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Senators urge scrutiny of airline merger

by Lou Whiteman  |  Published June 20, 2013 at 9:26 AM
Two lawmakers who head the Senate Judiciary Antitrust Subcommittee are calling on the Obama administration to carefully scrutinize the proposed merger of AMR Corp.'s American Airlines Inc. and US Airways Group Inc. to determine whether the deal will lead to higher prices for travelers.

Subcommittee chairwoman Amy Klobuchar, D-Minn., and Utah's Mike Lee, the ranking Republican, in a letter to Attorney General Eric Holder and Transportation Secretary Ray LaHood acknowledged that consolidation has made airlines more stable and more efficient, but worried about the impact on workers and prices.

They note that post-deal, four airlines would control nearly 90% of the domestic market, down from 11 legacy airlines in flight two decades ago.

"Consumer advocates assert that this additional consolidation could lead to a reduction in consumer welfare in the form of increased prices and fees, and decreased choice, service, and quality," the senators wrote. "They fear that a merger of this size in an already concentrated market will lessen competition and heighten the potential for coordinated action among the remaining competitors, resulting in higher prices and lower quality service."

The letter comes ahead of a hearing set for Wednesday, June 19, on the merger by the aviation subcommittee of the Senate Commerce Committee. Klobuchar and Lee held their own hearing on the deal earlier this year, and earlier this month questioned Holder about the impact past airline mergers had on pricing, competition and service.

Tempe, Ariz.-based US Air in February announced plans to acquire the larger AMR out of bankruptcy in a deal that would create the world's largest airline. US Airways chief executive Doug Parker, who will lead the combined company, on Wednesday told Senate Commerce Committee members that the combination would be good for passengers because "it gives them more choices, a wider variety of services, and more competition on more routes" in an industry that remains highly competitive.

The airlines in addition to seeking U.S. regulatory approval have also filed with the European Commission, where they should receive a provisional response by late July. The companies hope to close the deal, which also requires bankruptcy court and US Airways shareholder approval, in the third quarter.

A key regulatory sticking point in the U.S. is the combined airline's substantial position at Washington's close-in Reagan National Airport, where it would control nearly 70% of takeoff and landing slots. Access to Reagan National is restricted due to the airport's congestion, and competitors including Southwest Airlines Co. and JetBlue Airways Corp. have been eager to gain increased access via slot divestitures.

US Airways has countered that the combination would control just one-quarter of the overall Washington market if two other airports, Washington Dulles International and Baltimore/Washington International, are included.

Deal advocates have also argued that allowing the combination to keep its full portfolio of slots likely would mean more flights between Reagan National and smaller markets, since competitors would likely be more interested in flying to large destinations that already have service to the airport.

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Tags: American Airlines | AMR | Amy Klobuchar | Doug Parker | Eric Holder | JetBlue Airways | Mike Lee | Ray LaHood | Reagan National Airport | Senate Judiciary Antitrust Subcommittee | Southwest Airlines | US Airways Group

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Lou Whiteman

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