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Sunday, January 28, 2007

Message on Capitol Hill: Airliner Merger to Hurt Consumers

Experts, stakeholders and lawmakers alike rose on Capitol Hill to question the proposed merger of US Air (LCC) and Delta Airlines (DALRQ), saying the combination could cut competition and hurt consumers.

U.S. domestic airlines have lost nearly $40 billion in the last five years, but after intense restructuring among the major carriers, the industry may have turned a corner, notes U.S. Sen. Daniel Inouye (D-Hawaii), chairman of the Senate Commerce Committee that held a hearing looking at airline competitiveness.

Even conservative estimates suggest the airline industry will turn a profit of $4 billion in 2007, Inouye says. Despite the positive outlook, most industry observers warn that external factors or other negative business trends could dramatically impact any potential profits next year or beyond, Inouye adds.

"Aviation is vitally important to our nation’s system of transportation and commerce. We must be quite certain that the likely benefits of various merger proposals far outweigh any potential consequences," he says.

The airline industry has seen a pause in mergers in the past half-decade, as the airline industry restructured but that does not change concerns about anti-consumer and anti-competitive effects of mergers in the airline industry, says Mark Cooper, director of research, Consumer Federation of America.

"The elimination of competition and the reinforcement of dominant fortress hubs inevitably raise concerns about rising prices," Cooper says. "Competitive entry in the industry, to the extent it can discipline the abuse of market power, is highly restricted, limited to selective, high volume routes and markets. The so-called low cost airlines would leave more than half the country unserved."

Financial analysts generally agree that consolidation will be good for the airline industry because it will quickly ease problems of overcapacity, Inouye says.

"However, industry is just one part of the equation the Congress must consider," he says. "We must also weigh the extent to which consolidation is in the best interest of consumers, particularly since the impact of decreased capacity on travelers and local communities is less clear. "

Gerald Grinstein, chief executive of Delta Air Lines, also weighed in against the merger, which he likened to a hostile takeover on the part of U.S. Air Lines.

"We believe US Airways’ unsolicited and anticompetitive proposal does not meet antitrust standards, and would harm employees, consumers and communities. It would create a much weaker combined carrier that would threaten the future stability of our nation’s air transportation industry," Grinstein says. "It would reverse the remarkable progress Delta has made. Let me be clear – this is a hostile takeover bid; not a consensual merger."

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