Kristian Stout Quoted in Vital Law on House Antitrust Subcommittee Hearing on Airline Competition
VitalLaw quoted Kristian Stout, ICLE Director of Innovation Policy, in a piece on the House Antitrust Subcommittee’s hearing examining the US airline industry following the collapse of Spirit Airlines. Stout argued that the legal framework applied to the blocked JetBlue-Spirit merger was too static to account for Spirit’s underlying fragility, and pointed to airport slot rationing and the cumulative weight of consumer protection mandates as additional sources of foreclosed competition.
Read the full piece here.
The third witness, Kristian Stout, Director of Innovation Policy, International Center for Law and Economics, said the most important procompetitive thing Congress can do is to clear policy bottlenecks, not pile on new ones.
As for Spirit, Stout offered the distinction that the Justice Department, an engine inspection crisis, and high jet fuel prices due to the Iran war, all played a role in killing Spirit. He said the legal framework was too static for a visibly fragile firm in a capital-intensive industry. The legal framework failed in two ways. First, the court found a stronger Jet Blue would have competed harder against the big four carriers, but harm to the most sensitive travelers on a handful of routes, under the old “any market” analysis, controlled the entire outcome, no matter how large the national benefit. The court blocked a merger it appeared to regard as good for competition overall to preserve root level rivalry the market then itself “erased.” Second, the failing firm defense asked the yes or no question whether Spirit might collapse without a buyer. Spirit could not meet that test in early 2024, so the court treated it as a durable competitor. From there, it liquidated within 18 months because capital intensive industries are prone to shock. He said the real question was not whether a firm has already failed, but its likelihood of survival in the next five or ten years. Stout said the merger analysis framework for network industries needs a probability-weighted view of a firm’s durability and consistent credit for out of market benefits.
As a second example, airport slots are an issue at very congested airports. The FAA rations takeoffs and landings. Decades ago, slots were like property, but new airlines cannot simply add service such that “use it or lose it” rules would push incumbent carriers to fly nearly empty ghost flights just to keep their slots. Where the FAA actually allows low entry, “fares fall about 17%.” The FAA plainly has the power to move toward real slot markets by abandoning rules it already waives at times.
As a third example, Stout said that although he is not against consumer protection, an accumulation of consumer protection mandates turns judgment calls and manageable risks about basic operations into a legal obligation with a fixed cost. The “pileup of mandates” is relatively minor for large carriers, but potentially fatal to small carriers.
Stout concluded that the missing competition is mostly foreclosed upstream by government-rationed runways, capital that walls it off, and mandates that fall hardest on the carriers least able to bear them. Stout recommended modernization of merger analysis for network industries; opening of underused slots; and application of rigorous cost-benefit review to every operational mandate. “Spirit’s empty gates are a reminder that preserving a competitor on paper is no substitute for letting competition work in fact.”