“BBA Aviation Buys U.S. Rival Landmark for $2 Billion” (WSJ) explains that if you want jet fuel at the busiest airports you’ll now have one source, Signature, instead of two (Signature and Landmark). Why wouldn’t the antitrust regulators whose salaries and benefits are funded by our tax dollars object to this reduction in competition? “Mr. Pryce said the market remains highly fragmented and that he didn’t expect regulatory hurdles.”
Is the market truly fragmented? Well… if you’re going from Boston to New York City and you want to stop for fuel in rural Pennsylvania you can get a great deal on jet fuel from an independently owned and/or municipal supplier. If you want to land and fuel at, for example, Westchester, however, you’ll see that there are currently just three choices: Landmark, Million Air, and Signature. Due to current vibrant competition, the listed price on Airnav is about $7.40 per gallon at Landmark and Signature. Compare to nearby Danbury, where the runway is a little too short for Landmark and Signature to be interested: $3.50/gallon. In other words, they’re already able to command insane profits at Westchester.
This merger makes as much sense to me as letting Comcast and Time-Warner join forces… (previous posting) Why is it that so few Americans are interested in the “competition” requirement that makes the rest of Econ 101 potentially relevant? Typical Americans don’t own Gulfstreams, of course, but Americans who own shares in public companies or who buy insurance from mutually owned insurance companies do pay for jet fuel to go into Gulfstreams.
[Separately, Signature is owned by a foreign company. So this means that the profits that Signature obtains by limiting competition will be sent over to England.]
Why do those larger airports have so few suppliers?
I’ll file this under #1percentproblems. Overpaying for your jet fuel is almost as burdensome as running out of Grey Poupon while in your dining Rolls, then other Rolls owners won’t share theirs. Ugh, I hate when that happens.
Hasn’t manipulating markets always been one of the easiest ways for big business to prosper?
Here in SoCal, Albertsons supermarkets purchased Safeway securing an almost total monopoly. To approve the sale, FTC required selling off 146 stores. Haggens purchased the markets and has failed in prompt and spectacular fashion, closing all stores less than a year on. They’re alleging, in a $1 Bln lawsuit, that Albertsons sabotaged the deal from the outset. Interestingly, the deal required that Albertsons provide assistance to help Haggens compete. From my point of view, the Haggens in my area was an improvement over the former Albertsons. The stores appearance, product selection and quality all improved and I don’t think the store was closed for a single day during the switch over. I’m not a price conscious shopper however, and this seems to be the area where things went terribly wrong.
http://www.ocregister.com/articles/haggen-680412-albertsons-stores.html
From a business perspective, it was pure genius on the part of Albertsons. The merger created many redundant stores, which they cashed out, and then promptly eliminated from the market(allegedly). So, in one deal they managed to create an almost monopoly, then got paid to contract and optimize the number of stores in each market, all under orders from the FTC.
Even if Haggens is able to prevail in the lawsuit years down the road, the market will never be the same. All those jobs and real estate lost or sitting idle. One must wonder, given this outcome, if we would have been better off for the FTC to approved the merger with no conditions? It seems the folks at Albertsons commandingly outsmarted both Haggens and the FTC.
Not enough Americans can afford to fly jets to even know what jet fuel is. Suppose it would be an equal scandal if Lamborghini & Ferrari merged.
I tweaked the original posting. The excess profits that result from this deal will be going over to London. Middle class Americans will be paying for jet fuel at high prices any time that they are shareholders in a public company that operates (or charters) jets and also any time that they buy insurance from a mutual insurance company (Liberty Mutual has a magnificent hangar stuffed with Gulfstreams at our airport). In some instances Signature or Landmark is the monopoly supplier of fuel at an airport with commercial airline service and therefore middle class Americans will pay higher prices as a result of this deal any time that they purchase an airline ticket.
Of course there are some rich people that fly “business jets” for private purposes (see https://philip.greenspun.com/blog/2015/02/26/the-jet-charter-needs-of-preschool-children/ ) but most “business jet” flights are operated by businesses that are widely owned.
I suspect that some or all of the pricing at a place like Westchester is really driven by airport operator. They allow Landmark/Signature to share a duopoly at the airport, charge high prices and split the extra revenue with them in the form of high rents/fees. Throw in the fact that many airport authorities are hotbeds of political patronage/crony capitalism. I would bet $ that Landmark/Signature don’t get to keep all or even most of the extra $4/gal they are getting, between what they pay in rents and what they have to pay in bribes/ “campaign contributions” to keep their contracts. It’s the same with food service,etc. at airports – the fish stinks from the head.
Nobody is paying the posted Jet A prices: contract fuel. If they prices get that out of hand, Liberty Mutual will just put up their own fuel farm.
This leads me to another question – why does Liberty Mutual need such a large fleet? What in the nature of their business makes commercial flying impractical?