US Airways, American merger worked out

Posted: November 14, 2013

The merger of US Airways Group and American Airlines was cleared for takeoff Tuesday by the U.S. Justice Department, creating the world's largest airline, worth more than $17 billion.

The settlement requires the combined company to give up slots at some key airports to competitors. The deal is expected to close in the first half of December, and will avert a trial scheduled to start Nov. 25 on the Justice Department's lawsuit that sought to block the merger.

Passengers may not notice any significant changes for 12 to 18 months, as the new airline, to be called American, works to combine computer reservation systems, ticketing, flight crews, aircraft, and frequent flier programs. In the near term, air travelers will continue to buy tickets and fly on US Airways and American planes.

American and US Airways agreed to give up dozens of takeoff and landing slots, including 52 slot pairs at Ronald Reagan Washington National Airport, 17 slot pairs at New York's LaGuardia Airport, and gates and facilities at those airports.

The airlines will also divest, or sell, two gates and associated facilities at Boston Logan, Chicago O'Hare, Dallas Love Field, Los Angeles, and Miami international airports.

"This agreement has the potential to shift the landscape of the airline industry," Attorney General Eric Holder said. "By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country."

Pledge on hubs

In the settlement with six state attorneys general, including Pennsylvania, and the District of Columbia, US Airways - which transports more than 70 percent of the passengers at Philadelphia International Airport - and American pledged to maintain hubs in Philadelphia, Charlotte, New York's John F. Kennedy, Los Angeles, Miami, Chicago O'Hare, and Phoenix airports for three years.

The new American will guarantee continued daily flights for five years to certain cities in the six states that were part of the lawsuit. In Pennsylvania, the new carrier will continue to fly to Pittsburgh, Allentown, Harrisburg, Wilkes-Barre-Scranton, Erie, Williamsport, and State College.

"This order is good news for consumers," Pennsylvania Attorney General Kathleen Kane said. "One million Pennsylvania air travelers would have been negatively impacted by the merger as initially proposed by the airlines."

Mayor Nutter applauded the settlement, saying the merger would benefit the city, Southeastern Pennsylvania, "and the entire tri-state region" and create "a better network than either carrier could build on its own. This will bring more businesses and international travelers and additional service to the region."

US Airways CEO Doug Parker, who will be chief executive officer of the combined airline, said, "This is very good news, and we are grateful to all who have made it happen."

The new airline intends to keep all the airline hubs "forever," not just for three years, as specified in the Justice Department settlement, Parker said on a conference call.

"We've got a network now that we believe is the strongest in the world, and we plan to build upon it," Parker said. "No one should read into the fact that we've agreed to three years to mean that we plan to make changes after three years. We fully intend to keep the hub-and-spoke structure that we have in place forever. We agreed to three years because that's what the states asked for."

The settlement must be approved by the federal judge overseeing the Justice Department's lawsuit and the bankruptcy judge overseeing American's Chapter 11 reorganization plan.

Impact on consumers

For consumers, average fares "could go up a bit," said Seth Kaplan, managing partner of Airline Weekly, an industry publication.

"One reason companies in any industry, not just airlines, merge is to eliminate a little competition and raise prices," he said.

"But in most markets, American and US Airways don't compete head to head with nonstop service," Kaplan said, "and this fact will keep fare increases modest."

A typical American consumer will have three or four choices of airlines offering various connections instead of four or five choices. "That could push up average fares, but not dramatically - say, perhaps $10 to $20 for a typical trip," Kaplan added.

Fares would likely increase more on the half-dozen routes where no other airline offers nonstop service. Still, several airlines offer connecting flights on the same routes, and "ultra-low-cost" airlines, such as Spirit, love to jump on routes "when fares get too high," Kaplan said.

After the required divestitures, the merged company expects to operate 44 fewer daily departures at Reagan airport and 12 fewer daily departures at LaGuardia, where the two airlines now operate 290 and 175 daily departures, respectively. The changes will not reduce total employment at the new airline, the companies said.

"This agreement allows us to take the final steps in creating the world's largest airline, flying more travelers to more places than ever before," said American CEO Tom Horton.

The new American, with 6,700 daily flights to 336 destinations in 56 countries, will be able to compete with Delta, United, Southwest, and large foreign airlines around the world, Horton said.

Even with the required divestitures, the new airline expects to save more than $1 billion annually beginning in 2015.

The companies said the reductions at Reagan and LaGuardia will be "manageable" - 112 out of about 6,700 daily flights.

The new airline's total value is more than $17 billion "based on today's US Airways trading prices," Parker said.

To maintain service to small and medium-sized cities from Reagan airport, the new American will use its commuter slot gates at Reagan.

Southwest Airlines and JetBlue Airways both want to buy the gate rights at Reagan and LaGuardia. On Monday, JetBlue offered fares of $55 for flights out of Reagan airport to emphasize its position that a merged American-US Airways should only be allowed to keep 55 flight slots at Reagan - the number that US Airways currently has.

In an e-mail to customers Monday, JetBlue said: "Just to make sure Washington gets the message, we put together this nice sale for you! Fares from $55 to Boston, Fort Lauderdale, Orlando and Tampa. Hope you can "slot" a trip in between November 12 and December 18!" Tickets had to be purchased by Nov. 12.


lloyd@phillynews.com

215-854-2831

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