The Department of Justice (DOJ) is in its final deliberations about the antitrust implications of the merger between US Airways and American Airlines to form The New American Airlines. The US Airways’ stockholders have approved the merger, it appears that American Airlines’ stockholders and bondholders will as well, and the Department of Justice is the big question mark. DOJ is the single entity that can scuttle this misguided (from a consumer’s point of view) merger.
Objections raised months ago by the Consumer Travel Alliance and advocates, still resonate with truth. For consumers this is a raw deal — they get no tangible benefits and lose enormous amounts of competition. For no consumer benefits, the government is trading away competition and harming the public.
Antitrust deliberations should be based on the public good and consumer protections. By that measure, this merger should not be seriously considered. Consumers get nothing but less competition and the merging airlines become more powerful. It is a bad deal for consumers and our economy.
1. No reason to merge — neither airline is in danger of failing
Virtually every merger in the past has been entered into with one of the airlines on the ropes. Congress and administration officials approached these mergers with the intention of maintaining service for the public rather than throwing the system into chaos. In this case, there is no such rationale. Both airlines are strong, profitable competitors. US Airways reported the highest annual and quarterly profits in its history. American Airlines also reported one of the best corporate quarterly profits only weeks ago. These airlines are making hundreds of millions of dollars every quarter. There is no need to merge other than to give their executives bigger toys to play with in the financial Wall Street game.
2. No consumer benefits — no new destinations when United flights, already available to US Air flyers, are taken away and AA routes added; and no cost savings.
In the beginning, the airlines claimed new routes and more than a billion dollars of savings based on merging operations. However, after months of hearings we now know that the net increase in destinations for the merger’s consumers is less than zero — in fact, US Airways consumers will lose destinations when they are removed from the Star Alliance and joined with the oneworld alliance that has far fewer airlines and destinations. Plus, the monetary savings forecast by the airlines have already been debunked by Wall Street analysts who question whether the billion claimed can be attained. At the same time, these analysts know that the merged airline will have significant pricing power — what cannot be gained by savings will be extracted by raising prices and fees. Thus, their stock prices are on the rise.
3. No labor peace — Yes, the AA unions are not against the merger, but there is unrest with pilots, flight attendants and machinists. Customer service suffers.
This story, unfortunately, will unfold after the merger. Some of the disagreements are already festering beneath the facade of union joy at the demise of the AA management team. TWA flight attendants are threatening a lawsuit and Congress is dismayed at their treatment. American Eagle pilots have rejected the merger-induced labor negotiations as inadequate. Machinists are in a pitched battle between unions about which union will represent the group in the new corporation. Worse, with this merger, unions will gain more power in their negotiations as the industry consolidates.
4. Lost of competition — CTA study shows 761 overlapping one-stop routes where competition will be lost. GAO’s study is even more damning — 1,665 overlapping routes affected with competition loss.
The only solid fact about this merger is that destination-to-destination competition will be lost. That is obvious when dramatic studies conducted by the GAO and Consumer Travel Alliance (CTA) were released. The loss of competition, according to GAO, will be around 30 percent more than lost competition from any other merger in history. The CTA study showed 40 percent of AA flights and 30 percent of USAir flights facing overlap when it comes to competition. On this issue alone, the merger should be rejected.
5. Medium-sized non-hub airports are in danger of lost service
Because of the dramatic overlap in service between AA and USAir on these 1,665 routes, non-hub airports will lose frequency of service. If AA has three flights a day between Seattle and Austin connecting via Dallas, and US Airways has three flights a day between the same two points connecting in Phoenix, a merged company will more than likely reduce their combined presence by one or two flights a day. That is what mergers do — they try to find “efficiencies” that will reduce costs. Plus, support personnel at each airport where these airlines have significant overlapping connecting routes will be faced with consolidation, which means job losses for one of the companies providing outsourced services. This will not be good for consumers with less service options, nor for suppliers with one fewer airline in the market.
6. Consumers lose the leading low-cost carrier among the legacy carriers when USAir is folded into AA.
Until the US Airways effort to merge with AA, they have consistently been the low-cost leader among the legacy carriers in the airline industry. Their airfares were always among the lowest, especially on international flights where they faced stiff competition because they were not allowed entry into the club of airlines enjoying antitrust immunity with the benefits of colluding on flight schedules and pricing with their partners. This merger will make US Airways (The New American Airlines) a full member of the oneworld alliance complete with antitrust immunity. It will be goodbye to lower prices for consumers and hello to more profits for the combined airlines at the public’s expense.
US Airways and American Airlines have been fairly transparent in their rationale for merging — competitive benefits for their merged airline based on size and better control over costs and pricing. Consumers, on the other hand, can see no benefits from this corporate marriage — they get less competition, higher prices and fewer choices.