by Keith Laing, The Hill Newspaper
Advocates for airline passengers cheered on Tuesday as the Department of Justice (DOJ) moved to block a proposed merger between US Airways and United Airlines.
The Justice Department said it was filing a lawsuit against the companies for violating federal antitrust laws because too many of their routes overlap, which DOJ officials said would lead to higher airline ticket prices.
American and US Airways have argued that only 12 of their nonstop routes overlap, but Consumer Travel Alliance Director Charlie Leocha said it was more important to look at the companies’ connecting routes.
“They are hub-and-spoke airlines,” Leocha said in an interview with The Hill. “They are network airlines that operate all their flights through spokes. That’s why they have hubs.”
Leocha said that a study by his organization showed that US Air and American had 761 destinations that overlapped with one stop. A recent Government Accountability Office (GAO) report showed the companies had 1,665 similar destination pairs with one or two flights.
Leocha said it was misleading for airline officials to focus only on nonstop fights.
“If you’re flying from Seattle to Austin, you have to Seattle to Phoenix to Austin or Seattle to Dallas to Austin. That’s the only way to go if you’re flying on US Air or American,” he said. “As a consumer, you don’t care where you go [for your layover]. You go wherever is cheapest. This is an area where they have competed vigorously.”
In vowing to fight the DOJ’s attempt to block their proposed merger on Tuesday, US Airways and American Airlines offered a starkly different picture of their potential combination.
“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together,” the airlines said in a statement.
“Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices,” the airlines said. “Further, this merger provides the best outcome for AMR’s restructuring. The widespread support from the employees and financial stakeholders of both airlines underscores the fact that this is the best path forward for both airlines and the customers and communities we serve.”
Attorney General Eric Holder sided with the argument Leocha was making, saying on Tuesday that allowing the US Air-American merger to go forward “would result in consumers paying the price — in higher airfares, higher fees and fewer choices.
“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” Holder said in a statement. “Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.”
Eno Center for Transportation President Joshua Schank told The Hill on Tuesday the idea that airline mergers have led to increased prices was in dispute.
He said complaints about price increases may be due to higher fees for checked luggage and flight changes.
“All the data I’ve seen shows that fares are historically low,” Schank said. “Fees have increased in the last decade, but when adding those fees into the ticket prices, fares are still historically low.”
Schank said he was surprised to see the DOJ decide to intervene in the potential US Airways-American Airlines merger after the department OK’d combinations for several other airlines in recent years.
“It was surprising to see them decide to draw the line here,” he said. “With each successive merger, consolidation becomes more a problem. That shows the flaw in trying to regulate [the airline industry] through the DOJ. It should be done through the [Department of Transportation] because the DOJ can only respond to potential mergers.”
Schank said he was not sure if having fewer airlines in the U.S. would be a bad deal for airline passengers.
“Everyone says this is the last [major airline merger], but I’m not sure about that,” Schank said.
“Heading toward a Coke-Pepsi situation is not necessarily unheard of it, and I don’t know whether that would be bad for consumers,” Schank continued. “What matters more is how its carried out and what rules are put in place rather than whether one merger is approved or not.”
CTA’s Leocha strongly disagreed. He said the merger is facing resistance because the companies do not need it to compete.
“They’re being penalized for being profitable and having good airlines,” he said. “In previous mergers, airlines were losing money and people in Congress were worried about the airline industry folding.
“We were in the middle of the recession and joblessness was high,” Leocha continued. “This time, no one’s going to lose their jobs, airlines are making profits and American is coming out of bankruptcy with the biggest airplane order in history.”
American and US Airways have said that they have to combine to compete with the larger airlines that were created by the mergers of Delta and Northwest airlines, United and Continental airlines and Southwest Airlines and AirTran Airways. American and US Airways are currently the fourth and fifth largest domestic airlines, respectively.
But Leocha said the evidence that the deal would negatively impact airline passengers was too strong for the government to ignore.
“The evidence became overwhelming that customers were going to lose competition,” he said. “Everybody kept talking about eliminating [flights] at [Washington Reagan National Airport] … but that doesn’t help if you’re in the hinterlands.”