THE AIRLINES are responding to deregulation just as the economists said they would. Competition is proliferating all over the place (Air Florida is opening up at Dulles), and lower fares are available to almost anywhere. That's the most visible part of deregulation, as well as the part that provides passengers with the most immediate benefits. But at the Civil Aeronautics Board, the othr aspect of deregulation -- the question of what the government should do about airlines that want to merge -- is grinding along quietly.
The target, in the biggest airline merger case of the last decade, is National Airlines, the most sought after airline in the nation. Pan American World Airways wants to absorb it to get its domestic routes. Eastern Airlines wants it for its international routes. Texas International wants to latch onto it just to get bigger. Within the next two months or so, the CAB will decide who gets it and, in the process, tell airline companies how free of government regulation they really are.
In the days before deregulation, the CAB's job would have been comparatively simple. It would have weighed the anti-competitive aspects of each proposal as well as the strengths and weaknesses of each airline. Eastern, for example, would have been ruled out automatically because it is one of National's major competitors in the Southeast. But with the new kinds of competition the government is now fostering, the balance is more complex. Eastern argues that the competition that would be eliminated if it merges with National would be replaced almost immediately. It says other airlines would leap into the markets left vacant by National's disappearance, something they can do now but could not do before deregulation.
Eastern may be right, but it is doubtful if the CAB -- or anyone other than Eastern's executives -- is willing to take that chance so early in the new competitive era. There is too much of an overlap between the routes served by Eastern and National to run the risk of a sudden drop in competition in a growing part of the air network. Indeed, this particular merger proposal is a classic violation of old antitrust theory.
The situations involving Pan Am and Texas International are quite different. Neither is a major competitor of National, although Pan Am is a potential one because of National's newly acquired North Atlantic routes. But there is enough other competition already across that ocean so that the anti-competitive effect of a National merger with Pan Am would be minimal.
Texas International's effort to take over National grows from its desire to be a strong, big airline rather than a strong, regional one. That is certainly a desire the government ought not to squelch. On the other hand, Pan Am needs a domestic route structure in the new competitive climate to stop being a weak, big airline. It can get that structure cheaper by buying National than by building one itself, the course suggested to it by former CAB Chairman Alfred Kahn.
In this framework, the CAB might be well advised to bless both Pan Am and Texas International and let National's stockholders decide who wins. While such a decision could spur more merger proposals, it would be in keeping with the spirit of deregulation. A decision blocking either or both of these takeover bids would suggest the government is not yet ready to let go of the regulatory reins it has kept on the airline industry much too long.