Your report “Judge turns down JetBlue’s $3.8bn deal for rival Spirit” (January 18) underscores that for the US, judiciary industrial policy is not the remit of the legal system.
Antitrust law operates on the slenderest of insight into modern network economics, which is what dictates airline economics: the more people who share a common public system (like the internet, telephones, distributed energy or banking), the more economic the system becomes. Antitrust law defies network theory by continuing to emphasise an antiquated theory of the firm, which assumes that the more firms there are, which fight over customers, the lower will be the prices that a firm can offer in order to attract customers, thereby leaving consumers “sovereign”. This may be fine in the restaurant business, women’s handbags, fine wines, financial services or home furnishings, but in mass air transportation the only thing that occurs in competition is duplication, especially duplicated fixed costs, which are of an enormous magnitude requiring economising scale, and therefore mergers.
In the US even major carriers including Northwest and Continental merged out of necessity; Northwest with Delta; Continental took over United; American absorbed TWA and US Airways while Virgin America merged with Alaska. Even Southwest is the result of numerous acquisitions.
The financial market may be smarter than antitrust lawyers, as Spirit’s share price immediately declined by 50 per cent after the ruling. Perhaps the judge would care to invest in Spirit, or manage it, since he feels his ruling provides a public benefit, even if the carrier loses money. At some point, it may become clearer in aviation law and economics that lowering fares through regulatory guidelines achieves the same effect as enforcing competition — except that regulation, in this case, preserves capital.
Matthew G Andersson
Founder and Former CEO, Indigo Airlines
Former President, Indigo Aerospace
Chicago, IL, US
