US Airways-American Airlines deal may mean higher prices -experts

Reuters

By Karen Jacobs and Diane Bartz

ATLANTA/WASHINGTON, Nov 13 (Reuters) - Consumer advocatesworry the decision to green-light another big airline mergerwill mean higher prices before long, even though upstartairlines will get more access to busy airports near WashingtonD.C. and New York as part of the deal.

In the short term, the industry is waiting for the sale oftakeoff and landing slots by the merging US Airways Group Inc and AMR Corp's American Airlines, a processthat will take several months and be overseen by the Departmentof Justice.

The largest airlines are expected to be barred from bidding,leaving the field open to upstarts such as JetBlue, Allegiantand Spirit, if they chose to participate.

Despite this, fliers will ultimately face higher airfaresafter the industry shrinks to just three major carriers, saidRick Seaney, chief executive of FareCompare.com, which tracksairfares.

"In the past decade, we've seen the industry transformedfrom one that boasted eight large airlines to a mere four. Withthe latest merger, it drops to three," Seaney said. "It islikely we'll be sitting around in 2020 saying, 'I wish we stillhad eight carriers.'"

Industry experts were uncertain how much airfares mightultimately rise on different routes as a result of the merger.

However, Delta's merger with Northwest Airlines in 2008 ledto price increases of more than 10 percent on four of the routes they dominated, as well as service cuts on another route,according to research by the American Antitrust Institute.

Based on the details on a settlement announced on Tuesday,antitrust experts said the consumers who could benefit would bethose who use New York's LaGuardia, Reagan National outsideWashington D.C. and other major airports.

Consumers flying outside those markets, for example from Dallas to Charlotte, could be hurt, said Jeffrey Shinder, anantitrust expert at Constantine Cannon LLP.

"Some consumers will end up being better off," said Shinder."(But) I think in the long run, because it will take a bit forthis to play out, that prices will be higher because of thetransaction."

George Hoffer, a transportation economist at the Universityof Richmond, said consumers will face higher prices, a keyconcern the Department of Justice raised in August when itopposed the merger.

"In all the trenches there is one less competitor.Therefore, the remaining firms have more pricing power," Hoffersaid.

He noted that Delta Air Lines Inc's stock hit anall-time high after the US Airways-American merger settlementwas announced.

"The market realizes Delta now has more pricing power,"Hoffer added.

However, Herbert Hovenkamp, who teaches antitrust law at theUniversity of Iowa College of Law, praised the decision asfarsighted.

"The leg up that the government has given some of the lowcost carriers, I think, is going to have a very positive impacton the industry," he said.

Under the deal announced on Tuesday, US Airways and AmericanAirlines agreed to sell 104 take off and landing slots at ReaganNational and 34 at Laguardia, along with supporting gates andground facilities.

They must also sell two gates at five other airports:Chicago O'Hare International, Los Angeles International, BostonLogan International, Miami International, and Dallas Love Field.

Sixteen of the 104 Reagan National slots are currentlyleased to JetBlue Airways Corp and will be offered toJetBlue permanently, according to the settlement agreement.

The Department of Justice will run the sale and is expectedto bundle slots into groups of six to 10, to be sold along witha gate. The airlines will be allowed to sell the slot and gatebundles or make trades for them.

The government will also determine which carriers areeligible to buy or trade for slots.

The carriers are expected to include Southwest Airlines Co, JetBlue and Virgin America, all of which havepreviously expressed interest in gaining access to USAirways-American assets. Other low-cost carriers includeAllegiant Travel Co and Spirit Airlines.

"My expectation is that the DOJ is going to not includeUnited or Delta on the list of qualified buyers," a source closeto the airlines told Reuters.

Delta said on Wednesday it was urging the Justice Departmentto allow all airlines to purchase slots, saying it wanted to bidfor slots and facilities at National Airport as well as Dallas.

Under the proposed final judgment, the slots must be soldwithin 90 days of either the deal closing or when the JusticeDepartment draws up the bundles of slots and gates.

The new carriers could be using some slots by June andcertainly by the fall of 2014, according to an expert familiarwith the settlement, who could not be named because he was notauthorized to speak on the record.

American has asked the court considering its bankruptcy caseto approve the settlement in a hearing set for Nov. 25. Thecompanies anticipate closing the deal in the first half ofDecember.

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