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American-US Air Merger Claims Contested

American-US Air Merger Claims Contested

At yesterday’s Senate Subcommittee on Aviation, US Airways’ Doug Parker and American’s Gary Kennedy made their case for the American-US Airways merger, reiterating their contention that, basically, bigger is better for all concerned:

A broader airline network is better for passengers because it gives them more choices, a wider variety of services, and more competition on more routes. The network is able to provide these choices and services because it aggregates demand that independently cannot support profitable service, but collectively can do so. Adding more origins and destinations to hubs has an exponential effect on the number of possible routings served by a network, the number of passengers that can be served, and the ways that they can be served.

More choice and more competition. Sounds good, right?

But the U.S. Government Accountability Office submitted an analysis showing that although the two airlines only competed directly on 12 nonstop routes, the merger would result in the loss of a competitor on 1,665 city pairs, affecting more than 53 million passengers.

Of course! No one who passed Econ 101 believes that mergers are a means of increasing competition. On the contrary, mergers are about consolidating pricing power in the hands of fewer companies, which will then be better able to raise prices.

Workers: ‘Universal Enthusiasm’?

So, higher prices are pretty much a given.

What about the effects of the merger on employees? The official line: “The universal enthusiasm among our work groups for this merger will be a powerful driving force behind the new American for years to come.”

A more nuanced assessment of the labor situation at the two carriers would reveal an American workforce demoralized and furious at management for allowing one of the industry’s premier companies to tumble into bankruptcy.

That “powerful driving force” is more about employees’ fervor to throw the old bums out than it is a vote of confidence in the new bums.

Non-Binding Promises

The two airline representatives also took pains to address lawmakers’ concerns about continued air service to smaller communities:

We will remain committed to extensive service to small- and medium-sized communities throughout our merged network and, where appropriate, we expect to increase such service and add destinations. The new American Airlines will therefore give passengers in small- and medium-sized communities better connecting options, and service to more places than ever before at more convenient times.

The problem with such promises is that they have no effect on subsequent behavior. It is part of the drill for airlines seeking merger approval to solemnly swear that no services will be cut. Then, once the merger is approved and in place, they scrap flights and routes as demand dictates.

Why should legislators, or travelers, believe it will be any different his time?

It’s Not Just About Shareholders

Although the lawmakers’ focus in the hearing was disproportionately on the merger’s effects on operations at Washington, D.C.-area airports, there were glimmers of hopeful concern along the lines of this statement from Senator Jay Rockefeller, the West Virginia Democrat: “We must make sure that the advantages of a strong aviation sector benefit more than just shareholders.”

Yes, please.

Reader Reality Check

What’s your prediction for the merger’s effect on prices and service?

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  • Ryan Steiner

    The airline industry in the US has already destructed their customer service mentality (if they ever had one) Flying will get worse and worse merger or no merger. But this merger would be the worst of all the past ones. Two airlines with two complete different customer bases, different frequent flyer programs (way different) and not that different route networks. Only issue with mergers is there is no way for a divorce. This one will be rocky folks!

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