AA/US merger is no slam dunk any more

by Charlie Leocha on June 13, 2013

aa-us

Ever since the Consumer Travel Alliance released its AA/US Overlapping Connecting Route study, the AA/US merger has been under quiet attack by government watchdogs. And, last week, even some Wall Street analysts noted that merger savings projected by the airlines were uncertain.

There is only one reality at this time about the AA/US merger — consumers will have less competition in 38 out of 50 states. Basically, consumers are getting the brown end of the stick while airline executives are waltzing away with tens-of-millions of dollars.

Let’s remember: Antitrust laws are designed to protect consumers from lack of competition; and bankruptcy laws are created to sort out problems faced by creditors. The antitrust laws have little to do with bankruptcy, they should be focused on consumers and the good of the public.

Here is the lay of the land when it comes to this merger.

There is no financial need for the merger.
US Airways has just come off of a year of record-breaking profits. American Airlines is emerging from bankruptcy with billions of dollars in the bank, the largest plane contract in the history of aviation, some of the lowest interest rates in the history of business banking and labor contracts that will guarantee that the airline can make a profit.

There are no consumer benefits.
Even the airline CEOs are not touting great consumer benefits. No one is claiming that potential “synergies” are going to result in lower airfares and fewer fees. When the current US Airways/United Airlines alliance routes are taken into account, consumers will end up with fewer destinations that keeping the airline world as it is.

Labor benefits are doubtful.
Though, the merger cheerleaders are chanting that labor is behind this merger, that support is only skin deep. Giant fissures are forming between unions and there will be a grand battle between unions as the blend seniority lists and work rules.

As this merger is being studied, the past merger of American West and US Airways that created the current airline that is taking over AA, still has not completed its union integration. That is after more almost eight years.

The Teamsters and TWU are fighting over who will represent machinists. Pilot unions are uncertain about the merger and are still not united behind the current US Airways. AA flight attendants will be facing dissident TWA flight attendants and a far bigger flight attendant union that may make moves on AA’s independent union.

Competition will suffer.
According to the CTA study, almost 40 percent of AA routes and 30 percent of USAir one-stop routes are overlapping. The competition that will be wrung out of the system is enormous and will be felt across the country.

An example of airline pricing power when there is not enough competition? Try the recent change fee increase that raised change fees to $200 from $150. I was certain that AA and US would refrain from jumping on the bandwagon, but they were among the first of the airlines to go along with the increased fees. They didn’t seem concerned with optics as they stuck this new fee to passengers.

Non-hub airports will suffer.
A further examination of the CTA Overlapping Connecting Route study is the discovery that non-hub cities will lose the most competition.

Towns like Austin, Texas, Fresno, Calif., Seattle, Wash., St. Louis, Missouri, Pittsburgh, Penn., Raleigh Durham, NC, Kansas City, San Diego, Calif., and others will face the greatest lost of competition from this merger. Plus, they are most likely to lose service as the new merged airline right-sizes their route structure to eliminate redundancies.

From my point of view, this is a merger that serves no purpose for the public. It does not add to the overall aviation travel universe. It eliminates the low-price legacy airline leader from the competitive fray. Consumers will lose competition, any way that one measures it. And, local economies that rely on current levels of airline service may see them reduced.

I will be testifying before the Aviation Subcommittee of the Senate Commerce Committee on June 19th at 2:30 pm about this merger. Witnesses will include Doug Parker, CEO or USAirways, Gerald Dellingham, Director Civil Aviation Issues GAO, Susan Kurland, Assistant Secretary for Aviation and International Affairs DOT, and Charlie Leocha, Consumer Travel Alliance.

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  • Dan Steele

    You might want to rewrite the second paragraph under “Labor benefits are doubtful”.

  • TonyA_says

    Hopefully no more mergers of any large company will be allowed.
    They only result to more joblessness in America.

  • StephenD

    FOUR WORDS: Delta, Memphis, congressional hearings

  • neal1

    Let’s look at the point that was missed which will slam dunk the deal. The lobbyists who will take some of those funds out of the billions in the airlines bank account to pay off our legislators. This is what guarantees the mergers success with about 80% certainty. When does our legislators look out for us. Heck, they vote on party lines just to keep nothing moving or passed. They forget that they should vote based on what the people need or want.

  • topflyer

    Neal, you hit the nail straight on the head.

  • Charlie Leocha

    Thanks Dan, Done.

  • sirwired

    If previous airline mega-mergers went through, why not this one? Any denial’s going to have to be accompanied by an explanation as to how this merger is more injurious than previous mergers.

    I’m not sure one-stop overlap is a very useful measure of competitive reduction, unless it results in only a single comparable airline serving that route one-stop. Any nationwide airline is going to have substantial one-stop overlap with any other airline that serves some of the same cities. Are you saying nationwide airlines should never, ever, merge with other airlines? How many city-pairs will go from two one-stop carriers to one with this merger? (THAT would be a useful number, instead of just reporting overlap.) Are there any cities that are currently only served by AA and US?

    And yes, some routes will be reduced or eliminated, however those routes on the block for elimination are the ones most likely to be unprofitable now (if they are profitable, the “redundant” service will likely stay.) Given that even merged mega-airlines aren’t exactly consistent profit machines, I have a hard time getting angry about an ability to wring out some amount of additional profits.

    Also, given that the hubs of the combined airlines mesh well, (as in,
    there won’t be two hubs close together) I’d see that there would be less of a chance of wholesale carnage on the route map, vs., say, MEM/ATL.

    Anti-trust law is about protecting consumers, yes, but at the same time that does not mean that it outright prohibits mergers that allows additional profit to be earned (yes, which comes from consumer pockets.) Anti-trust law frowns on mergers that concentrate too much pricing power in a single player in a way that will produce profits that would otherwise be unsupportable in a competitive environment. Given that there are still three other nationwide airlines that serve pretty much the same net route network, I don’t think this will be a competitive catastrophe.

  • cce

    Wonder why US Airways felt the need to steal $2200.00 from me if they came off record profits last year

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