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Another Airline Merger

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American Airlines aircraft sit at Miami International Airport as Miami-Dade County, Miami, Florida. Photo by Joe Raedle/Getty Images

It's official. Last week, we learned that American Airlines and US Airways will merge and create the world's largest airline after a bitter, yet short, scuffle with the Justice Department. DOJ had complained that if the merger went through, only four airlines would control 80 percent of the domestic air service. They extracted a few concessions from the players and then let it drop.

Analysts say DOJ had a weak case against the merger, in part because it had allowed other giants like Delta Airlines and United Airlines to merge with smaller carriers in recent years. (Before the US Airways/American merger was approved, International Air Transport Association President Jeff Shane noted in an op-ed that both Delta and United mergers also created the biggest airlines ever. It's a trend.)

 

The upshot of the latest merger will be a slight rearrangement of the players in the airline industry such that a few smaller airlines like JetBlue and Southwest will have an opportunity to penetrate the US Airways hub of Reagan National Airport near Washington, D.C. Some flight patterns will change. Others will emerge. Consumers will probably see price fluctuations (up), but that probably would have happened anyway.

Lawmakers expressed concern earlier in the year that the merger would harm consumers. The Government Accountability Office said the merger would reduce competition on more than 1,600 routes and create new competition in 210 routes. But on most of the routes where the number of available airlines would go down, there were still at least two options.

At a Senate hearing on the issue in June, US Airways CEO Doug Parker said the newly merged airline would be only a little bigger than Delta and United and allow it to compete with the two airline giants more effectively. As per usual in such pleas to create bigger companies, Parker sold the merger as a win for consumers. "A broader airline network is better for passengers because it gives them more choices, a wider variety of services, and more competition on more routes," he said.

 

This merger was probably a foregone conclusion from the beginning, despite the concerns from the Justice Department and Congress. The betrothed airlines left nothing to chance, however, and sank a fair amount of money into Capitol Hill lobbying to ensure that the protest against their union wouldn't last too long.

Now it's done, and this may be the end of this particular debate. The merger between US Airways and American marks the last involving the big legacy airlines. What happens next will be a function of how well the smaller carriers compete with them. It will be a new story.

What are the next steps for the airline industry in adapting to the newest, biggest airline? What can we expect from competitor carriers? Can they fill the void of lost competition on some routes? What does the settlement with the Justice Department say about the state of deregulation in the airline industry? Is it working or not? Is this kind of consolidation necessary in an expensive and highly competitive market? What are the red flags that antitrust regulators should be looking for in the future?

From the Transportation Insiders

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