The federal government reached a pre-trial settlement this week with American Airlines and US Airways, bringing them one step closer to a December merger. The deal hinges on the mega-airline giving up some gates and takeoff and landing “slots” to rival airlines. The settlement ensures that low-cost carriers like JetBlue and Spirit Airlines can still compete even as American becomes the world’s biggest airline.
A Washington, D.C., court must still approve the settlement, which clears up concerns held by the attorney generals of six states and the District of Columbia that had joined the federal suit in August to stop the merger. Worries centered on the possible decreased air service and increased fares at airports in their states. The merger would likely drive up the cost of travel between many city pairs, as only four big airlines, rather than five, will service 80 percent or more of the U.S. travel market, according to the Department of Justice (DOJ).
The DOJ lawsuit had opposed the airlines’ fusion over observable patterns in past mergers like Southwest-AirTran: “Following a merger, carriers tend to remove capacity or grow more slowly than the rest of the industry.” The suit contained research data showing the merger would limit choices for consumers on hundreds of city pairs, particularly non-stop routes. Texas and Arizona, the states where American and US Airways are based, supported the lawsuit.
In the settlement, the new airline will concede rights to takeoff and landing slots so other carriers can serve busy airports now blocked by too few available gates or government restrictions limiting the total number of takeoffs and landings. Slots at New York-LaGuardia and Washington-Reagan National were the jewel in the deal. The new Fort Worth-based airline, now simply called American, will lose a combined 104 slots at the D.C. airport, 15 percent of current rights. Having just a few slots can be a game-changer: Southwest gained slots at Newark during the 2010 United and Continental merger and it caused a ripple effect of reduced fares on many routes, according to William Baer, Assistant Attorney General for the DOJ’s Antitrust Division.
American also promises to maintain current service in Phoenix, Philadelphia, Charlotte and four other cities for three years, as well as preserving certain routes in the plaintiff states in the federal lawsuit.
Smaller airports may lose non-stop flights due to mergers, as a 2013 MIT Study found, but “[a] significant portion … did not directly decrease passengers’ access to the global air transportation network, and instead involved cutting redundant service.” In other words, if someone flying from Chattanooga can reach the same airports by connecting through either Memphis or Atlanta, then cutting non-stop service to Memphis still allows similar connection options from Atlanta.
If the merger means low-cost carriers gain entry into new air markets, such competition will likely slash fares. Airfares in the summer of 2013 were already 18 percent lower than in 1999, adjusted for inflation. That’s news to make passenger numbers really soar.