DOJ: American-US Airways Settlement to Lead to Lower Fares and More Choice for Consumers

By Paul Riegler on 12 November 2013
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An American Airlines plane at JFK

An American Airlines plane at JFK

At a news conference to discuss the Department of Justice says that the proposed settlement for the antitrust suit that attempted to block the merger of American Airlines and US Airways will benefit consumers.  The deal calls for the two airlines to give up 52 pairs of air carrier slots at Reagan National Airport in Washington and 17 at LaGuardia Airport in New York as well as for the airports to relinquish a much smaller number of gates at five major airports in the U.S

William Baer, assistant attorney general for the antitrust division, told reporters on Tuesday that the settlement as a “game changer” and  “opens up the marketplace as never before,” adding that it would “disrupt today’s cozy arrangements” among the nation’s largest airlines.  It will also give consumers “more competitive” fares and greater choice when planning air travel.  The divestitures, he noted, are the largest ever in an airline merger.

Baer also said that the settlement addresses all of the major concerns that led the Department of Justice to file suit to block the merger in August, including less competition in the marketplace, an increase in coordination by major carriers in the marketplace, and a dominant carrier at Reagan National.

The settlement should increase the presence of so-called low-cost carriers at major airports in the U.S. by opening up the availability of the slots needed for takeoffs and landings.  Baer said that past settlements that have opened up additional slots have in fact made a difference for consumers, citing the United-Continental merger.  Southwest Airlines acquired 36 slots at Newark Liberty International Airport, slots that were relinquished by the two airlines as a condition of the merger.  Southwest was able to add six non-stop flights from Newark with connections to 60 other cities and “there was a multiplier effect that took place.”  Fares dropped by 10% and passenger traffic was up by 36%, according to Baer.

The assistant attorney general also said that JetBlue’s current lease of 16 slots at Reagan National Airport in Washington, D.C. from American has caused prices on fares to Boston from that airport to drop 30% and saved travelers $50 million a year on fares alone.  JetBlue as well as Southwest will be given an opportunity to acquire the slots they currently lease from American.

The settlement also calls for the two airlines to sell two airport gates as well as related ground facilities at five major airports around the country, which will also give competitors a shot at operating out of airports which are gate constrained but not slot constrained, such as Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International, and Miami International.

Despite the divestiture of 52 slot pairs and concomitant 44 daily departures, the post-merger American Airlines will still be the largest carrier at Reagan National, according to Doug Parker, the chairman of US Airways.  Indeed, sale of the New York and Washington slots, which impacts a total of 112 daily flights, amounts to 0.02% of the 6,700 flights per day that the airline will operate.  “It’s pretty modest,” he noted.

(Photo: Accura Media Group)

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