Senators consider impact of airline mergers
WASHINGTON (CNN) -- Airline merger mania came under close scrutiny Wednesday as a Senate panel opened a hearing into how industry consolidation would affect competition and consequently, consumers.
Two planned mergers and reports of a third have spurred discussion among lawmakers about how airlines -- plagued by record delays and labor action -- would perform when the number of carriers is reduced.
American Airlines announced a deal last month to buy financially-strapped Trans World Airlines (TWA). A merger has been proposed between United Airlines and US Airways and it was reported last week that a deal between Delta Air Lines and Continental was in the works. Delta and Continental have not commented.
"We already have seen the serious congestion and frustrating delays that passengers face when one of the major airlines has labor difficulties," said Sen. Mike DeWine, R-Ohio, chairman of the Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition. "I shudder -- I shudder to think of the impact on the flying public if a merged United-US Airways would face a work stoppage."
Other senators also warned airline consolidation could diminish competition and harm consumers.
"I worry that these acquisitions and these mergers can only spell higher costs for the consumer and in the long run problems for the employees of these companies," said Sen. Arlen Specter, R-Pennsylvania.
Smaller airlines fear 'mega-mergers'
America West CEO William Franke said he is concerned that smaller airlines would suffer.
"If these proposed transactions are approved, the current level of service in these markets will be threatened and our ability to grow will be stymied," he said.
Continental Airlines CEO Gordon Bethune said customers, communities and airline employees all would pay the price if United, US Airways, TWA and American combine into two super-carriers.
Delta CEO Leo Mullin said he preferred the current competitive situation but would be forced to enter serious merger discussions if the United and American deals went ahead.
Support for consolidation
United Airlines chairman and CEO took exception to the claim that the mergers would hurt customers, and defended the purchase of US Airways. "We believe domestic competition will be enhanced and consumer choice and convenience will be improved," said James Goodwin.
US Airways Chairman Stephen Wolf, a former chairman of United, said competition would still thrive under a larger American and United. "American and United are vigorous competitors and intense rivals."
Several senators also said the mergers would have beneficial results.
Sen. Jean Carnahan, D-Missouri, testified that the merger of US Airways with United "provides a bright future for its employees, the communities it serves and the economy of North Carolina." Charlotte, North Carolina is US Airways' largest hub, according to the company's Web site.
Sen. Christopher Bond, a Republican also from Missouri, said American's acquisition of TWA would ensure service in his home state. "What American Airlines proposes to do for TWA, for the 20,000 employees worldwide, is to buy the assets and keep it operating," he said.
Close scrutiny urged
Just days before leaving office, former Transportation Secretary Rodney Slater called for closer scrutiny of competition among major airlines. In a speech before an industry group in January, Slater recommended the Transportation Department continue to work closely with the Justice Department to prevent anti-competitive practices.
The Justice Department is responsible for deciding whether the deals can go through as proposed, should be modified or challenged in court.
An analysis by the General Accounting Office estimated the American-TWA deal would reduce competition in more than twice as many markets as it would help.
The United-US Airways merger would cut competition in four times as many markets as it would benefit, the GAO report said.
"An inescapable lesson of 22 years of deregulation is that mergers and a reduction in competition often lead to higher fares for the American traveling public," Sen. Harry Reid, D-Nevada told the committee Wednesday. "We cannot stand idly by and allow the benefits of deregulation to be derailed by a wave of mergers."
Reuters contributed to this report.
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