Antitrust forces in the Biden administration are balking at the proposed merger between JetBlue Airways and Spirit Airlines. In doing so, the Bidenstas are once again demonstrating how they have hijacked the antitrust relationship.
Avero Airlines is a phrase that negates all the arguments raised by the Bidenstas. (Related: Federal judge blocks multi-billion dollar acquisition of Spirit Airlines)
rank 7th Based on the number of flights, JetBlue is a low-cost airline that launched in 2000. Spirit, another low-cost airline, ranks eighth.th Overall, U.S. passengers are served by five major carriers such as Delta Air Lines and Southwest Airlines, five midsize carriers such as JetBlue and Spirit, and a number of smaller, niche carriers. .
Therein lies the first clue that antitrust vigilantes must stop. Antitrust concerns may be appropriate if there are only two or three of his airlines, or if entering and exiting the business is particularly difficult. Instead, at least 10 carriers have a substantial presence, with no problem entering or exiting.
The second clue is that domestic industry is rarely profitable.by Bureau of Transportation Statistics (BTS)the industry earned $1.4 billion in 2022, losing about $7 billion from 2018 to 2022, although profits from such a capital-intensive industry were negligible.
The essence of monopolistic behavior is having sufficient market power to raise prices above competitive market prices. On the contrary, price increases create monopolistic profits (technically speaking, quasi-rent), which puts consumers at a disadvantage.
The airline industry often suffers losses due to fundamental economics. In competitive markets, prices are driven by marginal costs.
What is the marginal cost to the airline of taking a seat on a flight from Los Angeles to Boston? Probably $10. Whether you like clam chowder or not, the plane goes. That means airlines would be better off letting you buy a last-minute ticket for $11 rather than boarding a plane with empty seats.
A reasonable estimate of the average cost to an airline whether you fly or not is about $375, reflecting the price of the plane, maintenance costs, overhead costs, and some of the crew and fuel costs. According to BTS, the average airfare in 2023 will be $380, and the average cost of $375 equates to a modest profit for the airline.
The airline has a net profit of $1 after marginal costs, so it is better off by making the trip to Boston cost $11. But whether you fly or not, the airline loses a lot of money on that seat. It's strange that anyone is willing to invest in this industry, but it's really surprising that antitrust vigilantes are sticking their noses at it.
In other words, you get the answer in one word. Avero has a fleet of 16 aircraft and operates irregular scheduled flights to 44 destinations.
Avero is the epitome of cheap flights. Want a bag of peanuts? That will be $2. However, Avero flights usually depart on time. The plane is beautiful. The staff are courteous and professional. And you can't beat the price.
Most importantly for present purposes, Avelo departed in April 2021.
Avelo has demonstrated ease of entry, and Spirit may soon demonstrate another common feature: exit. Without a merger partner, many observers expect Spirit to fold its wings like many companies have done in the past, raising questions about what Biden's antitrust mafia has accomplished. There is.
Every airline wants to charge higher fares. They all want to make a decent profit.
But every time prices creep up and incumbent airlines' losses narrow, pesky upstarts like Avelo pop up to try to drive prices down. This has been the case ever since Jimmy Carter heeded the advice of the genius Alfred Kahn and deregulated the industry.
The antitrust mafia should find other industries to harass.
J.D. Foster is the former Chief Economist of the Office of Management and Budget and the former Chief Economist and Executive Vice Chairman of the U.S. Chamber of Commerce. He now lives relatively freely in the hills of Idaho.
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