I was as surprised as the companies and everyone else seemed to be when the U.S. Justice Department filed a lawsuit Aug. 13 seeking to block the proposed $11 billion merger between US Airways and American Airlines’ parent company, AMR.

The merger would have consolidated 86 percent of U.S. air travel into four airlines. Even without this merger, the U.S. airline industry is an oligopoly.

As attorney general Eric Holder put it, “This transaction would result in consumers paying the price — in higher airfares, higher fees and fewer choices.”

Until now, the Justice Department had been generous about airline mergers for one primary reason: The industry had suffered from ruinous competition.

These and other mergers were permitted:

Delta Air Lines and Northwest Airlines (2008)

Continental and United Airlines (2010)

Southwest Airlines and AirTran Airways (2011).

So what’s different now? A lot.

A New York Times “Common Sense” column by James B. Stewart entitled “For airlines, it may be one merger too many” highlighted the changing atmosphere. It quoted Paul Denis, a partner at Dechert LLP, which is representing US Airways: “The government abandoned the framework it used in approving the last three airline mergers.” It added this from Herbert Hovenkamp, widely regarded as a dean of the antitrust bar: “It’s a different regime, different standards and a different time.”

Airline oligopoly led to results predicted by economic theory: rising fares, fewer passengers amenities and less service to smaller cities. For example, after Southwest merged with AirTran, Sarasota-Bradenton International Airport lost its non-stop flights. On Aug. 12, American Airlines released data showing that passenger revenue per available seat mile, a key measure of performance for the industry, rose 4 percent in July to a record high for any month.

In order to overcome Justice Department objections, AMR and US Airways must prove that their merger will create a more comprehensive route network with smoother connections, provide greater employee stability and create a viable airline. Their case also would be enhanced if they demonstrate that a stand-alone AMR cannot emerge from bankruptcy as a strong competitor.

To remove one serious impediment, AMR and US Airways might give up landing slots at Reagan National Airport. These two airlines control 69 percent of the slots between them now.

I would suggest that their case for the merger also would be helped if they added service to some of the 457 airports that have lost service in the last five years.

The Airline Deregulation Act of 1978 was intended to remove government control over fares, routes and the entry of new airlines. For many years, the public benefitted from new airlines, lower prices and spectacular growth in the number of air passengers.

But U.S. carriers in recent years confronted such unsustainable financial turbulence that legacy carriers and new airlines liquidated. Then Sept. 11, high oil prices, and the 2008 recession exacted a huge toll — seven major U.S. airlines filed for bankruptcy. The high fixed costs of running an airline made it difficult to adjust the number of available seats. And when demand fell during a travel slowdown, brutal fare wars slashed airline revenue.

In order to help the struggling industry, the Justice Department allowed domestic airlines to become an oligopoly that reduced capacity and raised prices.

The resulting consolidation in the airline industry has markedly improved the economic conditions for the surviving companies. Airlines are now flying close to capacity and are profitable. But passengers are suffering from higher prices and poorer service.

At the same time, major impediments have arisen to starting new airlines: Legacy airlines control key airport slots and the cost of acquiring a fleet of airliners is prohibitive.

As surprised as I was when Justice objected, a Monday morning quarterback might ask why the government approved previous airline mergers without establishing benchmarks to protect passengers, such as bringing on new capacity, expanding routes or reducing prices.

Blocking the American-US Airways merger might be too little and too late!

Originally published in the Sarasota Herald-Tribune