Klobuchar, Lee call on administration to examine concerns of proposed airline merger
NEWS RELEASE — Washington, DC – U.S. Senators Amy Klobuchar (D-MN) and Mike Lee (R-UT) Tuesday (June 18) called on the Administration to examine concerns over the proposed merger between American Airlines and US Airways.
At a Judiciary Antitrust Subcommittee hearing earlier this year, questions were raised about the risks that consolidation poses to competition and consumers.
In a letter to Attorney General Eric Holder and Secretary of Transportation Ray LaHood, the senators underscored the importance of competition to keep airfare and fees low for consumers, and maintaining high-quality service. The letter comes in advance of Wednesday’s Senate Commerce Committee hearing on airline consolidation issues, where the proposed merger is expected to be reviewed. Klobuchar is the chair of the Judiciary Antitrust Subcommittee, and Lee is the ranking member.
“Whether it’s a family looking for affordable flights or a small business-owner looking for the best frequent flier program, we need to make sure consumers have as many choices as possible at the lowest prices, and that no airline or small group of airlines has a stranglehold on the market,” Klobuchar said. “I urge the Administration to take a close look at how this merger will impact jobs, fees, service and safety and I will continue to work to make sure we’re doing everything we can to protect consumers and boost competition in the airline industry.”
“The U.S. airline industry touches the lives of almost every American in some way. The merger between American Airlines and US Airways is thus a significant transaction with the potential to either benefit or harm millions of consumers,” Lee said. “By carefully weighing the evidence and engaging in rigorous analysis, enforcement officials can help ensure a competitive airline market that maximizes consumer welfare and allows our economy to thrive.”
Earlier this month, Klobuchar and Lee questioned Attorney General Eric Holder about past airline mergers’ impact on consumer prices, airline competition, and service at a Senate Judiciary Committee hearing on congressional oversight of the Department of Justice (DOJ). They have also urged DOJ and the Department of Transportation (DOT) to use all available data to examine past airline mergers and assess whether the merged airlines have realized the efficiencies they promised to both agencies.
The full text of the letter is below:
June 18, 2013
The Honorable Eric Holder
United States Department of Justice
950 Pennsylvania Avenue, NW
Washington, D.C. 20530
The Honorable Ray LaHood
United States Department of Transportation
1200 New Jersey Avenue, SE
Washington, D.C. 20590
Dear Attorney General Holder and Secretary LaHood:
We write regarding American Airlines’ proposed acquisition of US Airways. On March 19, 2013, the Subcommittee on Antitrust, Competition Policy, and Consumer Rights held a hearing to examine the likely competitive effects of this proposed merger. This transaction holds the potential to create significant efficiencies for the merging parties, but also constitutes a large merger in a market that has seen extensive consolidation in recent years. As you review the merger, we urge you to carefully consider several concerns we identified during our Subcommittee’s hearing.
The proposed acquisition, if consummated, would combine two of the country’s four remaining network airlines to create the largest airline in the country. Two decades ago, there were 11 legacy network airlines in the United States. If this pending merger is approved, the remaining three major airlines, plus Southwest, would control nearly 90 percent of the domestic airline market. 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. 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 parties to the transaction state that their combination will not result in anticompetitive effects, but rather will create efficiencies that will benefit consumers. The merger will fill network gaps, create an enhanced international network, and allow for a more robust frequent flyer rewards program. The parties assert that additional network revenue and cost synergies will result from combining complementary assets, reducing duplicative operating expenses, and integrating airline fleets and computer systems.
As we noted in our letter to you on February 26, 2013, consolidation within the airline industry carries with it risks to consumer welfare that must be carefully considered. For example, as the Horizontal Merger Guidelines note, “A merger may diminish competition by enabling or encouraging post-merger coordinated interaction among firms in the relevant market that harms customers.” An indication of such risk with respect to the airline market may be seen in the industry’s recent increases in ticket change fees. A few weeks ago, United Airlines raised its change fees on most discount fares from $150 to $200. American Airlines, Delta Air Lines, and US Airways quickly followed suit and increased their change fees.
Another concern regarding the merger involves competition and service levels between hubs and between hubs and major metropolitan areas throughout the country. The parties assert that the merger will result in an enhanced national network that will benefit consumers. But, as the parties acknowledge, the merger will also result in the elimination of their head-to-head competition in 17 nonstop city-pair overlaps and 12 non-stop airport-pair overlaps. On seven airport-pairs, American and US Airways currently are the only two carriers providing service, such that the merger would eliminate competition on these nonstop flights.
Finally, we note that a combined American Airlines and US Airways would control nearly 70 percent of the passenger gate slots at Washington, D.C.’s Reagan National Airport, a slot-constrained airport. In previous transactions that would have resulted in greater concentration at slot-constrained airports, such as the United-Continental merger and the 2011 slot-swap between US Airways and Delta, the Department of Justice and Department of Transportation, respectively, required slot divestitures as a condition for approval. We anticipate that your analysis will include, as it should, a careful examination of whether divestiture of slots at Reagan National is necessary to ensure that consumers continue to benefit from robust competition at this airport. Should you conclude that slot divestiture is necessary, we encourage you to conduct the process consistent with free market principles, so as to ensure the slots are awarded to carriers best capable of competing with the merged entity and effectively serving small and medium sized communities.
We share with you a commitment to faithful application of the nation’s antitrust laws to ensure a vibrant and competitive airline industry. We have every confidence that your Departments will review this transaction carefully and make conclusions in accordance with the facts and evidence.
Thank you for your attention to this matter.