Should this airline merger be allowed to fly?

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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.

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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.)

RELATED: Please join me Tuesday at 9 a.m. EDT for a live conversation with Charlie Leocha of the Consumer Travel Alliance.

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.

Would a merger between American Airlines and US Airways be good for air travelers?

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26 thoughts on “Should this airline merger be allowed to fly?

  1. Do we have any opinions from unbiased sources. No advocacy groups (CTA) on one side and no spokespersons (John McDonald) on the other. I can vote after the GAO releases its report.

  2. The CTA’s survey was another (not particularly useful) self-selected one, wasn’t it? I really hope the CTA doesn’t cite self-selected poll results when communicating with regulators, as it makes them look substantially less credible. While the regulators might peek at a comment or two, they will almost certainly ignore the numerical results (as they should.)

    And I’m not sure why reducing the number of carriers that compete on a connecting route is particularly catastrophic unless it’s going to leave the combined airline as the only carrier.

    In any case, if the DOJ didn’t put many conditions on the NW/DL or CO/UA merger, they aren’t exactly in a great position to do so with this one. But yes, I could see US/AA having to give up a few of their combined DCA slots.

    I certainly don’t see how it would make any sense whatsoever to make the airline implement a bunch of CTA’s random pet projects. Yes, better fee disclosures, CoC improvements, etc., are badly needed, but what on earth do any of them have to do with the proposed airline merger?

    This merger will go through if for no other reason than the last two also went through, and this one certainly isn’t any worse. No to mention the fact that AA isn’t currently very viable as a standalone airline, and it going under would have the same anti-competitive effects, along with eliminating a whole lot of service.

  3. I’m very nervous about my bi-monthly, still-affordable First Class,
    non-stop CMH-PHX vs. AA’s options: connecting flights only, and $500
    more for First. This merger certainly won’t provide an incentive to
    maintain that schedule and pricing.

    1. You are correct; I can’t imagine that route would stick around. But I’m not sure why that’s really a horrible thing; I imagine most of the passengers are connecting to points further West anyway, and I’m willing to wager that there isn’t much price differential between the two sets of connecting routes.

      1. Hee, hee… you need to understand the mindset of the elderly Ohioan (aka: “snowbirds”): One winter overs in Phoenix or Florida, and whenever possible, always go nonstop (this helps to avoid traversing the parade of wheelchairs and canes, hobbling to a connecting gate). These non-stop flights have traditionally been full, even when there were 3x as many flights a day as there are today (under the aegis of America West).

    1. A swift descent down the remainder of the Death Spiral into liquidation. Which Charlie fails to realize would have even worse competitive effects.

      1. The bankruptcy judge deserves a lot of the blame for this. While he slashed benefits for the pilots and FA’s, the CEO benefits were untouched (and this was for a company that’s ready to go into a death spiral.) If stockholders are being held ransom to a robber-baron, that’s one thing (they can always sell their stock, take the losses, and blow) but when creditors are taking the hit in bankruptcy court, the judge should be willing to grind sacred cows. Revoke lifetime 1st class perks for former executives. Liquidate the corporate funded CEO townhouse in London (American is a USA company, yes?) Slash his benefits package and simultaneously peg it to performance for the company. If he nukes the firm, he gets the shirt on his back and that’s it.

        Don’t worry, lots of CEO’s are looking for 7 figure salaries if they perform. There’s no shortage of Harvard grads who can play with org charts.

  4. This proposed merger is not in the public interest. We’ve experienced “too big to fail” in the banking industry where unbridled power and the quest for greater profits was
    not only against the public interest, but limited the government’s ability to
    correct malfeasance and greed was thwarted by both size and the extraordinary
    influence of lobbyists, who purchase favorable rules and legislation through campaign

  5. Hard to believe that US Airways is actually in good enough shape to merge. You only have to look at how they decimated one of their hubs – Pittsburgh – with substantial job losses.
    If you want the worst case scenario, just look at the United/Continental merger. Right after the merger, things were a mess – mileage not correctly credited, missing reservations. And the perks for Premier level (Silver) on United went by the wayside. No more non-stop flights from Washington Dulles to Buenos Aires and many of the former non-stop flights now have a connection in Houston.
    Nobody wins with an airline merger except the CEOs.

    1. PIT getting shut down was inevitable. PIT lost hub status simply because the nearby PHL hub makes so much more sense, and the local traffic in PIT dropped too much to support a viable hub. (Almost every single successful airline hub has substantial local traffic.) Frankly, I’m surprised PIT lasted as long as it did. (And it’s a shame, because it’s a nice airport.)

      In any case, US Airways financial health is due to a healthy injection of help from America West, which has whipped the operation into shape. America West gave up their name, but that team is very much in charge.

      The AA and US hub networks complement each other well. (Unlike say, CLE in CO/UA or MEM in DL/NW.) The only major overlap in service is the Caribbean service from both CLT and MIA. No hub will be rendered pointless as a result of the merger. (I imagine PHX and DFW will consolidate some southern coast-to-coast routes, but not enough to de-hub either airport.) US really needs DFW and ORD, and AA will be greatly helped by PHL and CLT.

      1. There is overlap in non-hub service between secondary cities, though. For example my family lives at RDU which has competing service to DCA, LGA and JFK on both US and AA, though these aren’t really a hub for either (except JFK as it concerns AA’s international flights). DCA is more of a “focus city” for both airlines and I think there will be loss of competition there on many routes.

      2. No hub may be rendered pointless, but I do suspect there will be more consolidation than Doug Parker is letting on to. If we use DEN as an example, presently you can fly to DFW, MIA, and ORD on AA, and PHL, CLT, and PHX on US. I could see, for example, the combined airline cutting a flight or two to CLT and connecting passengers through DFW or ORD instead. You’ll probably see the same for secondary cities that have service from both AA via DFW/ORD and US via CLT/PHL/PHX; I just don’t see it making sense keeping all of those flights, when you can more efficiently route connections through 2 or 3 hubs instead of 5. Will it be catastrophic for any hub, no, but I do think there will be at least some cuts (or more correctly, reshuffling of deck chairs), notwithstanding what Parker is saying publicly.

        If there is to be consolidation between PHX and DFW, I suspect it’ll actually be PHX taking the hit. Southwest is about to be able to offer nonstop service anywhere from DAL, so I suspect there is only so much AA can trim from DFW.

  6. I think this article only exists do to the interview coming up with the man quoted in the article and his constant same old, same old rant.

    1. I really stopped paying attention to Charlie / CTA when they proclaimed a $35 increase in Passport fees was a violation of Constitutional rights and a Human Rights treaty violation.

  7. Is the AA/US merger good for consumers? Interesting question. However, how could the “average” consumer judge this situation and give an answer?

    It seems to me that most large companies these days, together with most governments, have forgotten who it is they actually serve, and instead serve themselves.

    If the regulators really wanted to show that this merger is good “for consumers”, then would it not make sense to set aside all the financial/competition regulatation nonsense and simply impose new regulations for the entire industry aimed solely at consumer benefit? I am sure with all the talent out there, regulators could wear “consumer hats” for a little while and come up with some ideas that might be rather simple, but could be a real positive step toward consumer satisfaction.

    For example, require all airlines to allow more personal space on aircraft by reducing the number of rows on an aircraft. Require them to go to one “all-in” price for a ticket so consumers know exactly what a flight will cost before they board, no hidden charges, no surcharges, no nothing. Put more F/A’s onboard so that passengers are dealt with more cordially and respectfully. Require airlines to play only “vanilla” entertainment onboard so that no one gets offended. And while we’re at it, why not have a TSA official administer a breathalizer test to all adult passengers at the gate in order to eliminate the possibility of a drunken passenger creating a fuss in flight?

    IMHO, these are the types of things that could be a positive outcome of a merger of two giants like this that could have a positive effect for consumers. Just my two cents, simplistic as they might be.

      1. Hmmmm, m74, I see your point, and agree. Maybe it would be better just to make airports alcohol-free zones, like they are smoke-free zones.

  8. Like it or not, airlines need to consolidate in order to survive. Having airlines constantly in and out of bankruptcy isn’t good for anyone. And, it’s not like airlines are making obscene profits.

    For the first quarter of 2013, American reported a profit of $8 million. US Airways did better with a profit of $44 million. For companies of their size, those profits are really bad. (In comparison, for the first quarter of 2013, Walmart did not meet Wall Street’s expectations. They ended up with a profit of $3.78 billion.)

    No one wants to pay more for a plane ticket. But, blocking a merger would be a hollow victory if it leads to US Airways closing and liquidating its assets.

  9. I don’t know why Charlie is against it. I think it’s a good thing and I hope it goes through. Although it’s US Airways buying American, the resulting airline will be much more like American than US Airways and that’s a good thing because US Airways is the only airline that I will do almost ANYTHING to avoid. Having US Airways disappear and a much larger American in its place is my dream.

  10. This American Airlines – US Airways merger is bad for consumers, bad for employees, bad for innovation and bad for airline industry. It is not good at all. In fact, we are already seeing cockiness of American Airlines that it is a done deal. Once the merger goes through it will be disastrous for consumers. American is already a very big airlines and has terrible reputation with customer service. US Airways is also not a great airline. Two bad airlines merger means disaster for consumers.

    We have already seen many airlines merge e.g. TWA, Northwest, America West, Continental etc. over a period of years. Every merger has been painful for consumers. (Remember United Continental. Have we forgotten it.)They are already very dominant in their hubs. Merger will make them even more dominant. As consumers we have not seen any benefit. In fact, we have seen fewer flights and more planes sent to sit in near Phoenix in AZ (in the desert) and higher fares. This merger means only big money going to CEOs and top executives, higher fares for consumers, fewer choices and massive layoffs for employees. If mergers of airlines is such a good thing then why not we merge all airlines and create one airline like that existed in Communist Russia e.g. AEROFLOT (which many of us know has terrible customer service).

    I know some people care about Frequent flier points. They are already useless. I have tried several times. It is so hard to find a seat with FF miles. One cannot even get flights for 25,000 miles which they promise. AA and US Air both charge $75 within 21 days so they are worthless. They will have less incentive to make it attractive for consumers after merger.

    I am seeing some comments – There is no alternative. That is not true. Even if American Airlines is liquidated, new smaller airlines will emerge and mean more competition, better fares for passengers and innovation in airlines industry.

    What is the guarantee that even after this AA-US Airways merger, three or four years later they will ask to merge with another one for survival…

    DOJ – Please, please, please do not let it happen.

  11. I would actually like a national airline, at least for international travel, with some regional airlines like JB and SW for local travel and short regional flights. Then we can stop accusing the airlines of treating us like cattle, and the airline can just achknowldege they treat us like cattle. Don’t like the flight, or the service, drive. Don’t bother with complaints we don’t care if your unsatisfied. No more hollow FF programs, why bother, your either a frequent flier of the only airline option or your not technically a flier. It wouldn’t change anything from the way it is now, but at least we’d save time cutting through all the BS and customer service for the sake of PR. Flight attendents could kick people off flights a a whim, and the airline makes them buy a new ticket to get on another flight. Don’t think that’s fair, let me direct you to the car rental counter, or would you prefer directions to the Greyhound terminal. People wold stop whining about service, like the coach cabin was some kind of 5 star dining experience. The airlines would charge for everything checked bags, carry on bags, an extra jacket. Divide the current bins into 2 and you buy the bin, you get the key and can put whatever fits, need more room, we will HAPPILLY sell you another bin. Want to go to the bathroom, that will be $1. No outside food and drink allowed on the plane, want a stick of gum that’s $1, bottle of water $5, and if you want a fillet, baked potato, asparagus spears in white wine, and a roll with a glass of Tuscan red wine that’s $150. Don’t like it, the car rental counters are downstairs next to the baggage claim.

  12. This merger will be horrible for travelers, which is exactly why it will breeze through. I can just picture the airport personnel laughng their heads off as they triple the fares and fees.

  13. On 06/02 (13 days back), the day after this article was published, I posted my comments and concerns and opposing American Airlines – US Airways merger as it is anti-consumer. I had written – “This American Airlines – US Airways merger is bad for consumers, bad for employees, bad for innovation and bad for airline industry. It is not good at all. In fact, we are already seeing cockiness of American Airlines that it is a done deal. Once the merger goes through it will be disastrous for consumers”

    It is getting validated by news reports coming out – American Airlines is reducing the space for passengers.

    American Airlines plans to pack more people onto its planes. Visit CNN website

    If you listen to the interview of both CEOs and American advertising message “Bigger and Better” read it as Bigger and Better for top management, more profits, multi-million dollar severance packages for them NOT for consumers or employees. They are already talking about glitches and pain for consumers.

    Then as a consumer why should we let it happen. Are we crazy to go against our own interests.

    For naysayers or doubters – Do we still “unbiased sources”. Can’t we read the signs.

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