American-US Airways merger raises concerns, but no major opposition

 

McClatchy Newspapers

Senators questioned the top executives of American Airlines and US Airways on Tuesday about their proposed merger, but aside from concerns about the potential impact on jobs, competition and airfares, no significant obstacle has yet risen to the $11 billion deal.

One of the primary justifications for the merger is to create a company that can more effectively compete in the global aviation market with large rivals Delta and United, themselves products of recent mergers. Federal regulators gave those deals their blessing in 2009 and 2011, respectively, and antitrust and aviation experts say there’s little reason to think this time would be different.

If the merger is approved, just four carriers – United, Delta, American and Southwest – would control 80 percent of the domestic market. That worries some lawmakers and consumer advocates, who fear reduced competition and jobs and higher fares.

“I’ve long been concerned about consolidation in the airline industry,” said Sen. Amy Klobuchar, D-Minn., who chaired the hearing into the proposed merger. “We need to be vigilant in examining any potential challenges this merger might create.”

The proposed corporate union requires the blessing of the Justice and Transportation departments, as well as the federal bankruptcy court that American has been operating under for the past year. Aviation industry expert Daniel Kasper, a senior consultant with Compass Lexecon in Boston, sees few reasons the airlines won’t get approval.

“There’s a decent chance they could get that wrapped up by the end of the year,” he said.

In testimony before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, Doug Parker, chairman and CEO of US Airways, and Thomas Horton, president and CEO of American Airlines, said that instead of diminishing competition, the new company would serve as a “counterweight” to Delta and United.

“By putting our airlines together, we create a third competitor,” Parker said.

Some consumer advocates said that competition is precisely what would suffer.

“Once again we’re being told that this merger is needed to save the airline industry,” testified William McGee, a travel and aviation consultant for the New York-based Consumers Union. “Frankly, we’re not so sure.”

Diana Moss, director and vice president of the American Antitrust Institute, said that low-cost air carriers such as Southwest, Jet Blue and Spirit would have difficulty competing with the bigger consolidated airlines.

“Low-cost carriers can no longer be relied upon to save the day,” she said.

Lawmakers seemed most concerned about how the proposed merger would affect airports and air service in their home states.

“Delta is a major employer in our state, and we’re proud of that,” Klobuchar said. “But not every state has been so lucky.”

Sen. Jeff Flake, R-Ariz., lamented the departure of US Airways corporate headquarters from Tempe, Ariz. The merged company would be based in Fort Worth, Texas, where American has its headquarters now.

“All of us have experienced in elementary school when your best friends move away,” Flake said.

“We are committed to Arizona,” Parker replied. “I assure you I will still be coming to visit.”

Flake was also concerned about the impact on operations in Phoenix, where US Airways has a major hub. The combined company also would have hubs in Los Angeles, Dallas/Fort Worth, Miami, Charlotte, N.C., Philadelphia and New York. Aviation experts widely believe at least one hub will become less important, but others could gain.

“I look forward to welcoming Mr. Parker and your colleagues to becoming new Texans,” said Sen. Ted Cruz, R-Texas.

Email: ctate@mcclatchydc.com; Twitter: @tatecurtis

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