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Tue November 12, 2013
American-US Airways Merger Clears Last Major Hurdle
The Justice Department has reached a preliminary agreement with U.S. Airways and American Airlines, allowing the two to merge, creating the world’s largest airline.
The settlement requires the airlines to sell slots, gates and ground facilities at major airports around the country.
The Wall Street Journal’s Jason Bellini joins Here & Now’s Jeremy Hobson with details.
JEREMY HOBSON, HOST:
From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.
The Justice Department has reached a preliminary agreement with US Airways and American Airlines, which will allow the two to merge, creating the world's largest airline. The settlement requires the airlines to sell slots, gates and ground facilities at major airports around the country. And joining us for more, is Jason Bellini of The Wall Street Journal. And, Jason, I want to go back first to the original objections in August. The Justice Department made the moves to block the merger. What were those objections?
JASON BELLINI: Hi, Jeremy. Well, back in August, the Attorney General Eric Holder said, this is going to be a bad merger for consumers. He said, you'd see higher air fares, higher fees, fewer choices, less legroom - actually, he didn't say anything about less legroom.
BELLINI: But, the point was that it was going to be bad, bad, bad. The court also said that the merger would make it easier for the remaining airlines to cooperate with one another rather than compete on price and service. So it's going to be bad all around.
HOBSON: So what about these concessions, as I said, sell slots, gates and ground facilities at major airports around the country. Tell us more about what the airlines are going to have to do.
BELLINI: Right. Well, these two airlines is just going to have to give up their strangle hold, especially on the East Coast. US Airways and American agreed to give up slots at Reagan National Airport near Washington. They're going to reduce their combined daily departures there by about 15 percent. They're giving up slots at LaGuardia Airport in New York. They're going to cut their service there by about seven percent. And this is going to make room for potentially low-cost carriers to get more slots there.
They also agreed to give up gates in Chicago - two gates in Chicago, two in Los Angeles, two in Dallas, two in Boston, two in Miami. And they agreed to keep serving several cities, including Virginia, Michigan, Florida, Arizona and Philadelphia and Tennessee. All those states had joined in the Justice Department's suit.
I also want to add that Jack Nicas and Brent Kendall of The Wall Street Journal reporting that according to their sources, the airlines had pledged to continue service at some other small- and medium-size cities. As you know, their concern was some of these cities that are not profitable, they could end up with no major carrier serving them.
HOBSON: Oh, yes. It would be a shame if senator such and such would have to switch airlines to get home to his airport. Anyway, what about the low-cost carriers that are coming in? They will have to come in and fill some of these gates.
BELLINI: Well, here's what Attorney General Eric Holder is saying today. He says, "this deal has the potential to shift the landscape of the airline industry" - that's a quote - by guaranteeing that low-cost carriers are going to have a larger presence in crowded airports in major cities across the country. Investors seem to agree with this. Southwest Airlines, they're going to probably pick up some gates in LaGuardia. They have seen their shares rise one and a quarter percentage points when I last checked. And JetBlue, it's going to get - they're likely to get slots at Reagan Airport. They've jumped 4.6 percent today.
HOBSON: Well, American Airlines' shares rose 23 percent after the news. This has to still be approved by a judge, this merger. But in the meantime, what does it mean for American?
BELLINI: Yeah. It's pretty likely that the judge will approve this, that this will go forward at this point. And as you mentioned reflected in share rise - the rise in share price of American Airlines. Bloomberg News, for instance, asked six airline analysts what impact this merger will have on operations. And they predicted that the combined carrier, American/US Air, would trim 3.9 percent of existing capacity once the routes were reworked and optimized. And so this deal also boost the shares of other U.S. airlines, including United, Delta, all in the expectations that this merger is going to reduce overall capacity in the industry, probably not something that, you know, consumers themselves would be thrilled about. But consolidation, consolidation, consolidation has been the mainstay of the industry.
HOBSON: And it looks like it will continue. Jason Bellini of The Wall Street Journal, thanks as always.
BELLINI: Thank you.
HOBSON: You're listening to HERE AND NOW. Transcript provided by NPR, Copyright NPR.