Recent History, Geography on Side of US Air-AA Merger

 - February 18, 2013, 4:00 PM
The “new” American Airlines would rank as the largest carrier in the world. (Image: American Airlines)

The proposed merger of American Airlines and US Airways will no doubt undergo close scrutiny by antitrust regulators and face particularly vigorous opposition from consumer advocacy groups. Even supporters concede that the effort toward creating the largest airline in the world will face obstacles. Ultimately, though, the benefits to the air transport industry will prove to outweigh the potential for an anticompetitive outcome, say analysts and antitrust experts who point to the recent history of so-called mega-merger approvals and the lack of overlapping routes between the two networks.

“It’s a question of how you count,” said Washington, D.C. attorney and former policy director of the U.S. Federal Trade Commission David Balto. “Right now what you’ve got are three major firms and sort of two also-rans with US Air and American. What this merger does is allow two less effective competitors to become a firm that can be a much more competitive influence on the market…The merger offers a lot of promise to provide the opportunity for US Air and American to achieve substantial efficiencies, which will translate into lower prices and better service for consumers.”

Balto’s assessment stands in stark contrast to the position of the Business Travel Coalition, a Washington, D.C.-based advocate for the “managed travel community.”

The BTC argues that as consolidation has cut in half the number of major network carriers populating the U.S. market, regulators should concern themselves more with the potential for coordinated efforts to enact across-the-board fare or ancillary fee increases than route overlap and reduced competition in individual markets. It also warns of increased leverage of just three mega-network carriers to drive supplier prices below “competitive” levels for travel agencies and management companies, airports, distribution systems, parts suppliers, caterers “and all manner of supply chain participants.”

“From a consumer standpoint–individual traveler or corporate travel department–there are few benefits to offset the negative impacts of this proposed merger, which include reduced competition, higher fares and fees and diminished service to small and midsize communities,” said BTC chairman Kevin Mitchell. “To be clear, there is benefit in a financially viable air transportation system. However, previous mergers have already enabled seat capacity cuts, higher fares and billions of dollars in fees for ancillary services resulting in a financially strengthening industry. As such, consumer harms from this merger are indeed exacerbated, as there are no substantial countervailing consumer benefits.”

American and US Airways hope to complete the $11 billion merger in the third quarter, following clearance from anti-trust regulators, the U.S. Bankruptcy Court for the Southern District of New York and US Airways shareholders.