Kathleen G. Kane - Pennsylvania Office of Attorney General - Protecting Pennsylvanians

Frequently Asked Questions About the US Airways-American Airlines Merger

1. What interest does Pennsylvania have in opposing this proposed merger?
Behind Texas, Pennsylvania is one of the most impacted states from this merger. Also US Airways is the largest airline at many Pennsylvania airports including Philadelphia, Allentown, Harrisburg and Scranton Wilkes-Barre. This transaction will negatively impact at least 1 million Pennsylvania travelers. It will increase the cost of flying.

2. If the merger were to occur, would Pennsylvania lose jobs? And if so, how many?
At least 700. US Airways has acknowledged that it would close its operation center outside Pittsburgh, built in part with a state grant, and rely on American's operation center in Dallas. In mergers, duplicative facilities are often closed. It is not known at this time whether the maintenance bases and pilot training centers US Airways operates in Pennsylvania would be viewed as duplicative. If they were so viewed, then those jobs would be lost as well.

3. Isn't it true that the merger would help Philadelphia but hurt Pittsburgh?  So you can't say that Pennsylvania would be hurt by the merger if one city benefits and another suffers, isn?t that right?
No. First, it is not true that Philadelphia will be helped by this transaction. More than 1 million people travelling to and from Pennsylvania would face higher fares and most of them would begin or end their travels in Philadelphia. US Airways argues that the merger would lead to increased service in Philadelphia. The big driver for that increased service would be increased demand, but the merger will lead to higher prices and higher prices stifle demand. Moreover, US Airways is saying the exact same thing as Delta did when it tried to get its merger with Northwest approved and United did when it tried to get its merger with Continental approved. Neither airline has delivered on its promises of dramatically increased service. Delta even closed two hubs. So this will definitely hurt Pittsburgh and growth in Philadelphia will be deterred.

4. How can you know what the merger would cost consumers, including Pennsylvania consumers? 
The airlines are great record keepers. All pricing of all seats are recorded. When we analyze that data we see what everyone knows, when you have more airlines flying between two points, prices are lower. We can calculate the price difference between what airlines charge when only one airline is on a route, when two are on a route and so on. We can get an accurate tally of the pricing difference this merger will cause.

5. Explain to me please how you calculate the anticipated cost to consumers?
Airlines price against the fares of their competitors. Unlike other businesses, airlines know every price a competitor has for a 21 day fare, a 14 day fare, a last minute fare and all the fares in between. When only Delta or United is on a route, the fares will be at a certain level. When US Airways or Soutwest is on a route, last minute fares charged by them will be lower. We can calculate the difference and use the difference to predict how much consumers will be harmed.

6. The Department of Justice in the past has not blocked airline mergers so why should Justice and the Pennsylvania Office of Attorney General try to do so now?
There are two reasons. First, no two mergers are exactly alike. Most importantly, the other mergers did not involve airlines with hubs in Pennsylvania. Second, the claims made by US Airways are identical to the claims the other airlines have made to support their mergers and their claims of consumer benefits have proven untrue.

7. Is this merger different from the mergers that have taken place? And if not different and those other mergers were permitted to occur, how can this one be stopped?
There is an experience from the previous mergers that shows that the airline's claims of consumer benefits are grossly overstated especially as they have been applied in Pennsylvania. In Delta/Northwest, Harrisburg lost service to Minneapolis, all cities served by Delta saw the reduction or elimination of service to Cincinnati and the expansion of service to Memphis never happened. In Southwest/Airtran, Southwest pulled completely out of Allentown and Harrisburg and greatly reduced its service to Philadelphia.

8. Isn?t it the case that Philadelphia would see a large increase in traffic as the result of this merger?
No. We understand that Philadelphia expects to see a large increase in passengers if the merger occurs, but that will only happen if all of sudden higher prices lead to more passengers flying to and from Philadelphia. As we know when prices for a product rise, consumers buy less of that product. Here is what has happened at Philadelphia since the mergers of Delta/Northwest, United/Continental, and Southwest/Airtran. Delta/Northwest seats are down 14.6%, United/Continental seats are down 21.4% and Southwest/Airtran seats are down 50.5%.

US Airways does not behave any differently than the other airlines. On its flights to Pittsburgh and Boston, the average fares on both routes when there has been competition have been about $125. When there is no competition the average fares are about $250.  On the Pittsburgh route the number of travelers has dropped by 50% in the face of higher fares. On the Boston route they have dropped by about one-third.
The routes affected by this merger are not small routes.           

Philadelphia-Dallas has 341,000 passengers a year. Philadelphia-Miami has 176,000 passengers. Philadelphia-Chicago has 574,000 passengers. Similar price increases to what we have seen on the routes to Boston and Pittsburgh would lead to enormous reductions in the number of passengers at Philadelphia,  not increases.

Prices have also gone up on a vacation route like Philadelphia-Orlando where Southwest and Airtran have reduced the number of seats out of both Philadelphia and Pittsburgh. As a consequence, fares have risen 5%-14% out of Philadelphia, and 6%-10% out of Pittsburgh. The corresponding declines in traffic have been 13.6% (155,000 passengers) out of Philadelphia and 11% (42,000) passenger out of Pittsburgh.

The bottom line is that more people are not going to come to Philadelphia in the face of higher prices and less competition whether it is through a merger like Delta/Northwest or Southwest/Airtran or an airline simply deciding not to fly a route as was the case in Pittsburgh and Boston leads to higher prices.

American Airlines is in bankruptcy. If the merger does not take place, will American or US Airways go out of business?

Both airlines are experiencing record profits, in large part because they have been able to raise prices and charge consumers more fees. American has placed the largest new plane order in history. Absent a tragedy similar to the 9/11 terrorists attacks, the airlines are not currently on the verge of failing.