Thursday, February 14, 2013

American, US Airways merger an opportunity to reregulate the industry

In an announcement appropriate for Valentine's Day, beleaguered American Airlines and US Airways announced that they have agreed to merge.

The arrangement, which must still be approved by the bankruptcy judge overseeing American's Chapter 11 proceedings as well as federal anti-trust regulators and US Airways shareholders, would make the combined airline the largest carrier in the world based on revenue and passengers carried.

The $11 billion deal will create a combined airline that will be called American Airlines and will be headquartered in American's current location near Dallas-Fort Worth Airport. The carrier will also maintain a significant corporate and operational presence in US Airways' current home of Phoenix.

US Airways' CEO Doug Parker will run the combined company while Tom Horton, CEO of American parent AMR, will become chairman, though some sources have speculated his tenure could be short.

In an e-mail to members of its AAdvantage® loyalty program, American said the combined carrier would offer an "expanded global network with more than 6,700 daily flights to 336 destinations in 56 countries by maintaining all the hubs currently served by both airlines."

In addition, AAdvantage® members were told that the new American is expected to enhance its existing loyalty program benefits through expanded opportunities to earn and redeem miles across the combined oneWorld Alliance network. An interesting, if minor, facet of the merger, as US Airways is currently a mileage partner with United Airlines and the Star Alliance.

The merger would leave just four major carriers with nearly 70% of the domestic market: United (which recently merged with Continental), American, Delta (which merged with Northwest in late 2008), and Southwest (which recently took over AirTran).

The size of the newly-created airline is causing concern among some consumer advocates who worry that a smaller number of airlines competing with each other will lead to higher fares over the long term and allow airlines to increase revenue by imposing new or higher fees.

I concur, and believe that such fears are well-founded. As frequent traveler can attest, most airlines have become quite adept at wringing additional dollars out of passengers for everything ranging from checking a bag to paying a premium to sit in an exit row.

In my never-to-be-humble opinion, this merger strengthens the argument for re-regulating U.S. airlines.

Several news outlets have editorialized in favor of such a move over the past few years, including USA Today. "Consumer Traveler" Christopher Elliot followed up his 2008 opinion piece on the topic with a similar artilce on the MSNBC web site. They and others have made the case that the airlines had more profitable years under the regulation of the former Civil Aeronautics Board (CAB) than under deregulation and, while not advocating a return to complete government control as under the CAB, there are many things the government could do to bring some reason and rationality to the industry.

From my perspective, I would argue that it is the absence of regulation that allows airlines to cram more and more of us into seat that are too narrow and too close to the seats in front of them. (Forget about working on your laptop while jammed into a coach seat!) It is the absence of regulation that allows airlines to charge for checking a bag, then arbitrarily reduce the size of what is considered "regulation" carry-on luggage. It is the absence of regulation that allowed US Airways to decide not to serve meals in First Class on flights of less than 3-1/2 hours.

The airlines have argued -- and will continue to argue -- that theirs is the most regulated of any "unregulated" industry. That may be true, but I firmly believe it needs to be regulated even more tightly, and I hope that opinion will be shared by the federal anti-trust regulators who will ultimately look at this transaction.

But I'm not letting it rest there.I've written my elected federal officials, urging them to consider doing something truly useful -- something that would benefit all of us who fly -- and re-regulate the U.S. airline industry.

I urge you to do the same.

Visit my main page at TheTravelPro.us for more news, reviews, and personal observations on the world of upmarket travel.



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