Air Travel News
White paper warns AA-US Airways merger could hurt competition
The latest chapter in the ongoing saga about a potential merger of bankrupt American Airlines and US Airways is a new white paper from two independent groups that warns such a combination "could be the capstone event that transforms the industry into a fundamentally different one from what we have known."
The white paper was produced by the American Antitrust Institute — which describes itself as "a non-profit education, research, and advocacy organization" — and the Business Travel Coalition.
The groups raise questions about whether or not the U.S. airline industry would remain competitive after a US Airways-American merger, given the fact that it would reduce the legacy airline business to just three mega-competitors. The authors also wonder whether Southwest Airlines, now merging with AirTran, will continue its traditional role of an industry spoiler who can keep the major carriers honest; the paper refers to Southwest/AirTran as a "legacy look-alike" — i.e., a company that is starting to act more like its major competitors. It also suggests that the nation's low-cost carriers (LCCs) are becoming "a dwindling fringe" of the industry.
According to the white paper, the merger of US Airways with American "could... hasten a troubling metamorphosis of the domestic airline industry from one in which hub airports were designed to accommodate multiple, competing airlines to a few large, closed systems that are virtually impermeable to competition and create a hostile environment in which LCCs and regional airlines have difficulty thriving and expanding."
The authors point to the experience of the Delta-Northwest and United-Continental mergers to project the possible effects of a US Airways-AA combination. They analyzed what happened with those two combinations and concluded that "both mergers substantially eliminated competition on hub-to-hub routes," and that few new competitors entered those markets.
They said their study also found "a large number of substantial pre- to post-merger fare increases on the hub-to-hub overlap routes affected by the Delta-Northwest and United-Continental mergers. Fare increases are above average at the origin airport on 70 percent of routes affected by the Delta-Northwest merger. The same is true of over 90 percent of routes affected by the United-Continental merger."
If US Airways were to merge with American, the authors said, "There are 22 routes that appear potentially to be the most affected by the proposed merger, i.e., where the merger would eliminate one of the merging carriers and result in a substantial loss of competition. These routes involve US Airways and American hubs or focus city airports, including: Charlotte (CLT), Miami (MIA), Los Angles (LAX), Philadelphia (PHL), Phoenix (PHX), Dallas-Ft. Worth (DFW), Chicago O’Hare (ORD), and Washington Reagan National (DCA), and New York La Guardia (LGA)."
More than half of the overlapping routes currently shared by the two airlines "would be monopolized or nearly monopolized," the paper said, raising the likelihood of fare increases similar to those observed in the United-Continental and Delta-northwest situations.
Traditional airline deregulation theory holds that the emergence and growth of low-cost airlines will serve as a check on the market dominance and pricing power of legacy airlines. Is that still valid? The authors of the white paper think not.
"The dwindling stock of LCCs and their exposure as potential takeover targets – particularly in light of the Southwest-AirTran merger – makes them increasingly unreliable as a source of competitive discipline in the industry. Pre- to post-merger fare increases on Delta-Northwest and United-Continental routes highlight the challenges that smaller, lower-cost rivals face on hub-to-hub routes dominated by legacy carriers. Increasingly concentrated hubs resulting from previous legacy mergers raise further barriers to LCC entry that could potentially discipline adverse effects."
To read or download the complete white paper, go to: www.businesstravelcoalition.com.