Three years ago, the Obama administration unleashed its might on behalf of beleaguered American air travellers, filing suit to block a mega-merger between American Airlines and US Airways. The Justice Department laid out a case that went well beyond one merger.
“Increasing consolidation among large airlines has hurt passengers,” the lawsuit said. “The major airlines have copied each other in raising fares, imposing new fees on travellers, reducing or eliminating service on a number of city pairs, and downgrading amenities.”
The Obama administration itself had helped create that reality by approving two previous mergers in the industry, which had seen nine major players shrink to five in a decade. In the lawsuit, the government was effectively admitting it had been wrong. It was now making a stand.
Then a mere three months later, the government stunned observers by backing down.
It announced a settlement that allowed American and US Airways to form the world’s largest airline in exchange for modest concessions that fell far short of addressing the concerns outlined in the lawsuit.
The Justice Department’s abrupt reversal came after the airlines tapped former Obama administration officials and other well-connected Democrats to launch an intense lobbying campaign, the full extent of which has never been reported.
They used their pull in the administration, including at the White House, and with a high-level friend at the Justice Department, going over the heads of staff prosecutors. And just days after the suit was announced, the airlines turned to Chicago Mayor Rahm Emanuel, Obama’s first White House chief of staff, to help push back against the Justice Department.
Some lawyers and officials who worked on the American-US Airways case now say they were “appalled” by the decision to settle, as one put it.
“It was a gross miscarriage of justice that that case was dropped and an outrage and an example of how our system should not work,” said Tom Horne, the former state attorney general of Arizona, one of seven states that were co-plaintiffs with the federal government.
As a candidate in 2007, President Obama pledged to “reinvigorate antitrust enforcement,” calling that the “American way to make capitalism work for consumers.” Hillary Clinton has recently made similar promises.
But the reversal in the American-US Airways case was part of what antitrust observers see as a string of disappointing decisions by the Obama administration.
“I hoped they would be much more aggressive and much more concerned about increasing concentration and ongoing predatory conduct,” said Thomas Horton, a former Justice Department antitrust attorney now at University of South Dakota law school. “Too often they really took the business side.”
Obama’s antitrust enforcers have been somewhat more aggressive than the Bush administration in challenging mergers. But that has come in the face of a record-breaking wave of often audacious deals. Nor has the Obama administration brought any major cases challenging companies that abuse their monopoly power. It approved three major airline mergers, for example, leaving four companies in control of more than 80 percent of the market.
In the American-US Airways case, Emanuel emerged as one of the deal’s biggest champions. He was in regular contact with the CEOs and lobbyists for both airlines.
“The combination of American Airlines and US Airways creates a better network than either carrier could build on its own,” Emanuel wrote in an October 2013 letter to the Justice Department that other mayors signed onto. “American’s substantial operations throughout the central United States provide critical coverage where US Airways is underdeveloped.”
The letter was an uncanny echo of the airlines’ arguments – for good reason: It was actually written by an American Airlines lobbyist, emails obtained by ProPublica show.