Cantwell Presses Airline Officials on Impact of Merger on Prices, Competition
Cantwell Presses Airline Officials on Impact of Merger on Prices, Competition
WASHINGTON, D.C. – U.S. Senator Maria Cantwell (D-WA) highlighted the potential impacts on consumers of the proposed merger between U.S. Airways and American Airlines yesterday during a hearing of the U.S. Senate Subcommittee on Aviation Operations, Safety, and Security. If the Department of Justice (DOJ) approves the merger, the new company would be the largest airline in the world and just four carriers would control over 70 percent of the nation’s domestic flight capacity.
The new American Airlines would also control nearly 70 percent of the time slots available for aircraft takeoffs and landings at Reagan National Airport in Washington, D.C. Reagan National is one of the few airports in the country with a fixed number of openings per hour – known as slots – for airlines to arrive and depart. If the DOJ determines that there would be too great a concentration of slots in the merged airlines’ hands, as a condition of approving the merger, it can require the new airline to divest, or give up, a portion of its slots.
Cantwell questioned W. Douglas Parker, Chairman and CEO of US Airways Group, on why the airline is considering cutting off certain routes if they are forced to divest slots at Reagan National.
“You wanted before to physically switch out 100 slots and use them for long distance,” said Cantwell to Parker at today’s hearing. “And when somebody said ‘hey you’re going to get rid of these small cities,’ you said ‘oh we have enough flexibility.’ Now that somebody’s saying ‘hey give up some of these slots,’ you’re saying ‘oh no I can’t because I will end up cutting the service to these essential areas.’”
Parker replied: “What our position was that we believe that D.C. would be better served with more flights outside the perimeter to provide more service to even more communities that exist today. Understand, of course, two things. One, the desire not to increase capacity at Reagan, which is, again, fine by us. If that's what the law is going to be, that's fine. But needing to stay within that constraint, and also wanting to make sure we were responsive to concerns of small and medium-sized communities said and agreed that what we would like to do is, in exchange for the ability to fly outside the perimeters to some larger communities, we would indeed divest from some larger markets. That's a different question. When that's the alternative, to be able to add a flight outside the perimeter, would you give up on inside to a larger community, the answer to that when asked was yes. Now the different question, if you ask -- if you ask us, ‘We have to take slots away from you. We are going to, because of some policy decision, decide to take away some slots from US combined airline.’ So your alternative now is you have to cancel something, not swap it for something. The decision will be, as it should be, to cancel the routes that produce the lowest amount of revenue for the airline, and those are small and medium-sized communities. So it's completely consistent to me.”
Cantwell responded: “I think your conclusion is the right conclusion that anybody would do something that is in the interest of the business in getting rid of the less profitable route.
But the reason why someone would look at divestiture -- it's not some policy, it's about competition and it's about too much concentration at DCA, and what issues for the consumer are being left unprotected.”
Watch a video of the exchange here.
During her opening statement, Cantwell also called on the DOJ to examine other impacts the merger could have for passengers on domestic flights. She highlighted how the increasing control of a majority of domestic flights by a few airlines may lead to higher ticket prices, more fees and fewer flight options for consumers.
“If this merger is to be approved, it will lead to even more consolidation of the domestic airline industry,” Cantwell said during her opening statement. “And more important to consumers than any national percentage is, will this merger mean higher ticket prices, more fees, and fewer options for flights? With some prior mergers, air passengers in some cities have become increasingly captive to a given airline, or experience high fares and reduced services on a given route, whether that is direct, or through a one-stop airline hub.”
Watch a video of her opening statement here.
Senator Cantwell’s opening statement from the hearing follows.
The Senate Commerce Committee on Aviation Operations and Safety will come to order. Today's hearing examines the proposed merger between U.S. Airways and American Airlines and the overall impact on consolidation in the American airline industry. If the Department of Justice approves the proposed merger between American Airlines and U.S. Airways, the new American Airlines, it will not only be the nation's largest air carrier, but the world's largest air carrier.
The new American Airlines would offer more than 6,700 daily flights to 336 destinations and 56 countries. The Department of Justice Anti-Trust Division is reviewing the merger.
Its traditional analysis for horizontal mergers focuses on the overlap of competitive routes between merging airlines and there are a number of important consumer issues at hand. If this merger is to be approved, it will lead to even more consolidation of the domestic airline industry. New American, Delta, Southwest Airlines combined will control over 70 percent of the domestic airline capacity.
And more important to consumers than any national percentage is, will this merger mean higher ticket prices, more fees, and fewer options for flights? With some prior mergers, air passengers in some cities have become increasingly captive to a given airline, or experience high fares and reduced services on a given route, whether that is direct, or through a one-stop airline hub.
The question also rises, will the merger impact airline employees, suppliers, regional partners, customers and affected communities? The impacts on these stakeholders should not be overlooked. Another consumer issue that I expect to come up today is the issue of slots at DCA. Obviously for some people, they not be familiar -- as intimate at this as the committee is, but slot allotted time for takeoff and landing.
Reagan National is one of the few airports in the country that is slot controlled. This means there are a fix number of openings per hour for airlines to arrive and depart. Airlines can buy and sell and lease these rights, to operate time slots and airlines must use their slots at least 80 percent of the time, or face losing it. A few years back, U.S. Airways and Delta traded slots between Reagan and LaGuardia.
When it approved the deal in 2011, DOT set a number of slots U.S. Airways could own at Reagan National Airport. So I expect that the consumer interests in these slots, because this new American would control over two-thirds of takeoff and landings at Reagan National, would be something that the Department of Justice and DOT must deal with.
In the year 2000, ten airlines controlled more than 90 percent of U.S. domestic capacity. As a result of 9/11, the great recession, high volatility in fuel prices, the industry obviously has shrunk. What we must do today is make sure that we are thinking about the flying public, and their interests at this hearing, and this proposed merger.
So I look forward to hearing to the testimony of all of the witnesses and want to point out that my colleague, Senator Klobuchar, held a similar hearing before the subcommittee in Judiciary on Anti-Trust Competition, Policy and Consumer Rights, so I look forward to her questioning, or any thoughts that she might have as she conducted a similar review and hearing.
So now I want to turn to the Ranking Member, Senator Ayotte for her opening statement.
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