American, US Air CEOs Testify in Senate Hearings on Merger
The CEOs of American Airlines and US Airways defended their planned merger in front of a Senate anti-trust committee on Tuesday.
The hearing of the Subcommittee on Antitrust, Competition Policy and Consumer Rights, carrying the title “The American Airlines/US Airways Merger: Consolidation, Competition, and Consumers,” also heard from consumer advocates who said that the merger could lead to higher fares, a decrease in competition, and fewer regional routes. The committee also plans a thorough review of past airline mergers and their impact on prices, service, and fees.
The hearing took place one month after American Airlines’ parent company AMR and US Airways announced that the two would join forces, a move that would create the world’s largest airline and an anticipated $1 billion in cost savings. The deal is part of a plan to bring AMR out of bankruptcy proceedings and is subject to bankruptcy court and regulatory approval.
“What we’re trying to do here is provide more to our customers,” said Douglas Parker, US Airway’s CEO. “We [currently] don’t have the ability to get to as many places as some of our larger competitors – combined, we do.”
The Senate panel, chaired by Senator Amy Klobuchar of Minnesota, peppered the airline executives about the possible cancellation of service to smaller markets, increased fares, and whether the combined airlines’ plans for global expansion would adversely impact its domestic service.
“There’s no substitution for competition,” said William McGee, a consultant with the Consumers Union, which publishes Consumers Reports magazine, in his testimony. “A merger of this magnitude can dramatically change the structure of the market and dramatically alter profit-making centers away from keeping prices low.”
“Service to all metropolitan areas and midsized and small cities is more important than ever, yet we have seen reduced service,” said Senator Klobuchar. “We appreciate the goals stated here promise complementary flight networks, increased efficiencies and offer more options, but consumers have a right to be skeptical.”
“The new American will take flight in what continues to be one of the most intensely competitive industries in the world,” said Thomas Horton, American’s CEO. “There is nothing that our people want more than to put American back on top as a fierce competitor that will set a new standard of excellence, and that is exactly what this merger will do.”
Messrs. Parker and Horton told the panel that the merger would be good for competition, that routes would not be eliminated, and that the merger would allow the airline to expand globally. As things now stand, the two airlines overlap on a mere 12 of more than 900 routes.
Diana Moss, vice president of the American Antitrust Institute, testified that analyses of past airline mergers indicates that fare increases are likely and that carriers may drive traffic to larger hubs instead of offering non-stop regional flights. “We have to inform what goes on in this case with what goes on in the past,” she added.
Congress has no official role in the approval of the merger. The U.S. Department of Justice’s Antitrust Division is conducting a review of the deal to ensure it complies with antitrust law.
Last month, executives from the two airlines testified before the Regulatory Reform, Commercial and Anti-Trust Law subcommittee of the House Judiciary Committee. US Airways Executive Vice President Stephen Johnson and American Airlines General Counsel Gary Kennedy defended the proposed $11 billion deal, saying that little completion would be lost because the two companies have largely complementary network.
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