White paper report raises concerns over AA / USAir merger

A merger of American Airlines (AA) and US Airways (US) could substantially reduce competition, leaving four majors controlling over 70% of the US domestic market, according to a white paper released Wednesday.

US has made clear its interest in pursuing a merger with AA, which is restructuring under Chapter 11 bankruptcy protection, and AA CEO Tom Horton in July said it made sense to evaluate the possibility, but no formal process has begun.

In a jointly produced paper, the American Antitrust Institute (AAI) and Business Travel Coalition (BTC) say the merger could lead to the creation of a four powerful, closed airline systems that would be virtually impermeable to competition and could create a hostile environment for low-cost carriers (LCC) and regional airlines.

If the merger went ahead, AA, Delta Air Lines, Southwest Airlines and United Continental, would control over 70% of the US market, according to BTC chairman and report co-author Kevin Mitchell.
The white paper also questions whether, in such an environment, Southwest would any longer exert significant competitive discipline.

While AAI and BTC do not make a recommendation as to the legality of the proposed merger, their white paper raises questions that the organizations say deserve investigation before any decision is made. These include the ability of LCCs to enter the US domestic market or to compete on hub-to-hub routes; competitive issues related to recent slot transfers at New York La Guardia and Washington National airports; and the adequacy of traditional antitrust remedies to address competitive issues raised by the merger.

The report says there are 22 routes where the merger would eliminate one of the merging carriers and result in a substantial loss of competition. These involve AA or US hubs or focus city airports, including Chicago O’Hare; Charlotte, NC; Dallas-Fort Worth; Los Angeles LAX; Miami, New York LaGuardia; Philadelphia, PA; Phoenix, AZ; and Washington National.

A US Airways spokesperson said the merger would benefit consumers. “American Airlines as a standalone company can’t be competitive with Delta, United and others. A combined US Airways-American Airlines brings together two complementary networks and will increase competition in the airline industry.

The number of passengers served will increase, all hubs will be maintained, capacity will not be cut and service will be restored to nine communities where American Airlines previously cancelled operations,” he told ATW.

(Karen Walker - ATWOnline News)