U.S. Senators today during a hearing on the potential merger of US Airways and its takeover target, Delta Air Lines, raised concerns about declining service—particularly to small and rural markets—the prospects of a dwindling workforce and upward pressure on pricing that would result from consolidation.
US Airways CEO Doug Parker, however, maintained the merger would benefit consumers and employees, while also passing muster with regulators. Delta CEO Gerald Grinstein is seeking the same outcome for US Airways' hostile bid that befell the proposed US Airways-United Airlines merger in 2000. Grinstein also quelled speculation that Delta and Northwest are exploring a separate merger.
US Airways set a Feb. 1 deadline for Delta creditors to accept its latest offer
(BTN, Jan. 22). Following the hearing, Grinstein said it took the U.S. Department of Justice 18 months to determine the outcome of the US Air-United bid nearly seven years ago, and with Delta planning to exit bankruptcy this spring and US Airways hoping to finalize an agreement before then, timing is not in the interest of Delta stakeholders. Parker, however, said, "I believe firmly that the transaction we proposed would easily pass DOJ scrutiny because our industry is so intensely competitive."
In testimony before the Senate Committee on Commerce, Science and Transportation, Consumer Federation of America director of research Mark Cooper took a stance against the merger, noting that in addition to raising prices, it would leave smaller markets with less capacity and fewer competitors. "If mergers like the US Air hostile takeover of Delta are necessary, then Congress must confront the fundamental failure of the unregulated airline market," Cooper said. The panel briefly explored the possibility of re-regulating certain markets—particularly those underserved or under the Essential Air Service program, which is federally funded to assure air service to more than 100 small communities.
Parker said a merger would not mean higher prices, as many travel management professionals have feared. "With the ability to lower costs, gain efficiencies and adjust flying to better align demand and capacity, we believe we can lower fares in dozens of new markets and communities, just as we are doing at US Airways today."
Grinstein countered: "In reality, the airline has increased the average price paid by consumers in four times as many markets as it has decreased them."
General vice president of transportation for the International Association of Machinists and Aerospace Workers Robert Roach Jr. spoke on behalf of airline employees, highlighting the woes of domestic carriers' workers since 9/11 and the prospect of further problems if the merger goes through. However, Roach reserved judgment of the deal until "sufficient information" is made available.
While Grinstein noted estimates that 10,000 jobs likely would be eliminated, Parker said the figures are incorrect, stating that a merged carrier would not "furlough any workers." Instead, Parker argued, the size of the workforce would naturally "be right-sized" through attrition. Parker also noted that the reverse has happened: following the US Airways-America West merger, the carrier hired 4,000 people, he said.
Grinstein said that a successful takeover by US Airways would yield "broad industry consolidation," leaving US Airways-Delta the "weakest of the carriers." Grinstein claimed that this merger is "more anticompetitive than the one rejected" and would "reverse the progress" Delta has made under its bankruptcy restructuring.
U.S. Department of Transportation assistant secretary for aviation and transportation affairs Andrew Steinberg in testimony said that any merger immediately yields less competition. However, Steinberg said he was confident that market forces would play out to benefit consumers should consolidation become a reality. "Anytime there is consolidation, we have to look at the effects on consumers. It's hard to generalize about whether mergers are bad or good for consumers—that's highly dependent on the specifics of the transaction. In general, I would say that healthy network carriers that earn profits are good for smaller communities and consumers."