Lawmakers wary of increases in airfares
Washington • Noting that a merger between American Airlines and US Airways would mean the top four U.S. airlines would control 80 percent of the U.S. market, lawmakers pressed industry executives Tuesday to concede that the deal would mean higher fares and reduced service for the flying public.
Although US Airways CEO Douglas Parker and American counterpart Thomas Horton insisted that wouldn't be the case, consumer advocates told the Senate antitrust subcommittee that the merger would cost consumers and harm midsized and smaller cities.
Several senators weighed in, wondering aloud whether those smaller cities would be unlikely to get convenient, inexpensive service.
Utah's Sen. Mike Lee, the top-ranking Republican on the committee, said that many of "my constituents complain about high fares flying in and out of Salt Lake City."
Diana Moss of the American Antitrust Institute said the two carriers want to compete with giant global airlines. "I understand that that's where the business is going and that's where the dollars are," she said. "But we have to find a way not to sacrifice U.S. consumers on the altar of global competition."
Advocates pointed out that the airline industry has seen five years of rapid consolidation. Delta Air Lines acquired Northwest Airlines in 2008, United merged with Continental in 2010 and Southwest Airlines bought discount rival AirTran in 2011.
With fewer big carriers competing, ticket prices have risen, they said. The average fare rose 8 percent, to $375, in the third quarter of 2012, compared with $346 in 2008, according to the U.S. Bureau of Transportation Statistics.
Horton countered that the deal valued at $11 billion would allow the new company, which would keep the name American Airlines, to create a competitive counterbalance to other big carriers.
"I think the industry has done a pretty good job of keeping a cap on fares," Horton added, without providing specifics.
The deal is subject to approval by the Justice Department, the judge overseeing AMR's bankruptcy case, and shareholders of both companies. However, because regulators allowed the earlier mergers, most analysts expect the American-US Airways combination also will eventually be approved. Reflecting that sense of inevitability, the senators also focused their questions on how the deal would affect constituents back home.
Sen. Charles Schumer, D-N.Y., extracted promises that airline jobs in New York would be safe. Sen. Richard Blumenthal, D-Conn., asked if the airlines would continue flying to Bradley International and Tweed New Haven airports in his state.
Parker, who will lead the combined airline after the merger, assured Blumenthal that flights would continue to Connecticut, but he acknowledged that other airline executives have not always honored similar promises in the past.
Parker also left himself some wiggle room service could be cut back "because of market conditions" or an increase in jet fuel prices. But that would be true even without a merger, he added.
Together American and US Airways would control a majority of takeoff and landing slots at Washington's Reagan National Airport, the hometown airport for members of Congress. Parker said, however, that the airlines should not be forced to give up any of those slots. If they are, he said, they'll have to drop service from Washington to some other cities.
American, the nation's third-biggest airline, and US Airways, the fifth-biggest, announced their proposed merger last month. The combined company would keep the American Airlines name and Fort Worth, Texas, headquarters.
The U.S. trustee overseeing American's bankruptcy asked the carrier last week to justify its offer of $19.9 million in severance pay to Horton, part of compensation linked to the merger.
Horton became American chairman and CEO when it filed for Chapter 11 bankruptcy in November 2011 and is due to serve as chairman of the new American Airlines Group Inc until early 2014.
Ticket to ride costs more
The average fare rose 8 percent, to $375, in the third quarter of 2012, compared with $346 in 2008, according to the U.S. Bureau of Transportation Statistics.