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Top 10 Reasons I Don’t Want A US Airways American Airlines Merger To Go Through

by on August 20, 2013 · 47 comments

in American, Top 10, US Airways

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Although the corporate teams at both American Airlines and US Airways seem to be just as strongly committed to the proposed merger of the two airlines as ever, and it was proceeding smoothly until the US Justice Department’s announcement last week that it would be suing to block the merger, a lot of people have been speculating about the current prospects for the merger to go through and whether or not that would be a good thing.

The proposed merger will have massive ripple affects across both markets.

The proposed merger will have massive ripple affects across both markets.

Though there are several positive aspects to the merger, there are also bound to be a lot of drawbacks – especially when it comes to consumers. So for today’s Top 10, I wanted to look at reasons why the US Airways American Airlines merger might not be such a great idea.

As I’ll point out, some of my reasons echo the DOJ’s claims, but most of these have to do with the consumer experience, changes to the airlines’ frequent flyer programs, and other flyer-based concerns. Change isn’t always a bad thing, and I’m not saying all of these will certainly come true, but if they do, it’s bound to hurt flyers and that’s why I see these as reasons that the merger might be bad news.

The crux of the DOJ's argument is that

The crux of the DOJ’s argument is that less competition will mean less choices.

1. Less Competition Means Less Choice: The crux of the DOJ’s case is that it rejects American and US Airways’ claims that the overlap of their two airlines is limited to a mere 12 routes and asserts that they compete on over a thousand routes with connecting services and direct competition on nonstop routes worth over $2 billion in annual revenues. Then there is the matter of airport slots, with one major example being that the new airline would control over 60% of the gates at Reagan National DCA, which would constitute a monopoly. Beyond just the two airlines, though, after the merger, the new American, along with Delta, United and Southwest would operate over 80% of domestic commercial airline services, the DOJ contends, which would almost certainly result in higher prices thanks to fewer choices of airlines. While you can quibble with the numbers in the DOJ suit – and many do, noting that the DOJ is holding this merger up to a lot more scrutiny and many more criteria (including that connecting route one I cited above) – there is little doubt that a merger this big would mean a lot less competition in many parts of the country and that will have a ripple effect that I’ll get into below.

Airfares are up across the board.

Airfares are already up across the board and this could make it worse.

2. Higher Airfares: This goes hand-in-hand with #1 in that less competition leads to higher airfares. Although airfares have, for the most part, only risen modestly over the past decade (about 2% year over year) despite several large airline mergers, with only three legacy carriers left, there’s bound to be a huge impact on airfares. That’s not only because there will be fewer choices on more routes, but also because there will be less incentive not to price match when one airline raises its airfares. With a healthy, competitive marketplace with lots of airlines flying, even if one or two airlines raises their prices, others can still keep theirs low for a competitive edge. With fewer competitors, though, there is less incentive to keep airfares low, and flyers are the ones who will end up paying.

There is nothing more infuriating than losing your luggage.

Ancillary fees such as for checked luggage could be hiked.

3. Higher Ancillary Fees: Also as a corollary to less competition, one of the other major reasons the DOJ cited when making its case was the fact that with fewer airlines, there would be less resistance among the major airlines to raising ancillary fees for services such as checking bags or making changes to tickets – that would result in more frequent fee hikes across all the major airlines. In fact, we’ve already witnessed this when, in May, first United, then US Airways, Delta and finally American all raised their domestic ticket change fees from $150 to $200 over the course of a few weeks. With one less major airline in the mix, airlines will probably coordinate their pricing structures more and more – and it’s the consumer who will feel the brunt of it.

US Airways Award Chart

Sweet spots on the US Airways award chart will vanish.

4. Award Chart Sweet Spots Will Disappear: One major concern for folks with miles in either or both programs is what the award chart of a merged airline will look like. In the best of al possible scenarios, the two airlines would take the best of both their award charts and combine them, but the pessimist in all of us has to suspect that the new airline will incorporate the more expensive option in every case. That means the likely disappearance of “sweet spots” from both charts. For US Airways, that means no more flying to Asia in business class for just 90,000 miles, or the South Pacific or South Africa for just 110,000 miles – instead we’ll be stuck at American’s higher levels of 100-110,000 to Asia, 125,000 miles to the South Pacific and a whopping 150,000 miles to Africa. For American’s part, we might see the disappearance of its off-peak saver awards that mean paying only 40,000 miles for roundtrip economy award tickets to Europe and Southern South America at certain times.

Star Alliance

US Airways will leave Star Alliance if the merger goes through.

5. US Airways Might Stay In Star Alliance Without The Merger: One of the more disappointing aspects of the merger was the fact that the new airline would continue in American’s alliance, Oneworld, and that US Airways would exit the Star Alliance. A recent announcement had that coming as soon as the end of the year, which meant that many people were rushing to book last-minute Star Alliance awards while they still could – or to rack up the US Airways miles necessary to do so in the next few months before the ability to was taken off the table. If the merger doesn’t go through, that means US Airways could potentially remain within the Star Alliance, which has 28 current airline members – including some of my favorites like ANA and Lufthansa – as opposed to Oneworld’s comparably few 12 member airlines.

American Airlines Elite Status

Elite Status benefits for either airline may become harder to reach.

6. No More Cheap US Airways Buy Miles Promos: One easy way to rack up US Airways miles in a hurry without having to pay through the nose is through their frequent buy miles promotions, with some of them carrying up to a 100% bonus (including the current one that runs until the end of August). That means you can buy miles for about half price at just around 1.9 cents apiece. If you know how to leverage the US Airways award chart (see “sweet spots” below), that could mean deeply discounted award tickets all over the world. On the other hand, although American runs similar promotions on purchased miles, the bonuses lately have only been up to 50% (and more frequently around the 30% mark) and you only get the full bonus when you buy the maximum amount of miles (usually around 40,000), so it’s not nearly as good a deal. Once the two airlines merge, it’s likely that cheap buy miles promotions will dry up as well, which has led many people to speculatively max out US Airways’ promotions for now.

A "world of privilege".. at least compared to traveling without any status at all!

Unless you are a top-tier elite, you won’t be able to get the 100% mileage bonus that AA Platinum and Executive Platinum currently receive.

7. The Disappearance of Great Elite Benefits From Both: Though there’s no knowing exactly what the new elite status system of the merged airline would look like, but it would likely take on US Airways’ four-tier structure, which means unless you’re a top-tier elite, you won’t earn that valuable 100% mileage bonus (as both Platinums and Executive Platinums with American do now). Another major benefit that’s likely to be impacted are Systemwide Upgrades. As of now, American Executive Platinums receive eight per year, which they can use on any paid fare class. US Airways top-tier Chairman’s Preferred members only get two, though they can bring along a companion, so there’s no telling how many SWU’s top-tiers will get post-merger and who will be able to use them. In terms of complimentary upgrades, US Airways offers unlimited free upgrades to First Class within the continental US, Alaska, Canada, Central America, Mexico and Caribbean to all elites whereas with American that’s only an option for Executive Platinums (all others have to put in to use 500-mile upgrade vouchers).

Both airlines also offer elites who surpass the qualification threshold for their elite tier and go above and beyond. American recently unveiled a new set of Elite Rewards that include lucrative bonuses on miles, systemwide upgrades and flight discounts, whereas US Airways’ Special Dividends program is a bit more limited but includes perks like gifting elite status and US Airways Club membership. Although American Airlines just introduced its new suite of Elite Rewards, leading many to speculate that it would unlikely change them soon after a merger, there are no guarantees, and it’s possible that a new elite gifts program would be much more limited in scope post-merger.

US Airways Old Plane

US Airways is often criticized for flying old planes.

8. AA Elites Won’t Have To Fly US Airways’ Old Planes: While US Airways has a great international premium product with its Envoy class, many of its domestic planes are old and outdated.  I even read one passenger review that claimed to have seen duct tape on a crack in the window! US was also lagging behind when it came to in-flight WiFi but it has fortunately been catching up lately, with 1,293 of its daily flights offering service, according to the Routehappy survey released in June. All Airbus A321 aircraft are equipped with Gogo WiFi, and the service will expand to the Embraer 190, 170 and 175 aircraft come fall 2013.

However, overall they are still far behind several of the other domestic carriers, and American is setting a new high standard with its massive order for new aircraft, which will phase out some of their old clunkers and include new business and first class seats as well as updated economy offerings. Their new Airbus 319 arrived in Dallas last week (for the full details, check out our sneak peek) and will begin service on September 16, 2013, from Dallas/Fort Worth to select cities, and then will increase throughout the year. The A319 joins other members of the new fleet, which includes the forthcoming A321T, which is scheduled to begin service from New York JFK to Los Angeles and San Francisco in early 2014. The A321 will have a three-class cabin, plus fully lie-flat First and Business Class seats. The A320neo aircraft with next-generation engine technology will begin service in 2017. AA Elite flyers are naturally excited to be flying in the new stable of planes and will be disappointed if they end up stuck on an old US Airways dinosaur instead if the fleets are combined.

US Airways World Mastercard

If the merger goes through, it will eventually mean the end of the US Airways World Mastercard.

9. Without the Merger, the US Airways Credit Cards Wouldn’t Go Away: In June, American agreed to have Citibank as their credit card issuer going forward. Subsequentaly, Barclaycard, the current issuer of US Airways’ credit card, will eventually stop offering that product, and I suspect that Barclaycard will ultimately convert existing US Airways Mastercard holders into Arrival cardholders. The benefits of the US Airways credit card add up to a lot so it would be sad to see it go, here are the key ones that I like and will miss:

  • Redeem flights for 5,000 fewer miles (when redeeming for US Airways operated award tickets)
  • 2 miles per $1 on US Airways purchases
  • 10,000 Preferred Qualifying Miles after $25,000 spent each calendar year
  • Waived award processing fees: $25 per domestic ticket; $35 per Mexico or Caribbean ticket; $50 per Hawaii or international ticket.
  • Two roundtrip companion tickets each year. Companion is $99 tickets plus taxes and fees. Valid for round-trip coach class travel within and between the contiguous U.S. and Canada when the Primary Cardmember purchases a qualifying ticket (minimum fare purchase of $250 required).
  • Preferred check in and Zone 2 priority boarding on every flight
  • One complimentary US Airways Club day pass every year
  • $75 Club Membership Discount Voucher
  • the US Airways brand (and credit card product), will cease to exist at a certain point.

The current best offer on the US Airways Mastercard is 35,000 miles after first purchase, $89 annual fee waived the first year, 10,000 miles at account anniversary. If the merger goes through, the US Airways brand (and credit card product), will cease to exist at a certain point. For the top Citi AA offers check out this post to get up to 50,000 miles per card.

US Airways may lose Charlotte Douglas International Airport as a hub.

US Airways may lose Charlotte Douglas International Airport as a hub.

10. Some Cities Will Be De-Hubbed: Combining the two airlines could mean less flights to the respective current hubs and an increase in the fares to the existing routes. Past mergers have resulted in airlines aborting unprofitable services and reducing schedules, such as American eliminating St Louis and Delta cutting back in Cincinnati in 2008. With a combined nine hub cities – Charlotte, Chicago, Dallas, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington DC – some are likely to get sacrificed. The two most vulnerable according to a Wall Street Journal assessment are Philadelphia, because of its proximity to New York (which is key to scoring the lucrative business and premium international market), and Phoenix because it serves similar markets to Dallas and Los Angeles. It could also be bad news for regular travelers out of Charlotte due to American’s hub in Miami, as 56 of the 116 U.S. airports that US Airways serves from Charlotte are also served by American.

I personally see US Airways winding down their Charlotte and Phoenix hubs in favor of American Airlines bases like Los Angeles and Dallas while maintaining Chicago and New York to match what competitors like United have going.

Lucrative 100% buy miles bonuses will likely disappear.

Lucrative 100% buy miles bonuses will likely disappear.

For more information, check out these posts:

Official American US Airways Merger Announcement and What It Means For Consumers

How To Prepare for a US Airways American Airlines Merger

Maximizing a Potential US Airways American Airlines Merger

The Potential Winners and Losers of an American Airlines US Airways Merger

American Chooses Citi As Post-Merger Credit Card Partner

US Justice Department Suing to Block American US Airways Merger

Should You Buy US Airways Miles With The Merger On Hold

Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • Hailey

    Hi – I just bought mileages from US airways promo today, and planning to have a trip to Asia via business class from one of Star alliance partner in March 2014. I do not have a date in mind, but would like to book it before US airways become Oneworld. When do you think I should have the decision by? Late November?

  • Ed Colodny

    PHL will not be de hubbed, unless, they decrease arrivals and departure rates for better ops performance or the gov. Issues slots for that airport. It’s a money maker.

  • Points Surfer

    All great points! However a few comments:

    re #1: I think the key is definitely where there is less competition. Domestically? Granted. However a stronger AA would likely boost competition on international routes, no? Also, I could see carriers with lower operating costs like Southwest, Spirit, etc fill the void the merger leaves on domestic routes

    re #2: You could point to recent fare rises as at least partially caused by Delta’s merger with Northwest, Continental + United and Southwest + AirTran, however, if you strip out the parts of rises in fares that are caused by a secular bull market in crude oil, decrease in capacity due to fleet replacement (US carriers aren’t buying A380s to replace those old 747s after all) and good old fashioned inflation, I doubt there is much left that is caused by airline consolidation. I have to admit though, these are back of the napkin calculations, I have definitely not run any numbers, but this merger doesn’t have to necessarily mean higher fares. And, again more importantly, the real question is what routes would have higher fares? I’m sure some international routes would benefit from increased competition from another strong airline and actually have lower fares post-merger.

    I agree with you on most other points though. US Air credit card and award chart sweet spots would be great losses. Though I definitely see legacy airlines steadily moving to a point where they focus on serving international and major domestic routes while lower cost airlines keep a domestic focus – a bit similar to how it works with Emirates + Air Dubai or Cathay Pacific + Dragonair or even the way the market is split in India…

  • Matt

    Brian – can you explain why the DOJ is scrutinizing the AA/US Airways merger more than previous mergers of Delta/Northwest, United/Continental, and Southwest/AirTran? Thanks.

  • mary

    You don’t get it. Stopping this merger is unfair; why allow the others and not this one? Second, AA & US Airways as stand-alones isn’t an option, the huge airlines will crush them. The bottom line is the traveling public has to get used to paying higher fares, they have been artificially deflated for decades. What other item costs less today that it did 20 years ago? Fuel, insurance, fair labor wages, and zillion dollar high-tech aircraft. This is an expensive industry. Consumers love non-stops and without this merger, the only direct flights will be out of Delta and United hubs. While the numbers for US Airways and AA look good as a snapshot, a closer look indicates you have to consider AA is in bankruptcy and US Airways is operating on 2002 bankruptcy labor contracts. They’ll never last without the merger; then you end up with a duopoly. Ultimately, the consumer loses.

  • MarkWorth

    A lot of people assumed that the merger would go through without any issues, because other airline mergers in recent years had.

    The old adage that it’s not over until the fat lady sings seems to be true and was pointed out here:

    American Airlines-US Airways Merger: Not Over Until the Fat Lady Sings
    http://accura.cc/7uxuvq

  • Flyer Fun

    Although I belong to the religion of no government interference, I hope the merger does not go through. With both US Air and American competing for business, I think it less likely that revenue based frequent flyer programs will be the norm. Hopefully, United will eventually be forced to reverse itself in this regard also. :)

  • Captain Mike

    What dinosaur aircraft are you talking about at USAirways….do you realize that American flies A300′s that are older than anything that USAirways flies. USAirways has been and is still getting 1 to 2 new A320 and A321 aircraft a month…..you refer to American getting Airbus aircraft but not until 2017….why wait until 2017 when you can ride on a new aircraft today at USAirways???…….Please get your facts straight before writing any further publications to the general public!!!!

  • tassojunior

    After the AT&T/T-Mobile merger refusal and this, there may be some slight hope the gov’t will actually enforce the anti-trust laws as clearly written and prevent oligopolies. Too bad they haven’t for too long.

    I doubt US will go out of business. It may be forced into being a decent airline to compete. AA is just as good a brand as Delta or UA and can compete fine.

  • Points Surfer

    @8f9efe2aa946518e280b49e45fc33db5:disqus …you know, American retired its last A300s back in 2009…

  • Trajan81

    Calling US Air’s fleet old when AA is still flying MDs is pretty funny! That being said, I wish they’d of started this with UA/CO or Delta/NWA but it seems that of late with DOJ its the last merger that’s the one too many.

  • kevin

    grammar police: less competition, fewer choices.

    otherwise, spot on. I couldn’t agree more that this isn’t in anyone’s interest except the US airways execs.

  • Sol_Invictus

    The merger would make Price Leadership so much easier. Another term for it is tacit collusion: http://en.wikipedia.org/wiki/Tacit_collusion

  • thepointsguy

    I guess it would be more appropriate to say dumpy. US Airways has barebones domestic service vs. AA which serves 3 course meals on Miami-NYC flights!

  • Sean S.

    I think people making the argument that the great award chart benefits would go away if the merger were to proceed may need to start looking at the whole environment here. I am pretty sure the US Airways award chart is going to be going up regardless of a merger going through or not (Delta just made the first shot). So I would get those business class tickets to Northern Asia booked now before we are looking at it costing between 100-125k miles.

  • thepointsguy

    Agreed- they don’t need to be the largest to win. AA is focused on customer service (at least compared to US, which basically has none) and improving their product so I hope US management doesn’t derail this.

  • thepointsguy

    American no longer flies A300s.

  • thepointsguy

    So where does consolidation stop if it isn’t fair to stop a merger? Until there are two airlines left?

  • thepointsguy

    It is a different economic environment and a different administration. I’m not 100% sure why they’re taking a strong stance now vs. before, but maybe they see a brighter outlook for the industry and the “need” to consolidate isn’t there- especially since it will come at the expense of consumers

  • Trajan81

    Oh I agree on that…it’s a lot easier to serve 3 course meals on planes that are old enough to have the galley space for when that was common on all flights in the US :)

  • thepointsguy

    Haha AA’s 737-800 were delivered starting in 2009! http://www.aa.com/i18n/aboutUs/ourPlanes/boeing737800.jsp

  • thepointsguy

    They should give some notice, but I’d book sooner than later. Will update you when we actually get a timeline IF US will leave Star Alliance

  • miffSC

    I don’t think that the merger will necessarily see the end of ‘buying’ miles. One reason Doug Parker has operated this airline in the black for the past few years is because of revenue raising practices…and buying miles is one of them.
    And the US Airways planes are no older,on average, than planes in the other major carrier fleets.

  • http://benhugh.es/ Ben Hughes

    I think the airfare situation is more nuanced than you – and virtually every other travel blogger – are giving credit.

    * If you’re going to use statistics about “average airfare” to support a claim about competition, at least normalize for inflation and oil prices. Much airfare variation is explained by variation in oil prices, which of course has absolutely no bearing on “competition”.
    * The number of actors in a market is not inversely *linearly* related to average prices. There are plenty of counter-examples showing low prices and high competition even with two market-dominant players (AMD/Intel? Apple/Google?).
    * No one is even mentioning, much less seriously considering, economic “economies of scale” often attained long-term in these mergers. It’s just as plausible that increased efficiency through eventual economies of scale will *reduce* fares as it is that the reduced number of market actors will increase them. How do you adjudicate the net effect of these forces? Very difficult.
    * You should always analyze this by asking, “as opposed to what”, that which is most certainly *not* the status quo. American is in *bankruptcy* and will face big challenges going forward if the merger doesn’t go through. No one seems to be asking what airfare will look like under the myriad of other plausible non-merger outcomes, which is of course a far more relevant question than comparing to status quo *today*.

  • penncomm

    I love the irony in your statement….

    “Although airfares have, for the most part, only risen modestly over the past decade (about 2% year over year) despite several large airline mergers, with only three legacy carriers left, there’s bound to be a huge impact on airfares.”


    So, previous mergers have not affected prices…but THIS one definitely will!

    I’m certainly no expert, but I prefer to let the marketplace work. And, if left alone, it usually does just fine. Maybe, just maybe, the market would have room (post merger) for some of the 2nd-tier airlines to expand and provide lower-cost services to a greater area? Just my 2-cents.

    You really do a great job with your blog and I continue to learn a lot from you! Just a friendly disagreement on this issue.

  • http://benhugh.es/ Ben Hughes

    And that 2% I don’t believe normalizes for oil prices. I haven’t run the numbers, but I suspect if you do that, they’ve gone *down*. The other side of “reduced competition” is higher efficiency through economies of scale, and the latter is what everyone seems to be hand-waving or ignoring. The net effect is pretty ambiguous if you ask me. Very difficult to tease out these relationships.

  • tassojunior

    Economies of scale have to do with lowering costs not prices.

    Prices are set by supply and demand and competition. The market.

    If prices don’t go down but costs do you get increased profits.

    That’s what oligopolies are all about.

  • Tom

    Another reason against the merger, that has not been previously mentioned:

    For those of us with a Amex Plat card, we have access to the USAir lounges regardless of which airline we are flying. Amex Plat currently does not provide access to American lounges. This is a tremendous benefit that I would hate to see disappear.

  • http://benhugh.es/ Ben Hughes

    All correct, but IMHO tangential – simply presupposes what ought to be argued: whether they have a high degree of olygopolistic power or not (if not, MR approaches MC under competition, and so the disassociation breaks down).

    The airline industry is an especially bizarre industry to point the finger at for lack of competition and olygopolistic power. It’s probably the most *unprofitable* large sector out there, selling a largely undifferentiated commodity product (at least in Y), and suffering an unusually high correlation co-efficient of input “costs” (oil) to output “prices” (airfare)!

  • Chris

    Adding stars does not make your points any better.

  • Chris

    Well, not entirely true. You can use AMEX Plat for AA lounges if you are flying on AA.

  • Chris

    They already allowed a US Airways merger in the past decade (with America West)…I think one is enough.

  • Jonathan

    What’s with the MD5 hash?

  • thepointsguy

    True.. though hopefully Amex would strike a deal with the new carrier to keep that full membership in tact.. Though I wouldn’t hold my breath for that to happen!

  • thepointsguy

    Yea he was saying that it isn’t full membership like US where you don’t have to be flying US to access the lounge and it would be a shame to lose that

  • r.ally

    I booked a round trip for my folks to ZRH in June 2014 using the US Airways points bonus 2 weeks ago to ensure they would still get seats on a Star Aliiance partner. As TPG said, better sooner than later.

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  • Jon

    To put it quite simply, economic theory in a vacuum as you describe above is all well and good. However the history of the airline industry simply does not lend itself to consolidation being beneficial to passengers. AMD/Intel is not pertinent because the market isn’t as simple as AMD/Intel. Other chip makers like Qualcomm, Samsung, Nvidia, etc. are pushing in the growth area of CPUs and competing at form factors that AMD/Intel simply don’t compete in. It’s a highly evolving market. If anything, AMD/Intel’s position (making components of an overall system) would be more comparable to Boeing/Airbus.
    Apple/Google are even more odd examples, considering Apple makes their money from device sales, and thus drives device development. Google makes money from an entirely different market – Search.

    Economies of scale savings in the airline industry are there (albeit frankly pretty minimal), but are not enough to stave off price increases. Worse yet, the costs of combining operations for 2-4 years while keeping all of both companies’ employees to keep existing operations going mean that any savings (for the combined airline) won’t happen for another half-decade.

    And then, of course, there’s the USAirways CEO who isn’t exactly an unknown. In fact, it’s very well known (and now recently documented by the DoJ) that Parker is not just a cost-cutter, but a value-maximizer for investors. Quite literally the last thing on his mind is providing customers with value. For evidence, I cite USAirways/AmericaWest operations (and bankruptcies) over the past 15 years. The DoJ’s case also has some examples. You should give it a read.

  • jerrymandel

    DOJ says the new airline will raise fares and fees and cut service. How naive. Do they really believe that the two separate airlines would not do the same?

  • traderprofit

    Why this merger is being blocked (and should be):
    I did a quick read through the comments and thought I’d add something to the mix from a person who spent his life trading mergers and acquisitions for a living–and thus betting on the outcomes.
    Airlines have always held a special place in the government’s heart when it comes to anti-competitive businesses.
    Why?
    Well, in addition to a history of anti-competitive actions and collusion, a VERY big reason is the “barriers to entry.” Think about it: How much would it cost to go start a new national carrier? Yeah, pretty impossible, I’d say. I could probably start a NASA competitor for about 1/100th the price.
    So, having established there are grave barriers to entry and airlines have a history of collusion. the other reasons are easy:
    There is a mathematical statistic called the Herfindahl-Hirschman Index. It’s a measure of market concentration in a particular market. In the appendix to the government’s filing there is a list of close to 1000 city-pairs where the combined airline would cause the market concentration to go “off the charts.”
    HHI is determined pretty simply–just wiki it. It’s not complicated math.
    Anything over 1800 is considered–or at least has been considered–to be high. In many of these submarket city pairs the HHI goes to the theoretical limit of 10,000–as in 100% market share.
    The airlines’ argument that the government should only consider directly competing non-stop routes is not going to carry the day. That reminds me of the Kinney Shoe case where Kinney said they was no such thing as a submarket, and that they only had 5% of the national market and therefore could not control prices ( an argument which might actually win in the days of Amazon and the internet), but became a famous case because it established that there ARE submarkets and each one has to be evaluated.
    If these were grocery stores , the companies could cure the submarket problem by selling stores to competitors. I find that a highly implausible outcome with airlines, and I don’t want to depart from a Kroger parking lot.
    Now, where does the government get all this data on market shares and other airline data? Why, from THE AIRLINES. They are required to submit to the government any projections they have done for any officer or director of the airline.That was established by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, before pre-merger notification was required. As you might imagine “unscrambling the egg” of a merger that has occurred is not an easy task . In fact, the El Paso case which formed the basis for the law took a full 17 years to divest, and I believe 7-10 of those were after El Paso lost at the Supreme Court.
    So, the idea these companies were blind-sided is preposterous. The public did not have access to this insider data until Justice sued because it is proprietary. The companies have been talking to Justice for months and knew ALL of their concerns. To act shocked is just disingenuous.
    The case is ABOUT tending to create a monopoly , and it is SUPPORTED by the above facts. In recent years, a projected change of 5% in prices has been sufficient to garner antitrust attention. here, we have not only unknown fares, but unknown fees–and the history of the latest mergers
    isn’t good.
    A further complicating factor with this specific merger is that US Air offers lower fares to passengers willing to travel through a hub to get to their ultimate destination–I believe the filing said 2.5 million fares last year–and this would be going away from my understanding of the projections given the government.
    Today I read AA did not have a “Plan B.” if that is true management should all be fired immediately. They knew through conversations with justice for months they had big problems with this merger.
    They’d better run out to CVS and buy Plan B (it’s available over the counter, and can they please pick me up some Vanilla reloads while they are at it?).
    Now, AA is seeking an early court date “by the end of the year.” Didn’t Parker just tell his employees this was going to get done in the 4th quarter?
    Some people live in a dream World, and here it is the airline managements if they actually believe they can win this case. They are spending millions in legal fees, and as a shareholder I would tell them to just stop with the crap and get back to work, that the merger isn’t going to happen. As an arbitrageur I’d give this less than a 5% chance of occurring, because I cannot think of a fix to cure these problems–and I have not even mentioned DCA yet.
    To those who have opined that the Justice Department is suing as a negotiating tactic, they are just wrong. Justice holds the cards, and they do not sue as a negotiating tactic. They sue to get the proper outcome, which is a full-stop.
    AA and LCC should stop wasting money on attorneys, but I suspect there are some pretty nice bonuses on the line so they will continue to play out this charade at shareholder expense.
    Next, the argument that “You let the other mergers go through so you should allow this one (I heard Bob Crandall voice this) ” isn’t going to garner any support. Each merger changes the landscape, and while it may seem unfair, the “first to merge” is often the winner, blocking further concentration in a market.

  • joeypore

    If the AMEX Plat had a full AC membership… the value of that card would go way up in my book.

  • John

    Brian– You make a lot of good points here, but a lot of them also seem flawed (in my opinion! Please feel free to respond).

    1. American Airlines and US Airways simply cannot compete with United and Delta right now. If American is not able to merge with US Airways, it will go bankrupt. It may take a few years, but American is so small in Asia right now, and their new strategy of adding more and more capacity to markets that simply don’t need it will bankrupt them (see 1990s/early 2000 airline strategies!). The way you have it now is 2 big airlines and 3/4 medium sized airlines. If you allow US and American to merge, we get back 3 big legacy airlines, all competing on price, rather than letting Delta and United fight with each other and leave the rest for the scraps.

    The whole argument about letting them merge creating less competition is very flawed. Anyone with a shred of common sense knows that American, though investing heavily in new aircraft and on the uptick, is not actually very strong financially and does not have a great management team to help it survive on its own. (Why do you think the unions supported this? They all want to keep their jobs and get better salaries). And US is a good airline, but can you imagine American with Doug Parker?

    2. That leads me to your second point. Sure, airlines compete on rules, but 1. The DOJ used some random data of ITA Matrix off of one day, rather than DOT data, and 2. Yes, air fares have risen over the last 10 years, but a lot has happened besides mergers in the last 10 years. 9/11 happened, fuel prices went up, the economy crashed. Airlines are businesses, and they need to make a profit.

    3. Again, the airlines have to make money. The rising of ancillary fees has to happen. But this whole idea of all the airline executives sitting in a room deciding which fees to raise and the fact that there’s one less airline there making it easier is beyond me. If one airline raises a fee and the other airlines don’t, they’d just be stupid. Competition has nothing to do with it.

    This is a message to all of you who are against a merger: I am a frequent flyer too and love my miles, and I have no connection whatsoever to American and US Airways. But in all honesty, this merger is the best solution for everyone. It may not be good, but it means thousands of AA workers will still have jobs in a few years, and both US and AA workers will have better salaries. It means that we can still have competition, it means that the onboard experience on both airlines will improve. Sure, we can fret over what will happen to our status and miles, but wouldn’t we all like to have an airline we can use that status and miles on?

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  • Alice Shelton

    You obviously have some vendetta against American or U.S. airlines. The fact that we can compete against Delta and Southwest would lower the airfare not increase it. Who are you funded by? Obviously someone is getting you to put out this negative and untrue data. Talk about running up fares if this merger doesn’t go thru you will see a big increase in fares. You think Delta or Southwest wants this to go through? I don’t think so ,,,, so back to the question who is funding you? Would love to know.

  • CocoDC

    What are your thoughts on applying for the US Airways credit card now given the current situation? Is it still worth it if I plan to use the miles soon? (I need to book some domestic award tickets for early 2014; I have enough for two and would rather not buy miles for the third.) Also, any speculation as to what would happen to that 10K miles bonus on the card anniversary if the Barclays card ceases to exist? I guess the obvious answer is that cardholders just wouldn’t get those miles…

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  • Phoenix Jet

    Sure, give the consumers less choice and I’m sure the rates and nit picking extra fees won’t increase as well. I’m w/ Holder on this one, and that’s hard for me to say.

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