Talk about flyover land.
With the proposed merger of American Airlines and US Airways forming what could become the nation’s largest carrier, a group of rural and Midwestern senators are asking new questions about the fate of midsize metropolitan areas like Minneapolis and St. Paul.
The concerns came into focus Tuesday in a Senate hearing led by Sen. Amy Klobuchar, D-Minn., who challenged top executives from American Airlines and US Airways to defend what she called the “great wave of consolidation in the airline industry” that saw Delta Air Lines swallow Eagan-based Northwest Airlines in 2008.
The proposed American-US Airways merger would result in the nation’s top four airlines — including Delta, United and Southwest — controlling roughly 80 percent of the domestic airline market, a dominance that critics say could lead to higher fares, poorer service and a winnowing of less profitable routes.
“If this goes to an extreme, you’d have just a few legacy carriers competing just between the coast cities,” Klobuchar said, “and then the rest of the country, especially in the Midwest, could get hurt with the fares.”
The airlines, facing antitrust scrutiny from Congress and the U.S. Justice Department, say that the proposed American Airlines would actually open up new networks and routes on a stronger, more profitable carrier.
“We think this enhances competition, in that it creates another global airline on par with Delta and United,” said American Airlines Chairman and Chief Executive Officer Thomas Horton. “It creates a competitive counterweight to those two big airlines.”
‘No substitute for competition’
For analysts watching a series of airline mergers in recent years, this is familiar ground. “No doubt, today’s hearing is invoking a sense of déjà vu,” said William McGee, a Consumers Union consultant who testified before Klobuchar’s antitrust panel, a subcommittee of the Senate Judiciary Committee. “There is no substitute for competition.”
Both sides agree that as the few remaining U.S. legacy airlines face stiffening global competition, their incentives to merge intensify.
“But then what we have to ask in Congress is, what does this mean for the American people,” Klobuchar said. “What does this mean for people trying to get from Cincinnati to Pittsburgh?”
To help answer those questions, Klobuchar wants a General Accountability Office (GAO) study of airline consolidation that will look at the broad economics of the industry, not just the antitrust implications.
When Northwest Airlines merged with Delta, Klobuchar was a freshman senator who could do little more than pose questions. Now the American-US Airways merger hits as Klobuchar debuts in her new role as chairwoman of a subcommittee on antitrust, competition and consumer rights.
But only a Justice Department review could significantly hamper the deal, and skeptics of industry consolidation, including Sen. Al Franken, D-Minn., are calling for the department to administer a particularly close review.
“We have seen a tremendous amount of consolidation in the airline industry over the last several years, and that consolidation has often resulted in job losses, higher ticket prices, and lower quality of service for consumers in Minnesota and across the country,” Franken said.
Given the Justice Department’s sign-off on the last four major airline mergers, some observers question whether the Obama administration will put up any significant roadblocks to the American-US Airways deal, which has the support of some of the carriers’ major labor unions.
Among those characterizing the merger as all but a done deal is Sen. Ted Cruz, R-Texas, whose state is home to American Airlines. Cruz said he would welcome the proposed new airline, adding that he thought it is “widely expected to be approved.”
Given that momentum, Horton and US Airways chief executive Douglas Parker faced a string of questions from senators on Tuesday seeking assurances that services to their states will not be cut, eliciting public promises for the benefit of lawmakers from Arizona to Connecticut.
Chief among them was Sen. Chuck Grassley, R-Iowa, where five airports are served by two airlines. “Iowans ask me about the availability of flights,” said Grassley, the ranking Republican on the Judiciary Committee.
“Our intent is to keep all the airlines, keep all the people, and all the markets we serve today,” replied Parker.
The merger would cover some 900 domestic routes served by the two airlines, only 12 of which overlap, the executives said. Rather than cutting routes to small or midsize cities, they argued, the merger would likely give travelers more options.
“US Airways doesn’t fly to Rochester [Minnesota], and American doesn’t fly to Hilton Head [South Carolina],” Parker said. “Together, we will.”
Delta’s dominant position in the Twin Cities means the proposed merger might have less of a direct impact on the region. But Klobuchar said Minnesota travelers still have a long-term stake in the deal. “It can have an effect on consumers with fares, service and the ability to serve markets that we should be concerned about,” she said.