The New American

In Settlement Talks, Here Was the Easy Stuff for the New American Airlines


In Settlement Talks, Here Was the Easy Stuff for the New American Airlines

Photograph by Tim Boyle/Bloomberg

Under their merger deal with U.S. regulators, American Airlines and US Airways (LCC) are required to do several things they’d rather not do. The biggest burden for the new airline will be selling some access at Reagan National Airport near the nation’s capital, which is a US Airways hub and a profitable destination for airlines given the preponderance of business and government-related travel. They’ll also lose about a dozen daily flights at LaGuardia Airport in New York, under a similar divesting process. The Justice Department, which filed suit in August and argued that the merger would reduce competition and make air travel more expensive, sought to portray the settlement as even better than the department might have gotten from a trial. In the grand scheme, however, of engineering the word’s new largest airline, American and US Airways face several mandates they were happy to agree to:

Keep all current hubs for three years
This provision involves nine large airports where the carriers currently operate hubs and was an easy request, US Airways Chief Executive Doug Parker said in a call with reporters. “The intent is to maintain all of our hubs forever,” he said. Unlike the situation for Delta Air Lines (DAL), which has dismantled its Memphis hub acquired from Northwest, the new American doesn’t see much overlap in its hub configuration. “Companies do what they’re financially motivated to do, and in our case … those hubs are successful today, and we think they’ll only become more successful with the merger,” American’s CEO, Tom Horton, said.

Maintain existing service for five years
This requirement was sought by attorneys general in the six states that had sued to block the merger: Arizona, Florida, Pennsylvania, Michigan, Tennessee, and Virginia. It’s designed to preserve air service in smaller cities that may not be the most advantageous financially. That means the new airline must keep flying to such places as Yuma, Ariz., and Kalamazoo, Mich., until 2019. This shouldn’t be too much of an imposition given that executives at both airlines have long said their goal is to create the world’s largest airline network, making the new American Airlines attractive to global businesses that may need to send an employee to Knoxville.

Keep regional flights from Reagan National for five years
This requirement (pdf) was negotiated by the Department of Transportation as part of the Justice Department settlement talks. It aims to address the worries by many in Congress that access to the nation’s capital could be curtailed. The agreement mandates that the new airline will continue using its commuter slots to serve small, medium, and non-hub airports from Reagan National. The airline will be allowed to decide which cities it will serve with those slots.

In the end, the regulators’ demands were not particularly onerous, with the settlement striking many in the industry as a simple method for the government to extricate itself from an antitrust lawsuit that had proven politically unpopular with labor unions, business groups, and many local elected officials. George Hoffer, a transportation economist at the University of Richmond, says the latest, and largest, U.S. airline merger was inevitable given the Justice Department’s prior assent to allow Delta and United (UAL) to become bigger carriers. “Once you created a super-Delta and a super-United, you had to create a super American,” Hoffer says.

Bachman is an associate editor for Businessweek.com.

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