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February 26, 2013

Congress members express concern about proposed merger of American and US Airways

Members of Congress expressed misgivings Tuesday about a proposed merger between American Airlines and US Airways, pressing company officials about whether the $11 billion deal would preserve competition and jobs and keep fares from rising.

The combined company, which would become the world’s largest airline, would have a concentration of hubs serving the eastern and southern portions of the country, including airports at Dallas-Fort Worth; Miami; Charlotte, N.C.; Phoenix; and Philadelphia, as well as John F. Kennedy International in New York.

In a hearing before a House of Representatives Judiciary subcommittee, Gary Kennedy, senior vice president and general counsel at American, said there were no plans to close any hubs.

“We have a high degree of confidence the hubs we have will remain in place,” he told the Subcommittee on Regulatory Reform, Commercial and Antitrust Law.

In particular, Kennedy said that Miami International, an American Airlines hub, would continue to serve as a gateway to Latin America and that Charlotte and Dallas still made sense for north-south and east-west air traffic, respectively.

“We find them to be highly complementary of each other,” he said.

Lawmakers from states where hubs are located weren’t so sure.

“The geography doesn’t seem to make sense,” said Rep. Blake Farenthold, R-Texas. “That’s a whole lot of hubs in a close proximity.”

Rep. Joe Garcia, D-Fla., wanted assurance that the new company wouldn’t scale back its operations in Miami. He noted the billions of dollars in bond debt assumed by Miami-Dade County, the airport’s owner, to build new terminals to serve American Airlines.

“In my community, we are leveraged to the hilt because of this airport,” he said.
Stephen Johnson, the executive vice president for corporate and government affairs at US Airways, told him, “You should be optimistic about Miami’s future in this.”

Other lawmakers were concerned about the effects on pricing. Rep. George Holding, R-N.C., worried that fares might go up as the two carriers ceased competing in nearby markets.

“It costs a lot more to fly from Charlotte to Washington than it does from Raleigh to Washington,” he said. “And that’s concerning.”

American and US Airways are under pressure to keep up with their larger rivals United and Delta, themselves the products of recent mergers. Dozens of air carriers have combined since the industry was deregulated in 1978, and while the airline marriages have resulted in efficiencies for the industry, critics say they’ve hurt competition.

“We have seen many mergers in the 35 years since deregulation,” Christopher Sagers, a professor and antitrust expert at the Cleveland-Marshall College of Law, told the panel. “Quite often, they have been disappointing.”

Johnson said that after a long period of lurching from crisis to crisis, the airline industry had become more stable as it had consolidated. But Kennedy said the industry was still vulnerable to global shocks that included fuel price spikes, terrorist attacks and recessions.

“That’s not going to go away,” he said.

Not only does the merger require the approval of the federal departments of Transportation and Justice, it also needs the blessing of a federal bankruptcy court, under which American Airlines has operated for the past year.

All the remaining legacy carriers have been in bankruptcy at one time or another in the past three decades, and mergers with other airlines often followed. While some cities gained, others lost. Pittsburgh, Cincinnati, St. Louis and Memphis, Tenn., all had hub operations, and all were downgraded after mergers.

Stephen Appold, a visiting scholar and aviation expert at the University of North Carolina-Chapel Hill, said Charlotte has advantages those other cities did not: Its population is growing, its banking sector relies heavily on air service, and it’s far less congested than Atlanta or hubs in the Northeast.

“I think Charlotte’s relatively well-positioned,” he said.

-Curtis Tate (McClatchy Newspapers)

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Comments

AMR Employee

Oh-Oh, Someone forgot to payoff the Congressmen!!! Now they are going want even bigger bribes to give their okay for the merger!!! Everyone has their hand out for the grease!!!

Kate

Hmmm....what about PHX and PHL? A revealing omission, perhaps?

whitey

judge sean lane. HEY DON,T FORGET MY CUT!

AA angry

If you think this is bad, read the article at Star Telegram.The "Golden Parachutes" arrive again for Executives and the ghosts of prior RIF employees return to carry off more casualities. And then the public wonders why American employees aren't pleasant people? Try explaining why you can't pay your bills to the collectors when they daily read articles like this about the "bankrupt" Company paying out all these millions. This is just Wrong!!

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