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Make Me Smart with Kai and Molly

Episode 114: Antitrust the process

May 21, 2019

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DoJ aims to block deal between United and Delta

Andy Uhler Nov 10, 2015
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A deal between United and Delta airlines boils down to an airline parking spot swap.  United wants more space at Newark and Delta wants more space at JFK.  Bill Baer, assistant attorney general of the Justice Department’s antitrust division, said the deal could mean higher prices for the flying public and so the DOJ is suing to block the deal.  

“Our concern is that consumers at Newark, on average, pay a whole lot more than consumers flying out of other New York area airports,” he said.

The deal with Delta would give United an additional 24 spots. The Department of Justice believes this will give United a monopoly.

Jonathan Williams, an economics professor at the University of North Carolina Chapel Hillsaid consumers in the New York market actually do have other choices.

“You know, I think to say that it’s a monopoly is maybe overstating it a little bit,” he said. 

LaGuardia Airport is about 15 miles away from the Newark airport. JFK Airport is a little more than 30 miles away.

So why does it cost more to fly out of Newark?

Michael Boyd, president of the aviation consulting firm BoydGroup International, said it comes down to convenience.

“The U.S. is now in a hub and spoke system,” he said. “If you’re in a big hub airport like Newark you can fly United almost anywhere. But if you’re in a place like Charleston, South Carolina, mostly you’re going to be connecting.”

Jan Brueckner, an economics professor at University of California, Irvine, said in a hub city, passengers pay for convenience, but the tough thing is putting a dollar value on it.

“Many people argue that the hub premium is partly a function of the fact that the passengers are getting a better product meaning living in hub city with fabulous connectivity to everywhere,” he said.

There’s no doubt that the strong presence of one airline at a hub improves efficiency.  What’s unclear is whether the savings from that efficiency get passed onto the consumer.  

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