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US Air Chief Defends Delta Merger

The head of US Air (LCC) defends its desired merger with Delta Air Lines as creating a stronger airline for consumers to rely on.

Others, including the head of Delta Air Lines, criticized the deal on Capitol Hill as a hostile takeover attempt that will hurt the traveling public.

"After the merger, 81% of US Airways/Delta passengers will have low-cost carrier competition at their local airports. An additional 13% will have access to such service within 100 miles," says W. Douglas Parker, chairman and CEO of US Airways Group.

The merger will, for example, allow the combined airline to lower fares in Harrisburg, Pa., enabling US Airways to recapture traffic that has been driving from central Pennsylvania to Baltimore for lower fares, Parker says.

"This phenomenon is repeated in communities big and small throughout the United States. The old US Airways would lose money on every ticket sold were it to have lowered fares in markets where it did not directly face low-cost competition, in places such as Harrisburg, Pa., Wilmington, NC or Huntsville, Ala. In sharp contrast, the new US Airways has a cost structure that permits it to lower fares and remain profitable, and indeed, we have to in order to competer with the growing low cost carriers," he says.

Parker also put forward several other assertions to defend the merger, saying:

1. Every U.S. city currently served by either airline will continue to have service from the new company.

2. On the labor front, we have made several commitments to the employees and unions of US Airways and Delta. We have committed to moving to the highest common denominator on labor costs for all employee groups. We have committed to not furlough frontline employees of either US Airways or Delta. Instead, we plan to manage the mainline operational employee reductions through attrition and other voluntary means, just as we did successfully in the US Airways/America West merger. We have committed to allowing Delta’s employees, the vast majority of whom are not represented by a union, to decide for themselves the question of union representation, and to do so without management opposition. And we have committed to honoring the terms of all labor agreements—including the Delta pilot agreement. Finally, and importantly, we will not close any hubs in either the current Delta or US Airways’ networks.

3. We expect that at the appropriate time the Department of Justice (DOJ) will fully investigate the merger. We plan to work cooperatively with DOJ during the investigation and have begun to do so already. We spent a lot of time prior to making our bid for Delta considering the many potential antitrust issues, and we believe that our transaction is beneficial for consumers, communities and a major step toward building a company that will provide stability for its employees over the long-term.

4. This merger is in the best interest of consumers. Our synergies are not predicated on raising fares. They are predicated on gaining efficiencies by cutting duplicative costs in locations served today by both US Airways and Delta. If we were planning, as our critics claim, to gain synergies by raising fares, that plan would fail in the long run, because low-cost carriers would come in and undercut the higher fares. The industry is brutally competitive today and will remain so even after this merger. Our model is based on a sustainable plan to serve markets at a lower cost, and thereby be able to compete with low-cost carriers on price.


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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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