American, US Airways merger given all clear for takeoff

The Justice Department says it has reached an agreement Tuesday to allow American Airlines and US Airways to merge, creating the world’s biggest airline.

The agreement, which was praised by most of the labor unions that represent the airlines’ workers, would require the merged company to scale back its presence in Washington and other big cities.

Some critics see the merger as bad for consumers, saying that with fewer airlines, there would be less competition over prices, especially for less popular destinations. But the deal was less controversial than many mega-mergers that have come before the Obama Administration’s Justice Department, which has made a point of being tough on anti-competitive practices.

In August the government sued to block the merger, saying it would increase prices for consumers. But the airlines countered, saying their deal would create another big competitor to United Airlines and Delta Air Lines, both which grew through recent mergers.

The settlement still needs to be approved by a federal judge in Washington. It would require American and US Airways to give up takeoff and landing rights or slots at Washington’s Reagan National and New York’s LaGuardia airports and to surrender gates at airports in Boston, Chicago, Los Angeles, Dallas and Miami to low-cost carriers to offset the impact of the merger.

Attorney General Eric Holder said the agreement would ensure more competition on nonstop and connecting routes throughout the country. The Department of Justice called the slot and gate divestitures at key airports “groundbreaking.”

The soft language from Holder and Assistant Attorney General William Baer was a sharp departure from the department’s previous stance that the merger was not necessary. Baer was vocal in his opposition to the merger just months ago.

“These two airlines are viable, healthy and in a position to be competitively aggressive and successful on a stand-alone basis,” Baer told reporters in August. “On the other hand, while shareholders might benefit, creditors might benefit from consolidation, the fact of the matter is that consumers will get the shaft. This merger is premised not on increased competition between the legacy carriers but on the notion that it will allow the new American to compete less.”

Today he said the merger would “disrupt today’s cozy relationships among the incumbent legacy carriers and provide consumers with more choices and more competitive airfares.”

The abrupt shift took some by surprise, including University of Richmond professor Carl Tobias.

“In August it looked like they’d be much stricter about antitrust enforcement,” he told Al Jazeera. “I can’t tell now. My sense is that there was a lot of pressure on Capitol Hill from airline employees and the airlines themselves.”

Indeed, most airline unions lauded Tuesday’s decision.

“The DOJ’s actions in recent weeks were the equivalent of hitting a pause button on workers’ wages, benefits and job security,” said Transportation Workers Union of America’s Gary Drummond. “Today’s announcement will allow TWU members at American Airlines to gain long-delayed raises.”

It’s not clear how the merger would affect consumers.

During the past five years, the airline industry has seen the combinations of Delta with Northwest, United with Continental, and Southwest Airlines with AirTran. In that time, the price of a domestic round-trip flight has climbed more than 15 percent, when adjusted for inflation, according to the Bureau of Transportation Statistics.

The merger would give a combined American and US Airways Group Inc. the ability to increase fares. United, Delta and Southwest would be likely to follow. Although it could also pave the way for further expansion by discount airlines such as Spirit Airlines Inc. and Allegiant.

Passengers shouldn’t lose their frequent-flier miles. After the merger closes, the two airlines will likely combine the miles into one program, and elite status with one airline will probably be honored by the other.

The combined carrier would have a considerable presence in New York, Philadelphia, Washington, Miami, Chicago, Dallas, Phoenix, Los Angeles and Charlotte, N.C. It is unclear how many of those cities will keep their levels of service. In past mergers, airlines have promised not to close hubs but have gone ahead and dramatically reduced service in once key cities.

Six states joined the lawsuit to block the merger, fearing the loss of flights and jobs at their airports. The DOJ said American and US Airways agreed to maintain for three years the US Airways hubs in Charlotte, Philadelphia and Phoenix and American hubs at Miami, Chicago’s O’Hare, New York’s John F. Kennedy International and Los Angeles International.

If the settlement is accepted, the combined American and US Airways would be required to operate 44 fewer daily departures at Reagan National and 12 fewer at LaGuardia. They now run some 290 takeoffs a day at Reagan National — about two-thirds of the airport’s total — and 175 at LaGuardia.

Taking those slots from the merged airline would likely be a boon to smaller airlines at those airports, but it may not help the smaller carriers compete anywhere else.

“I’m not sure that’s a substantial gain for consumers,” said Tobias. “There’s only a few airports where there’s a significant requirement to sell slots. There’s a whole nation out there.”

Al Jazeera and wire services. Peter Moskowitz contributed to this report.