American, US Airways chiefs defend merger called bad for fliers

Douglas Parker (left), chairman and CEO of US Airways Group, sits as Thomas Horton, chairman and CEO of American Airlines and AMR Corp., gestures before the Senate Judiciary Committee in Washington March 19, 2013.
GARY CAMERON | Reuters
Douglas Parker (left), chairman and CEO of US Airways Group, sits as Thomas Horton, chairman and CEO of American Airlines and AMR Corp., gestures before the Senate Judiciary Committee in Washington March 19, 2013.
Posted March 19, 2013, at 4:57 p.m.

WASHINGTON — The proposed merger between AMR Corp.’s American Airlines and US Airways Group Inc. would increase fares, reduce service to smaller communities and make it more difficult for low-cost carriers to compete, two consumer advocates said at a Senate hearing Tuesday.

“The proposed deal raises significant competitive issues that could result in harm to consumers,” Diana Moss, vice president of the American Antitrust Institute, said in testimony at a Judiciary Committee hearing. The institute is a Washington nonprofit group that promotes consumer rights.

The deal to create the world’s largest carrier was defended by the companies’ chief executive officers, Doug Parker of US Airways and Tom Horton of AMR, in a joint statement to the committee. Parker would lead the joined company.

Sen. Mike Lee, R-Utah, questioned the executives about the Washington region, where the two carriers control about two-thirds of flights at the capacity-controlled Reagan National Airport.

There is no need for the U.S. government to take away Reagan slots from the new airline because the region is served by two other large airports with robust competition, Horton said. Taking Washington slots from the combined carrier would hurt service to smaller communities, Parker said.

Low-cost carriers such as Southwest Airlines and Alaska Air Group will continue to provide competition that will help keep fares down, they said. The two company leaders said they expect at least $1 billion in annual benefits and efficiencies by combining.

Combining American and US Airways would leave three major U.S. carriers with domestic and international routes, down from seven in 2000. Announced on Feb. 14, the merger is scheduled to be completed as American exits bankruptcy protection in this year’s third quarter.

The combination must win approval from AMR’s bankruptcy judge, shareholders of Tempe, Ariz.-based US Airways and U.S. regulators. The Justice Department’s antitrust division earlier this month asked for more information from the companies.

The merged airline would keep American’s name and its Fort Worth, Texas, headquarters, and retain the two carriers’ seven hubs.

When Southwest is included, the merger would “result in four top airlines controlling nearly 80 percent” of domestic air traffic, Senator Amy Klobuchar, chairman of the antitrust subcommittee, said in opening statements.

The panel must review concentration in the industry and what it means for rural areas, baggage fees and other airline charges, Klobuchar, a Minnesota Democrat, said.

“With fewer competing airlines can we expect even more of these charges?” she said. “We need to know now that fewer airlines won’t mean fewer flights and fewer services,” she said.

Some senators asked the executives to ensure they would maintain current service to their home states.

“The consolidation should only be cleared for takeoff if we can be sure it would not mean higher fares or poorer service or reduction in New York jobs,” said Sen. Charles Schumer, D-N.Y.

“We have no intention of reducing service,” Parker said in response.

Iowa Republican Chuck Grassley said his constituents are concerned about keeping flights to their state and urged the merger be examined for potential harms to service there.

Horton said American has been proud to serve “Iowa for decades” and would continue to do so.

William McGee, a consultant to Consumers Union, a Yonkers, New York-based arm of the non-profit product testing organization Consumer Reports, said previous mergers have hurt airline passengers.

“We are concerned that the proposed merger between American Airlines and US Airways has the potential to further deprive air travelers of healthy, robust competition, and to further deprive communities of being part of a vibrant air transportation network,” he said.

 

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