Testimony on whether a merger of United and Continental airlines should be blocked with a preliminary injunction wrapped up in federal court in San Francisco late today after a two-day hearing.
U.S. District Judge Richard Seeborg, who kept the session going until 7 p.m. to finish the hearing, will decide after receiving final briefs whether to grant the injunction, which is sought in an antitrust lawsuit filed by 49 air travelers.
Seeborg said he would confer with lawyers in the case by telephone at 2 p.m. Friday on the schedule for final briefs – which are tentatively due on Sept. 10 – and on whether he should hold a hearing on closing arguments.
The judge commended the array of lawyers from around the country for their work and joked, “I had a first-class seat.”
The planned merger of Chicago-based United and Houston-based Continental was announced in May and would create the world’s largest airline in terms of revenue-producing passenger miles.
The 49 plaintiffs, most of whom are current or retired travel agents, claim in the lawsuit that the merger would reduce competition and lead to higher fares and fewer flights. The suit was filed in June.
Four of the plaintiffs testified today, and all said they joined the lawsuit because they feared they and other travelers would be harmed by increased fares and reduced service.
“I was outraged that no one stands up and says, ‘Stop, you can’t do this to people,'” said Michael Malaney, a travel agent in Grand Rapids, Mich.
Malaney, referring to the 2008 merger between Delta and Northwest airlines, said, “If it goes like the other one, service will be bad and costs will go up.”
Dana Robinson of Palm Beach Gardens, Fla., the retired owner of a Denver travel agency, told Seeborg, “I wanted to stop what I felt was not good for all the people in the country. Once you merge the two airlines, you’re going to have less choice, less service.”
Travel agent Jan Marie Brown of Carson City, Nev., testified, “I feared, and I believe, that a bigger, stronger, more powerful airline will reduce flights, increase prices and reduce service.”
United and Continental chief executive officers Glenn Tilton and Jeff Smisek both testified on Tuesday that they believed the merger would enable the new airline to compete more effectively but wouldn’t lead to fare increases.
That claim was supported today by University of California at Berkeley economics professor Daniel Rubinfeld, who testified as an expert on behalf of the airlines.
“This merger is unlikely to generate any harmful effects whatsoever and in fact will lead to significant benefits in terms of reduction of costs and a more efficient entity,” Rubinfeld said.
Like Tilton and Smisek, Rubinfeld contended the new airline wouldn’t be able to raise prices, despite its size, because of fierce competition from so-called low-cost carriers such as Southwest Airlines and AirTran Airways.
“The introduction and growth of the low-cost carriers has been a real force in keeping fares down,” Rubinfeld testified.
But a plaintiffs’ expert, University of Houston law professor Darren Bush, testified that network carriers such as United and Continental have a somewhat different market from that of the low-cost carriers.
Bush said some passengers, including many business travelers, favor network airlines because they like the benefits, including frequent flier miles, good connections in hub cities and comfortable passenger lounges in hub city airports.
The merger plan was given a boost on Friday when the U.S. Justice Department announced it was closing an antitrust investigation after finding no problems with the plan.
But Seeborg noted at the start of the injunction hearing Tuesday that he is not bound by the Justice Department’s conclusion, although he said he might take it into consideration.
The merger must also be approved by shareholders of the two airlines in votes on Sept. 17 and survive additional antitrust probes by several state attorneys general.
Seeborg also ordered lawyers for Continental today to file a declaration from Smisek by Friday morning to clarify what Seeborg called a “discrepancy” in the chief executive’s testimony.
In court on Tuesday, Smisek acknowledged under questioning by plaintiffs’ attorney Joseph M. Alioto that an internal Continental document modeling possible effects of the merger showed that the two airlines’ departures from Cleveland would be reduced by 84 percent.
When asked by Alioto whether Continental conducted any other studies, Smisek answered, “I have no idea whether there are other studies.”
Several hours later, however, in response to news reports about his testimony, Smisek issued a statement to Cleveland news media saying the airline had analyzed other simulations and that “other simulations showed Cleveland maintaining its size (in number of flights) and others showed it growing.”
Seeborg said in court today, “There is a discrepancy there.”
He said he will decide after reviewing Smisek’s written declaration on Friday whether to order a videotaped deposition by Smisek on the issue.
