Darren Bush: It's hard to see pluses in airline merger, especially for consumers

HOUSTON - Flying home after testifying before the Senate Judiciary Antitrust Subcommittee about the Northwest-Delta merger, I wondered if I had somehow stepped into an alternate universe when I boarded the Continental 737 to Washington. Nothing that happened after that made any sense.

The Northwest and Delta CEOs testified at Thursday's hearing that they would not reduce service at the hubs and would not reduce line jobs, yet would manage to create what could only be described as miraculous efficiencies. These efficiencies would purportedly come from shuffling aircraft to meet demand on international and domestic routes. In addition, the mere size of the behemoth post-merger airline would attract passengers in certain markets, a well-known airline phenomenon. Finally, the airline would reduce back-office operations.

That's it. Those are the entire benefits to this merger. The goal: Compete with behemoth international carriers by bulking up. Not only is there no indication that this will somehow benefit consumers, there is every indication that it wouldn't matter if it did.

But does the transaction injure competition in a way that violates the antitrust laws? Not according to the CEOs. Northwest and Delta barely compete, and only then on 12 nonstop routes. It is as if these carriers believe that they are two paperboys serving entirely different paper routes.

Congress should not believe it. The history of airline mergers has demonstrated that they fail to produce the benefits their supporters purport. What airline mergers do, in reality, is make promises about cost savings and other efficiencies that fail to appear.

Under the antitrust laws, ethereal, intangible and unproven synergies do not count as a plus for a merger.

Nor should Congress believe that Northwest and Delta only compete on 12 nonstop routes. This merger may very well give the combined company the ability to raise prices and reduce service, to the benefit of the company and to the detriment of consumers. Airline competition is much more sophisticated than determining on which nonstop routes the two airlines offer service (hint: those would be the hub-to-hub routes). Rather, airlines compete on connections, using their enormous hubs to amass passengers. Some connections make sense and some do not. And if you live in the Midwest, your likely sensible connections to East Coast destinations mostly appear to be Northwest and Delta hubs.

While I tried to raise these issues, the key focus of congressional hearing appears to be whether the combined firm will lay off workers. The answer is: Of course, but not in any way it will have to admit. The company can simply not replace people as they leave, and it can provide incentives for employees to leave. It is not quite the same as a layoff, but it is not the same as a continued benefit from a job created, either.

Apart from potential efficiencies created by the merger and potential benefits of the merger to the combined firm arising from dominance in the market, there is another reason that perhaps explains the merger. Airlines, when faced with troubled times, cling to one another, like Leo DiCaprio and Kate Winslet in that famous movie about a ship and an iceberg.

The problem is that, like Kate and Leo, airlines clinging to one another in the midst of financial crises makes no sense. Northwest and Delta, two airlines that have recently emerged from bankruptcy, are no strangers to financial trouble. Like all airlines, these two behemoths face rising fuel costs, an impending recession and grave concerns about the future. This merger would do nothing about rising fuel costs. It appears that it only would eliminate competition between the two airlines and cause future consolidation in the industry.

If I am right and the sole rational reason for this merger is the ability to raise price and reduce service, the merger should not be allowed to proceed. The consumer harm from these sorts of transactions is potentially high, while the benefits of the transaction are dubious at best. The history of mergers of major carriers bears this out: Despite consolidation at the outset of deregulation in the 1980s, the airlines have become decreasingly financially viable even as they have gotten bigger. Size does not necessarily beget financial strength.