Now that I’ve had a chance to thoroughly digest the nuances of the settlement between American, US Airways and the Justice Department, I thought I’d hand out some grades based on how this affects consumers – the people who fly.
On the whole, I am positive about the settlement – and the merger itself. Having a healthy airline industry is a good thing since it means more money for airlines to spend on product like new planes which are badly needed. Above all, the merger will not mean air travel is only available to the rich (though on some routes, that will be the case). Access to air travel is vital to our economy and the pursuit of happiness. But I am not blind to the negative effects of this merger nor the settlement – as you’ll see in the following scorecard.
1. LaGuardia and Reagan airports – Grade B
With both airlines divesting themselves of a fairly significant number of slots at these New York and Washington, D.C., airports, there’s an opportunity for a better mix of low-cost carriers. However, it’s important to remember US Airways’ own low-cost carrier roots as a result of its previous merger with America West in 2005. To an extent, these changes are not unlike swapping one low-cost carrier for another but as far as pricing goes, don’t expect anything more than introductory price cuts on new routes. Meanwhile, a recent investors’ poll I saw pegged JetBlue as the biggest beneficiary of the divested slots – and while still isn’t clear to what extent United and Delta will be allowed to bid for these slots, the same poll grouped Southwest, United and Delta as the runner-up winners/beneficiaries.
2. Regional airport connecting-flight price hikes – Grade D
Say a family of four wants to fly out of their regional airport (maybe because they live two to four hours from a hub city); will they find lower airfare as part of this settlement? That’s the big question and it’s not addressed by the settlement, even though it was a key reason in the Justice Department’s case to block the merger. My prediction: Yes, prices will rise, on routes where fliers can stomach the hefty premiums.
3. A fourth mega-merger – Grade D
Rightly or wrongly, the Justice Department (by its past actions and in its objections to this latest airline union) appeared to believe this was one merger too many. I thought that American/US Airway’s mistake was being last in line – especially seeing as how the Delta and United mergers sailed through. Go back about a decade; remember when we still had eight large airlines? This latest merger reduces us to four mega-carriers (the new American, Delta, United and – yes – Southwest). Bottom line: Fewer airlines means less competition which in turn means higher airfares, though that’ll be mostly in the long-run once the economy perks up. But also, some cities as well as routes from certain cities will see a steep rise in prices, especially at peak season and holiday periods, and for certain departures at specific times of day. Again, this must be balanced against the need for a healthy airline industry overall.
4. American’s creditors – Grade A
It’s important to realize American hasn’t even emerged from bankruptcy yet. Thanks to the settlement, most creditors can breathe easier knowing they won’t be stuck with pennies on the dollar.
5. American and US Airways employees – Grade B+
Much of the employee trimming has already taken place in the throes of and immediate aftermath of the great recession. Now, like the creditors, airline workers know what the future holds and that’s always a good thing. Warning: There will be some so-called synergy layoffs, but the big bloodletting has already occurred. One more concern is the bubble hub cities that are likely to see future job cuts (see number six).
6. Hub cities on the bubble – Grade B+
Under terms of the settlement, hub cities such as Philadelphia, Phoenix and more will be only lightly touched (if at all) for at least three years. After that, all bets are off.