GAO throws up Red Flags over US/AA Merger

[gizmo_sc]

More in the link:

http://www.usatoday.com/story/travel/flights/2013/06/19/american-airlines-us-airways-merger/2439297/

 

[wings396]

Sure, stop the "merger madness" after everyone else has merged. Oh the fear of losing those ticket prices of 20 years past.

 

[USFlyer]

Nothing new here. GAO issued similar reports on UA-CO, DL-NW and WN-FL. Of note, the GAO points out that while competition will be reduced on 1000+ routes, most of those routes currently have more than two viable competitors.

 

[usa1]

1978 national average prices:

Cost of a new home: $62,500.00
Cost of a new car: $7,500
Cost of a first-class stamp:$0.13
Cost of a gallon of regular gas: $0.63
Cost of a dozen eggs: $0.82
Cost of a gallon of Milk: $1.71
Cost of a 250 mile plane ticket: $100.00

2013 national average prices:

Cost of a new home: $234,000.00
Cost of a new car: $30,000
Cost of a first-class stamp:$0.46
Cost of a gallon of regular gas: $3.45
Cost of a dozen eggs: $3.39
Cost of a gallon of Milk: $3.44
Cost of a 250 mile plane ticket: $100.00

Airline employees pay and benefits from 1978 to 2013: DOWN over 25%? And lose of all retirement hopes?

I'm tired of subsidizing airfares .... anyone with me?

 

[WorldTraveler]

there is a certain fear now that AA-US will be the last major merger and will be the final merger that will result in 4 large airlines controlling the majority of the US domestic market and 3 in the US int'l market.

The DOJ, DOT, and GAO all have to do their jobs but the result will probably still be that AA/US will have to divest some slots at DCA - perhaps the majority of what AA adds to US' portfolio - but there will be protections that ensure slots that are divested will be used for service to small cities, which will favor that those slots go to DL and UA or perhaps independent regional carriers.


Parker keeps arguing that small cities will be the ones that will lose service but I can guarantee you that other carriers are arguing before the DOT, DOJ, and GAO that they will serve many of those small cities if they have the opportunity to do so.

Given that DL had to give up slots at LGA as part of the slot deal and they still don't have a majority of the slots at LGA and UA had to give all of its pre-merger slots at EWR while the new UA has a slightly larger percentage of slots at EWR as combined US/AA would have at DCA, the chances are very high that there will be divestitures at DCA.

The difference w/ AA/US is that there won't be an auction because slots will have to be given to those carriers who are willing to fly to small cities and the number of players willing to do that is small and the economics simply don't favor paying a lot for slots to serve a small city.

The price of the merger will be losing slots for which AA/US won't receive the same market compensation they might otherwise have received if they had sold the slots in an open transaction.

Nonetheless, AA/US will still have a sufficiently large presence at DCA and the merger will proceed w/ few other wrinkles other than abandoning a few combined gates at some airports.... which they probably don't need anyway.

 

[Phoenix]

... the merger will proceed [without] a few combined gates at some airports.... which they probably don't need anyway.

So there is nothing to see here. Move along.

 

[WorldTraveler]

the article is about the government's concerns which means there is something here... my opinion is that the merger will get approved w/ conditions but it will require divestitures of slots at DCA, something Parker keeps saying isn't necessary and will hurt the ability of the new AA to connect small cities to DCA.

If you are only interested in knowing that the merger will be approved, regardless of the steps involved, then sure you can check back in a few months. Since this is a discussion forum that has followed the twists of turns of every other merger over the past ten years, it is pretty realistic to expect those same twists and turns will be discussed here - and are of interest to some people.

If you want to accept that the government ultimately won't care who is flying some of these small city to DCA routes, then the merger will probably be signed off in a couple weeks.... since Parker wants to keep fighting to hold onto all of the slots for AA/US, approval might take a little while longer while some sort of agreement is reached with slot divestitures still likely but perhaps w/ US having a little more say-so in how it happens.

It is also very possible that Parker is a lot less interested in preserving access to the small cities than he is in making sure that B6 and WN don't end up w/ a bunch of slots that they can use to fly to a lot of the big markets that really do affect the profitability of US' DCA hub.
Keep in mind that DL managed to get a lot of the slots it had to divest at LGA end up in the hands of WestJet w/ whom DL was seeking a deeper partnership and who now flies in one of the most contested US-Canada markets - which DL indicated they don't want to mess w/ using their own or DCI aircraft.

Parker's moves could be to try to accomplish the same type of thing - limit the handover of slots to US based low fare carriers who could dramatically harm the economics of the DCA hub.

 

[robbedagain]

YOU can bet your money if WN or B6 get a hold of the slots they will not fly to the small cities guaranteed
and if dl or ua say they will then they probably would find a way to say ok but then after a few months they would drop it saying its unprofitable

 

[700UW]

UA didnt give up their slots, they leased them to WN, not a permanent divestiture.

 

[cltrat]

the only thing I believe less than an airline exec is a goverment agency.

 

[FWAAA]

the only thing I believe less than an airline exec is a goverment agency.

I think that's a pretty good philosophy.

From the linked article:

If the Justice Department forces the new American to surrender slots at Reagan, Parker predicted competitors would stop serving those communities. When US Airways lost slots at Reagan a year and a half ago, JetBlue acquired 16 slots and used them to serve Boston, Fort Lauderdale, Orlando and Tampa.

"We were forced to reduce service to smaller communities," said Parker, citing an end of service to Madison, Wis., and Grand Rapids, Mich. "We want to fly to those communities."

When US "lost slots" at DCA? Huh? US picked up 42 slot pairs from DL, enough for 21 daily departures. Sure, US handed over more than three times that number of LGA slots (great negotiating skills at work there), but US gained DCA slots - it did not lose DCA slots. DL then funded the slot divestitures to jetBlue and Westjet.

Forced to reduce service to smaller communities? Quite obviously, the cities still served from DCA by US are more profitable to the US network than nonstops to Madison or Grand Rapids, or else US would still serve them.

Which benefits consumers more? Lower fares from DCA to BOS, FLL, MCO and TPA or some 50-seaters to small burgs at very high nonstop fares on US? The answer from the antitrust enforcers, every time, would be lower fares to the big cities where lots and lots of people fly, like BOS, FLL, MCO and TPA.

If Parker manages to hold on to most or all of the combined new AA DCA slot holdings, that will be a minor miracle. More likely, new AA will be forced to auction a number about equal to the current AA holdings to WN/B6/NK. That would keep new AA at about half of the DCA slots, which is the upper limit identified by the government during the US/DL slot swap.

I don't think Parker gives a rat's ass about the "small communities." He really doesn't want any more low-fare competition at DCA from WN, B6 or NK.

Not a chance that DL or UA get DCA slots out of this unless WN, B6, NK (or Westjet) don't want them.

 

[robbedagain]

Except that NK (spirit) left DCA to come to BWI bec they could not get a favorable time slot from what ive heard now they have 3 flights or so a day to dfw fll and las

 

[WorldTraveler]

UA didnt give up their slots, they leased them to WN, not a permanent divestiture.

Good point… but UA can’t use them which is the intent of the legislators….

YOU can bet your money if WN or B6 get a hold of the slots they will not fly to the small cities guaranteed
and if dl or ua say they will then they probably would find a way to say ok but then after a few months they would drop it saying its unprofitable

And Parker is right in showing that slot divestitures for the purpose of creating increased competition result in an increase in flights by low fare carriers… which regulators have said has been a priority in keeping the network/legacy carriers and their propensity in check.
B6 and WN and their likes have been heroes to the public and the regulators… but the situation at DCA is different….

Forced to reduce service to smaller communities? Quite obviously, the cities still served from DCA by US are more profitable to the US network than nonstops to Madison or Grand Rapids, or else US would still serve them.
Which benefits consumers more? Lower fares from DCA to BOS, FLL, MCO and TPA or some 50-seaters to small burgs at very high nonstop fares on US? The answer from the antitrust enforcers, every time, would be lower fares to the big cities where lots and lots of people fly, like BOS, FLL, MCO and TPA.

Of course it is about economics for the airlines but for Congress it is about the fastest ride home on Friday and not near as much about protecting the consumers, if Congress’ perks are at risk…..

If Parker manages to hold on to most or all of the combined new AA DCA slot holdings, that will be a minor miracle. More likely, new AA will be forced to auction a number about equal to the current AA holdings to WN/B6/NK. That would keep new AA at about half of the DCA slots, which is the upper limit identified by the government during the US/DL slot swap.
I don't think Parker gives a rat's ass about the "small communities." He really doesn't want any more low-fare competition at DCA from WN, B6 or NK.
Not a chance that DL or UA get DCA slots out of this unless WN, B6, NK (or Westjet) don't want them.

Parker wants to hold onto the most amount of slots as he can….
But it is precisely because regulators have several cases worth of merger history that they can now look back and see that the remedy that was used at LGA and DCA before may not work at DCA this time around….
I think you might be surprised if the slots aren’t auctioned off to the highest bidder as was done before but at least some are required to be retained for small city service….
Perhaps US will be told they can either retain the slots to serve small cities as they are used today or give up the AA slots which are used to serve large cities….
Or perhaps a combination of the two…..

 

[freedom]

We can't give up even one slot at DCA ,we need to fight tooth and nail.

 

[robbedagain]

dca is slot controlled and if the govt tells the 2 carriers they must give up slots for the blessing of the merger then what choice do you have either gve it up or dont merge

wt i think may be a combo of aa and us slots to give up might be the way they could do it but on the other hand may be if aa were to give up its slots and move into the same area as us i dont know if that would work or not