pay special attention to the issue of runway incursions this year.

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