DOJ to Review World’s Largest Airline Merger, while on Hill Fare Increases Uncertain

American Airlines DOJ to Review Worlds Largest Airline Merger, while on Hill Fare Increases Uncertain

Will the US Airways-American Airlines merger, yielding a super American, cost consumers more?

WASHINGTON — Consumer welfare in the balance, US Airways and American Airlines representatives faced a House Judicary subcommittee, as the Justice Department weighs a merger that would see the two airlines become the world’s largest. While consumer advocates warned of increased airfares, US Airways VP Stephen Johnson and American Airlines General Counsel Gary Kennedy touted heavy union support for the merger, announced February 14.

Business Travel Coalition Chair Kevin Mitchell remarked before Subcommittee on Regulatory Reform, Commercial and Antitrust Law, “If you use the logic that you always have to get bigger to compete with the next biggest carrier, we’re going to end up with two megacarriers,” adding, “the logic is flawed.”

As US Airways and American Airlines currently compete in a Raleigh but not Charlotte, North Carolina hub, Representative George Holding (R-NC) asked American Airlines General Counsel Kennedy about Raleigh-to-Washington travelers’ future rates. If the two airlines were to no longer compete in Raleigh, he asked, “Do you anticipate that the fares would go up significantly?”

Mr. Kennedy replied, “Any discussion about fares or that sort of planning and strategy is something that’s down the road for us.” He said that airline fare discussions would take place “probably not until after the merger.”

In a letter to the attorney general and the Transportation secretary, Senators Amy Klobuchar (D-MN) and Mike Lee (R-UT) urged the cabinet members to evaluate the American-US Air merger for Hart-Scott-Rodino Antitrust Improvements Act compliance, in light of past airline mergers. “It will be important,” they wrote Tuesday, “to determine how these mergers affected consumer prices, baggage and other fees, frequent flier programs, and airline service.” In 2008 Delta and Northwest merged; in 2010, United and Continental; and in 2011, Southwest and AirTran. The senators’ Antitrust, Competition Policy and Consumer Rights Subcommittee is set to review the proposed merger March 19.

Before the Antitrust Subcommittee, Representative Tom Marino (R-PA) shared pre-congressional professional experience in which, he said, he was told mergers would reduce cost. He then asked the airline representatives, “What’s going to happen in the first six months, in the first year, in the first three years [after the merger] about pricing?”

Mr. Kennedy said that the airlines “don’t know what will happen.”

“The airline industry is, as I’ve mentioned, a highly competitive business,” said Mr. Kennedy, “and with very thin margins. And that’s going to exist after the merger as it is today and that has an effect on pricing and what those levels are. And so I don’t know what will happen with pricing. We’ll simply be competing on price and schedule and future as we do today.”

Complicating weighing airlines’ respective costs per mile is discounts provided for frequent fliers and differing baggage costs.

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