The merger of American Airlines and US Airways can fly.
Under an agreement between the airlines and the U.S. Department of Justice announced Tuesday, the new American will give up takeoff/landing slots and gates at key airports to low-cost carriers.
Most affected are Reagan National Airport in Washington, D.C., where the airlines will give up 52 pairs of takeoff and landing slots, and La Guardia Airport in New York, where they will divest 17 pairs.
But the airlines must also give up a small number of airport gates in markets including Miami, Boston, Chicago, Dallas and Los Angeles. The companies said they expect the merger to be completed in December.
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Tuesday’s settlement came as the airlines and the government stared down a Nov. 25 deadline, at which point the antitrust case would have gone to trial.
“This is the price of admission,” airline consultant George Hamlin told Reuters. “It was a necessary evil to get the deal done.”
“Both sides blinked” or there would not have been a deal, Hamlin said.
Justice Department officials filed an antitrust lawsuit seeking to block the merger in August, saying the combined airline would lead to higher fares, increased fees and reduced services.
Tuesday, those same representatives said the settlement addresses the concerns and would in fact be “good news for consumers.”
“We filed our lawsuit to block this merger out of concerns about the potential reduction in competition for air travel throughout the country,” Assistant Attorney General Bill Baer said in a conference call. “This settlement addresses those concerns and opens up the marketplace as never before.”
Tom Horton, chairman, president and CEO of American parent company AMR Corp., called the settlement a “common sense solution” that addresses regulatory issues but still allows the companies to form the world’s largest airline by passenger traffic. Calculated today, the value of the combined airlines would be $17 billion, said Doug Parker, chairman and CEO of US Airways. The merger is central to American’s effort to emerge from a two-year bankruptcy process, and the bankruptcy judge must still approve the settlement.
“It’s a win, win, win,” Horton said.
Airport and county leaders in Miami-Dade, where American Airlines has a major corporate presence, applauded the agreement.
“Miami International Airport is the No. 1 economic generator and engine in this county, and American Airlines is 70 percent of our business,” said Miami-Dade County Mayor Carlos Gimenez, who spoke out in favor of the merger shortly after the Justice Department filed its lawsuit. “We need American Airlines to succeed, and we think that the only way that American Airlines could succeed and continue to operate and be competitive was to have this merger with US Airways. I’m very happy about it.”
The airlines will have to give up two gates at MIA’s Concourse J, from which US Airways flies. As part of the merger, US Airways — which has 15 daily flights from the airport — will move over to the new North Terminal where American is based.
Miami-Dade Aviation Director Emilio González said at least one airline has contacted him about the gates already. While the Justice Department has said the gates should be turned over to low-cost carriers, González said the airport doesn’t have to change its own cost model to give an airline a discount.
A handful of low-cost international airlines, including Canada’s WestJet, Air Berlin and GOL from Brazil, already operate at Miami International Airport. But domestic discount carriers fly from Fort Lauderdale-Hollywood International Airport, which is less expensive.
According to the proposed merger settlement, the two gates at Miami would be open to an airline seeking “to enter or expand at Miami.” Carriers will be able to apply for the gates they want, and the Justice Department will give a list of approved carriers to the merged American.
Baer, the assistant attorney general, said “it would be an intriguing prospect if an international low-cost carrier wanted to work with us to acquire those gates.”
As part of a settlement with attorneys general of Florida, Arizona, Michigan, Pennsylvania, Tennessee, Virginia and Washington, D.C., the merged airline would continue to provide, with limited exceptions, daily scheduled service from one or more of its hubs to each airport that currently has service from American or US Airways in the states that sued. Texas also joined the original suit but dropped out on Oct. 1 after its attorney general struck a deal with the airlines.
The airlines also agreed to maintain hubs in Charlotte, New York’s Kennedy International Airport, Los Angeles, Miami, Chicago O’Hare, Philadelphia and Phoenix, consistent with historical operations for at least three years.
“The intent is to maintain all of our hubs forever,” Parker said. “The fact that we agreed to three years is simply because it was a negotiated agreement. By no means should someone look at that and say at the end of three years we want to change it.”
Florida Attorney General Pam Bondi said in a statement that the agreement will help retain and create jobs in Florida, help the economy, and give travelers flight options.
“I am thrilled that we have reached an agreement that will not only keep jobs in Florida, but also will lead to additional jobs in our great state,” Bondi said. “The agreement also ensures that air travelers have ample options before them.”
González, the aviation director, said he still expects American to grow its presence in Miami significantly. After filing for bankruptcy, the airline said its long-term plan included growing by 20 percent from key hubs, including Miami.
“We have big plans and big expectations from American,” he said. “We think this is going to be a catalyst for even larger expansion to the western hemisphere from MIA.”
Andrew Nocella, senior vice president for marketing and planning at US Airways, said the loss of two gates won’t hinder those growth plans.
“I’m really excited about the possibilities that are now unlocked as we get this merger across the finish line,” he said.
Nocella said one of his top priorities at MIA is having enough Customs and Border Protection agents to usher passengers through the airport without lengthy wait times.
“My biggest concern in Miami is not all the things that the new airline is going to want to do,” he said. “It’s the constraint of the immigration facilities in terms of having enough personnel to process the inbound passengers to the U.S. That’s one of the things that I want to work on as quickly as possible.”
This report was supplemented with material from Reuters.