2. Airline Insanity
You gotta say this about Eric Holder's curious bid to block U.S. Airways (LCC) merger with American Airlines: At least the Attorney General doesn't kick them when they are down.
Too bad in this case, the opposite is even worse. He's kicking them when they are finally up.
The Department of Justice filed a law suit to block the planned merger of the two airlines Tuesday, saying the combination would be anti-competitive. Shares of bankrupt American, which trades primarily on the expectation of a return in the merger, fell 45% to $3.17 Tuesday while US Airways, which has been in and out of bankruptcy twice in the past decade and is finally seeing its stock take off, saw its stock sink 14% to $16.36. US Airways was top performing stock among the Fortune 500 in 2012."By challenging this merger, the Department of Justice is saying that the American people deserve better. This transaction would result in consumers paying the price -- in higher airfares, higher fees and fewer choices," said Attorney General Eric Holder. Um, wait a second Eric. You forgot higher unemployment, higher industry uncertainty and ultimately more airlines filing for bankruptcy once the inevitable price war ensues. "Anyone who has seen what one weak carrier -- the name 'Eastern Airlines' comes to mind -- can do to pricing in the airline industry must now shudder at the thought that our government wants to prevent a merger that would have created a third major global U.S. competitor," writes TheStreet's airline ax Ted Reed. Reed adds that he can't predict which carrier will be weakened to the point of bankruptcy, "but the industry is so competitive, the operating conditions are so difficult and the exogenous factors are so influential that it seems clear that at some point, something bad will happen. It always has." Look. It's not that we have a problem with airline price wars, as consumers we love them. Nevertheless, over the long term they tend to be more destructive and costly than their short-term benefit to travelers. And a quick check of airline history shows that price wars inevitably lead to consolidation anyway. In fact, the same type of consolidation that this very same DoJ used to love when it approved the mergers of Delta (DAL) and Northwest, United (UAL) and Continental and Southwest and AirTran in the past five years. "Other companies have found themselves in similar circumstances and gone on to successfully close their merger," said U.S. Airways CEO Doug Parker, echoing our bewilderment as to why Holder decided to draw the line here. And despite Holder's statements that he is looking out for the little guy, he chose the worst possible time to delay the deal, which was about to be approved in bankruptcy court this very week. American has been operating under Chapter 11 of the bankruptcy code since November 2011. A simple approval would have triggered wage and benefit increases for U.S. Airways and job security for American employees. That's not going to happen now that, for some dumb reason, Holder said hold on.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV