U.S. Regulators Look To Make US Airways Executives Eat Their Words

 - August 19, 2013, 12:55 PM
A merged US Airways and American Airlines would create the world’s largest air carrier.

The U.S. Justice Department pointed to what most in the airline industry would consider fairly innocuous comments by US Airways executives as evidence of how consolidation has harmed the flying public by resulting in higher airfares and reduced service.

It specifically cited US Airways president Scott Kirby’s remarks that consolidation has allowed for “three successful fare increases.”

“Consolidation has also…allowed the industry to do things like ancillary revenues,” said Kirby at an industry conference in 2012. He described it as a permanent structural change to the industry that has brought benefits to carriers that are “impossible to overstate.”

The Justice Department also referred to a pronouncement by US Airways CEO Doug Parker that a US Airways-American Airlines merger would create “the last major piece needed to fully rationalize the industry.” Finally, it cited a US Airways document stating that capacity reductions have “enabled” fare increases.

As a whole, the U.S. airline industry has managed to turn modest profits since 2010, a trend that executives attribute to their “discipline” in managing capacity, in part as a result of consolidation. The Justice Department apparently feels a third major merger of U.S.“legacy” airlines would cross a bridge too far, however, leaving four airlines in control of 80 percent of the country’s air transport market.

In a lawsuit filed jointly with six state attorneys general and the District of Columbia seeking to block the merger, the department asserts that eliminating direct competition between American and US Airways would give the combined airline “the incentive and ability” to raise air fares. It said American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual route-wide revenues, it added.

For their part, the airlines insist that blocking the merger would hinder customer access to a broader network and deny airline employees and financial stakeholders “the best outcome” for AMR’s emergence from bankruptcy.

“We will mount a vigorous defense and pursue all legal options to achieve this merger and deliver the benefits of the new American to our customers and communities as soon as possible,” said the airlines in a joint statement.

 

Comments

dave candler's picture

The Justice Department will be doing its job for the citizens if they do in fact block this merger/consolidation. Airline competition is extremely important in making
airlines operate efficiently and keeping fares in line for consumers. It doesn't take a brain surgeon to figure this out and airline executives know better than anyone the impact of competition on fares and service. American can emerge as a competitive stand alone carrier, with a new competitive cost structure (labor costs in particular caused their demise, as it did for all the other carriers). Even the pre-bankruptcy American had horrible service, due to their large size and dominance in many markets. They need to work at becoming the major player rather than achieve this through combination with another airline. The consumer will be the beneficiary.

TJ Kong's picture

Do not negotiate, this is a bad deal for the flying public as the other mergers have shown. The survival of a airline rests with the statements in above post. If they used the SWA playbook they would be competitive.

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