By Holman W. Jenkins Jr. - Wall Street Journal
Welcome to government for the benefit of government officials & their hangers-on.
The new administration seemingly wont let companies fail and wont let them succeed either. Only luck and falling oil prices saved Washington from having to face mass bankruptcy of the airline industry last year.
Now the specter is rising again. Fuel prices are up. Traffic continues to plummet amid a global recession. United Airlines last week mortgaged its spare-parts inventory to raise cash at a usurious 17 interest rate.
Yet the Obama Justice Department has come out of the blocks trying to scuttle a promising experiment to stabilize the chronically unprofitable U.S. airline sector.
The airline industrys self-help solution has been an evolving trio of international alliances partly blessed with antitrust immunity by the U.S. Department of Transportation.
One the Star Alliance led by United and Lufthansa is currently poaching Continental from a rival alliance SkyTeam. DOT was set to approve their application last week when Justice belatedly intervened with a 58-page complaint about why the pact should be restructured.
Getty Images
To anyone drilled in the antitrust mindset Justices argument wont seem outlandish. It frets about reduced competition on this or that international route and sees little chance of competitive entry by new carriers despite fat profits that presumably would be on offer. It argues in a fashion typical of antitrust these days that nonstop flights are a market unto themselves so connecting flights on the same routes dont count.
But the real fulcrum is Justices insistence or plea that DOT should set a high bar for antitrust immunity because antitrust enforcement has been such a gosh-darn boon to consumers.
Justice offers no supporting evidence for this proposition which has resisted academic verification. And in dismissing the putative benefits of immunized airline alliances
Justice fails even to acknowledge the one benefit that Obama Transportation Secretary Ray LaHood has emphasized: These alliances are life savers for airlines. That is the premise from which we start. We believe it. The airlines believe it.
In part such alliances are substitutes for international airline mergers (which are prohibited under U.S. law) but are more interesting than mergers thanks to the flexibility with which carriers can enter and exit cooperative agreements with each other.
The antitrust mindset naturally sees such cooperation as always harmful inflating prices and gouging consumers. But then why does organized labor oppose the deals? Shouldnt workers favor alliances if they reduce competitive pressure on wages? Yet Justices intervention came after Uniteds pilots ran a full-page ad in Roll Call attacking the companys own deal.
And why do carriers lobby against each others pacts? Shouldnt they favor anything that leads to oligopoly pricing? And what to make of Continentals decision to jilt SkyTeam and jump to Star shifting the competitive balance on the North Atlantic?
Obama antitrust chief Christine Varney doesnt have much good to say about her Bush predecessors. But she praises their record of cartel-busting.
She might examine that record for what it actually says about the incentive to collude.
It shows for one thing that companies are inclined to snuggle up mainly to share losses and preserve capacity in a downturn or to curb the free-riding of powerful customers. When profits are available on the other hand they quickly go back to competing to maximize their respective shares rather than colluding to limit their individual upsides.
These incentives would very likely prevail in the highly flexible airline alliances. Such alliances are no miracle cure for what ails the domestic carriers but they would open a window to let us see beyond antitrusts indiscriminate prejudice against cooperative acts by competitors.
Of course this would fly in the face of Ms. Varneys agenda which is to expand the bailiwick of the Washington antitrust bar.
Even now she has turned her attention from airlines to the mobile-phone business on the theory that any industry that hasnt collapsed into government receivership must be doing something wrong.
Mr. Obama blabs about the evils of lobbying but his administration is fast becoming the greatest fillip to lobbying ever seen.
Ms. Varney has now horned in on the DOTs action forcing the airline business and all its camp followers to come and pay tribute. Her choice of targets is obviously designed for political effect. Airlines and mobile-phone operators both touch the public in ways that leave the public frequently annoyed.
What were seeing here and elsewhere from the new administration is not some rebirth of thoughtful liberalism but a spastic descent into machine liberalism -- government for the benefit of government officials and their hangers-on.
Mr. Obama however may not be so pleased with the result if it means he must soon add the airlines to the collection of failed industries being run out of the White House.
