ATLANTA/WASHINGTON Nov 13 Consumer advocates
worry the decision to green-light another big airline merger
will mean higher prices before long, even though upstart
airlines will get more access to busy airports near Washington
D.C. and New York as part of the deal.
In the short term, the industry is waiting for the sale of
takeoff and landing slots by the merging US Airways Group Inc
and AMR Corp's American Airlines, a process
that will take several months and be overseen by the Department
The largest airlines are expected to be barred from bidding,
leaving the field open to upstarts such as JetBlue, Allegiant
and Spirit, if they chose to participate.
Despite this, fliers will ultimately face higher airfares
after the industry shrinks to just three major carriers, said
Rick Seaney, chief executive of FareCompare.com, which tracks
"In the past decade, we've seen the industry transformed
from one that boasted eight large airlines to a mere four. With
the latest merger, it drops to three," Seaney said. "It is
likely we'll be sitting around in 2020 saying, 'I wish we still
had eight carriers.'"
Industry experts were uncertain how much airfares might
ultimately rise on different routes as a result of the merger.
However, Delta's merger with Northwest Airlines in 2008 led
to price increases of more than 10 percent on four of the routes
they dominated, as well as service cuts on another route,
according to research by the American Antitrust Institute.
Based on the details on a settlement announced on Tuesday,
antitrust experts said the consumers who could benefit would be
those who use New York's LaGuardia, Reagan National outside
Washington D.C. and other major airports.
Consumers flying outside those markets, for example from
Dallas to Charlotte, could be hurt, said Jeffrey Shinder, an
antitrust expert at Constantine Cannon LLP.
"Some consumers will end up being better off," said Shinder.
"(But) I think in the long run, because it will take a bit for
this to play out, that prices will be higher because of the
George Hoffer, a transportation economist at the University
of Richmond, said consumers will face higher prices, a key
concern the Department of Justice raised in August when it
opposed the merger.
"In all the trenches there is one less competitor.
Therefore, the remaining firms have more pricing power," Hoffer
He noted that Delta Air Lines Inc's stock hit an
all-time high after the US Airways-American merger settlement
"The market realizes Delta now has more pricing power,"
However, Herbert Hovenkamp, who teaches antitrust law at the
University of Iowa College of Law, praised the decision as
"The leg up that the government has given some of the low
cost carriers, I think, is going to have a very positive impact
on the industry," he said.
Under the deal announced on Tuesday, US Airways and American
Airlines agreed to sell 104 take off and landing slots at Reagan
National and 34 at Laguardia, along with supporting gates and
They must also sell two gates at five other airports:
Chicago O'Hare International, Los Angeles International, Boston
Logan International, Miami International, and Dallas Love Field.
Sixteen of the 104 Reagan National slots are currently
leased to JetBlue Airways Corp and will be offered to
JetBlue permanently, according to the settlement agreement.
The Department of Justice will run the sale and is expected
to bundle slots into groups of six to 10, to be sold along with
a gate. The airlines will be allowed to sell the slot and gate
bundles or make trades for them.
The government will also determine which carriers are
eligible to buy or trade for slots.
The carriers are expected to include Southwest Airlines Co
, JetBlue and Virgin America, all of which have
previously expressed interest in gaining access to US
Airways-American assets. Other low-cost carriers include
Allegiant Travel Co and Spirit Airlines.
"My expectation is that the DOJ is going to not include
United or Delta on the list of qualified buyers," a source close
to the airlines told Reuters.
Delta said on Wednesday it was urging the Justice Department
to allow all airlines to purchase slots, saying it wanted to bid
for slots and facilities at National Airport as well as Dallas.
Under the proposed final judgment, the slots must be sold
within 90 days of either the deal closing or when the Justice
Department draws up the bundles of slots and gates.
The new carriers could be using some slots by June and
certainly by the fall of 2014, according to an expert familiar
with the settlement, who could not be named because he was not
authorized to speak on the record.
American has asked the court considering its bankruptcy case
to approve the settlement in a hearing set for Nov. 25. The
companies anticipate closing the deal in the first half of