The proposed merger between American Airlines and US Airways may not be a done deal, even if almost everyone is behaving as if it were.
Although the combination, which would create the world’s largest airline, has pushed back from the gate, it’s still not cleared for takeoff. That may be a good thing for air travelers.
Folding the two companies into a single $11 billion airline may make sense on Wall Street, but some folks on Main Street still don’t see the point. Asked whether they’d approve the corporate marriage in a recent online survey by the Consumer Travel Alliance (CTA), a Washington nonprofit organization that advocates for travelers, more than two-thirds of the respondents (68 percent) said that they’d deny the companies permission to hook up.
“From a passenger’s perspective, there’s no reason to let American and US Airways merge,” says Charlie Leocha, CTA’s director. “None at all.”
Leocha says that the regulators he has spoken with are skeptical, too. A study that CTA commissioned in April suggested that the merger may eliminate more competition than previously thought. One of the key benefits of the deal, according to both US Airways and American Airlines, is their “complementary” route structure, with only 12 overlapping nonstop routes. But the CTA study shows that the number of competing connecting routes is 761. (Disclosure: I co-founded the CTA and serve as its volunteer ombudsman.)
A new Government Accountability Office study on the merger, still unreleased, is thought to support the conclusion that American and US Airways compete more than they initially claimed, and that has some airline insiders nervous. Both airlines still require Justice Department and European Union approval before they can start repainting their planes, and regulators may be reluctant to offer their blessing.
John McDonald, a spokesman for US Airways, said that the airlines’ own analysis is sound and supported by numerous other experts. “The merger is not predicated on capacity reductions,” he added. “The new American will compete against United, Delta, Southwest and a number of successful smaller but fast-growing lower-cost airlines, such as JetBlue, Spirit, Allegiant and Virgin America. That is a big plus to consumers.”
McDonald said the CTA results are “skewed” because they looked at connecting routes, which are “less preferable to consumers” and failed to consider competition from low-cost carriers and major airlines on all those connections. Also, the analysis assumes that a new American would raise fares as part of its strategy. “The merger benefits are not reliant on any fare hikes,” he says. “The marketplace remains brutally competitive.”
But passengers still need some persuading.
“I’m against the merger,” says Marian Levin, a retired teacher who lives near Philadelphia, where US Airways has long enjoyed a commanding market share. “Flying out of Philly is always much more expensive than other airports, especially if you want to fly nonstop. I think that merging the two airlines will only make it more expensive to fly.”
Dick Mills, a writer based in Palm Desert, Calif., says that he’s concerned about the size of the new American Airlines. “Mergers,” he says, “create conglomerates. Conglomerates are like big and bigger government bureaucracies — they move like a leviathan in response to customer service. They’re non-competitive. They become insensitive to the customers’ needs.”
Of the nearly 300 anonymous comments left with the CTA survey as of last week, a handful were upbeat about the airline merger. One, for example, warned that failure to approve the deal would “put American in financial trouble once again” and cautioned that allowing an airline to fail would have a ripple effect across the economy. Another argued that merging American and US Airways would actually boost competition, because it would create a third “supercarrier” alongside Delta Air Lines and United Airlines.
So what will happen next? The CTA survey results have been forwarded to the Department of Justice, which asked the organization for feedback from real travelers, according to the CTA. The DOJ could approve the deal, or it could clear it for takeoff with a few conditions.
Diana Moss, a vice president and director of the American Antitrust Institute, a Washington think tank, believes that regulators will add a few terms before they give it a thumbs-up. “The key question will be one of remedy,” she says. “What conditions, if any, might be extracted?”
For example, Moss says that the Justice Department could require the new airline to shed some of its landing permissions at Reagan National Airport. US Airways traded so-called “slots” with Delta recently, over the government’s strong objections, giving US Airways a dominant market share at that airport.
CTA’s Leocha says that regulators should try something simpler. How about requiring the new American to disclose all its extra fees so that consumers can efficiently comparison-shop the full price of air travel? Or instructing the new airline to add its customer service plans to its contracts of carriage — the legal agreement between customers and the airline — and to use plain English, instead of legalese, when describing a passenger’s rights?
I’d settle for something even more basic. I’d give anything to see an airline merger that does what it promises: creates a new airline that keeps fares competitive, preserves jobs and treats all passengers, not just the “high-value” ones, with respect and dignity.
If that happens with this merger, it would be a first.