One job of members of Congress is to look out for their districts. And the job of airlines is to fly where people want to travel in and out of. These two things don't always match up.
Executives from American Airlines and US Airways Group Inc on Tuesday faced gentle questions from lawmakers about their planned merger, with some expressing concern about losing hubs in their districts.
US Airways Executive Vice President Stephen Johnson and American Airlines General Counsel Gary Kennedy defended the proposed $11 billion transaction by saying the companies had largely complementary networks, so little competition would be lost.
The Justice Department’s Antitrust Division will review the deal to ensure it complies with antitrust law. Congress has no formal role in that process.
The executives faced few questions on what has been the primary concern about the merger – whether the deal would mean higher prices for the flying public.
Representative John Conyers, a Michigan Democrat, though, said he was concerned a reduced number of airlines would leave them room to control the market.
And he asked if the deal was really needed to compete, as the companies said. “While American is still in bankruptcy, it is poised to successfully reorganize. Moreover, US Airways posted record profits. This suggests that both airlines are perfectly capable of surviving, even thriving, as stand-alone airlines,” he said.
Representative Thomas Marino, a Pennsylvania Republican, asked Johnson and Kennedy if they planned to raise prices. US Airways’ Johnson said they would not go up but that he did not know if they would go down.
Pressed on what would happen to prices in the first six months to a year after the deal closed, American’s Kennedy said: “We don’t know. The airline industry is a very competitive industry with very thin margins.”
Several of the lawmakers used the hearing to either pitch a local area as an airline hub or defend their city’s value as an existing hub.
US Airways has three hubs – Charlotte, North Carolina, Philadelphia and Phoenix; American has five – New York, Los Angeles, Chicago, Dallas and Miami.
Representative Steven Cohen, a Tennessee Democrat, lamented the loss of Memphis as a hub after Delta merged with Northwest, noting a sharply pared flight schedule and job losses. Representative Keith Rothfus, a Republican from Pennsylvania, noted similar woes after US Airways cut Pittsburgh as a hub.
Representative Luis Garcia, a Florida Democrat, asked for reassurances that Miami would remain a hub, while Representative Blake Farenthold, a Texas Republican, noted the large number of hubs and asked: “What assurance can you give us that you’re not going to shut one of those babies down?”
American’s Kennedy replied, “We have a high level of confidence that the hubs that we have today will remain in place.”
If approved, the deal would be the third major U.S. airline merger since 2008.
Kennedy said the transaction had been endorsed by labor unions and the boards of both companies and would give them badly needed financial stability.
Both executives cited the Delta deal to buy Northwest in 2008 and the United purchase of Continental in 2010, saying that consumers wanted to fly one airline to their destination, not several, and that this preference hampered smaller carriers.
The new company, to be called American Airlines, would become the largest U.S. air carrier, with 23 percent of available seats. That compares with Delta at 20 percent, United at 18 percent and Southwest at 18 percent, Johnson said in his written testimony.
Lawmakers from a Senate Judiciary subcommittee will hold a hearing on March 19. The witness list for that has not yet been released.
Copyright (2013) Thomson Reuters.
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Photo Credit: A US Airways Express plane takes off with the U.S. Capitol in the background at Ronald Reagan National Airport in Washington April 23, 2012. Kevin Lamarque / Reuters