Consumer Group Urges Caution Going Forward With The Deal

The Senate Judiciary Antitrust Subcommittee held a hearing Tuesday concerning the proposed merger of American Airlines and US Airways, and its impact on airline prices and services for consumers.

Subcommittee chair Senator Amy Klobuchar (D-MN) (pictured) said that the hearing was designed to underscore the importance of protecting consumers and maintaining competition in the airline industry. In her first hearing as chair of the Judiciary Antitrust Subcommittee, Klobuchar questioned airline industry executives and antitrust experts about the proposed merger’s impact on airline prices and services for consumers. Klobuchar also pressed airline executives to commit to continue serving small- and mid-sized metropolitan areas and to address growing fees that burden passengers. Witnesses at the hearing included Douglas Parker, Chairman and CEO of US Airways Group; Thomas Horton, Chairman, President and CEO of American Airlines and AMR Corporation; Diana Moss, Director and Vice President of the American Antitrust Institute; and William McGee, a consultant for the Consumers Union. Klobuchar held the hearing with Senator Mike Lee (R-UT), the ranking member on the Subcommittee.

“Whether it’s a family looking for affordable flights or a small business-owner looking for the best frequent flier program, we need to make sure consumers have as many choices as possible at the lowest prices, and that no airline or small group of airlines has a stranglehold on the market,” Klobuchar said.“This hearing was a good opportunity to take a close look at this merger’s potential impact on jobs, fees, service and safety and I will continue to work to make sure we’re doing everything we can to protect consumers and boost competition in the airline industry.”

At the hearing, Klobuchar called on the Government Accountability Office (GAO) to conduct a thorough study of the airline industry to examine the impact airline consolidation has had on consumers and competition.

Earlier this month, Klobuchar questioned Attorney General Eric Holder about past airline mergers’ impact on consumer prices, airline competition, and service at a Senate Judiciary Committee hearing on congressional oversight of the Department of Justice (DOJ). She also urged DOJ and the Department of Transportation (DOT) to use all available data to examine past airline mergers and assess whether the merged airlines have realized the efficiencies they promised to both agencies.

In a statement prepared jointly by American and US Airways, CEOs Tom Horton (American) and Doug Parker (US Airways) (pictured) said that the merger is supported by the two companies' customers, unions, employees, and shareholders. While they said that the merger was not AMR Corp's first choice, the move was needed to maintain a competitive environment following the merger of United and Continental. "Built around three other large network airlines and six fast growing low cost regional airlines, the U.S. domestic airline industry is and will remain extremely competitive," the statement reads. "Internationally, the marketplace is equally competitive with two global alliances, both larger than ours, and a host of other airlines competing globally, some with the support of governments. The combination of American and US Airways, and the enhancement of the oneworld alliance will allow us to compete more successfully in both domestic and international markets."

The airline executives said that the merger "will lead to more than 6,700 flights daily to more than 330 destinations in over 50 countries, but result in overlaps on only 12 of the over 900 non-stop airport to airport routes the New American will serve. Most of the overlap routes connect our existing hubs, where there is significant competition. With the expiration in the fall of 2014 of the Wright Amendment, which limits flights out of Dallas’s Love Field, non-stop competition will be present or added on nearly all airport pair overlaps." They said that "competition in the airline industry will not be limited to Delta, United and New American. The low cost carriers will continue to offer strong competition to the New American Airlines and the other legacy carriers. In addition to Southwest/AirTran, Alaska, Jet Blue, Spirit, Allegiant,  Frontier, and Virgin America will continue to grow and provide competitive offerings that are attractive to consumers."

Consumers Union, the advocacy arm of Consumer Reports, said in a news release prior to the hearing that it is concerned that the proposed merger – which would be the fifth among major network airlines since 2001 -- could mean fewer flights and fewer choices for consumers, plus higher fares and lower quality of service.  The nonprofit organization has concerns that more consolidation could make it even harder for low-cost airlines to compete effectively, and push the biggest airlines further into 'too-big-to-fail' territory.

"There is no substitute for competition to keep an airline from raising fares and reducing service," said William J. McGee, travel and aviation consultant for Consumers Union. "A merger of this magnitude can dramatically change the structure of the market and fundamentally alter profit-making incentives, in ways that take those incentives further away from keeping fares low and improving service.  The Justice Department needs to take a hard look at this deal."

FMI: www.judiciary.senate.gov, www.aa.com/newamerican, www.consumersunion.org