[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



COMPETITION AND BANKRUPTCY IN THE AIRLINE INDUSTRY: THE PROPOSED MERGER 
                  OF AMERICAN AIRLINES AND US AIRWAYS

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                           REGULATORY REFORM,
                      COMMERCIAL AND ANTITRUST LAW

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 26, 2013

                               __________

                           Serial No. 113-22

                               __________

         Printed for the use of the Committee on the Judiciary




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      Available via the World Wide Web: http://judiciary.house.gov

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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
SPENCER BACHUS, Alabama              ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     JUDY CHU, California
TED POE, Texas                       TED DEUTCH, Florida
JASON CHAFFETZ, Utah                 LUIS V. GUTIERREZ, Illinois
TOM MARINO, Pennsylvania             KAREN BASS, California
TREY GOWDY, South Carolina           CEDRIC RICHMOND, Louisiana
MARK AMODEI, Nevada                  SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina
DOUG COLLINS, Georgia
RON DeSANTIS, FLORIDA
KEITH ROTHFUS, Pennsylvania

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Regulatory Reform, Commercial and Antitrust Law

                   SPENCER BACHUS, Alabama, Chairman

                 BLAKE FARENTHOLD, Texas, Vice-Chairman

DARRELL E. ISSA, California          STEVE COHEN, Tennessee
TOM MARINO, Pennsylvania             HENRY C. ``HANK'' JOHNSON, Jr.,
GEORGE HOLDING, North Carolina         Georgia
DOUG COLLINS, Georgia                SUZAN DelBENE, Washington
KEITH ROTHFUS, Pennsylvania          JOE GARCIA, Florida
                                     HAKEEM JEFFRIES, New York

                      Daniel Flores, Chief Counsel

                      James Park, Minority Counsel














                            C O N T E N T S

                              ----------                              

                           FEBRUARY 26, 2013

                                                                   Page

                           OPENING STATEMENTS

The Honorable Spencer Bachus, a Representative in Congress from 
  the State of Alabama, and Chairman, Subcommittee on Regulatory 
  Reform, Commercial and Antitrust Law...........................     1
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Regulatory Reform, 
  Commercial and Antitrust Law...................................     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     5
The Honorable Steve Cohen, a Representative in Congress from the 
  State of Tennessee, and Ranking Member, Subcommittee on 
  Regulatory Reform, Commercial and Antitrust Law................     7

                               WITNESSES

Gary F. Kennedy, Senior Vice President, General Counsel and Chief 
  Compliance Officer, American Airlines
  Oral Testimony.................................................    23
  Prepared Statement.............................................    25
Stephen L. Johnson, Executive Vice President, Corporate and 
  Government Affairs, US Airways, Inc.
  Oral Testimony.................................................    27
  Prepared Statement.............................................    30
Kevin Mitchell, Chairman, Business Travel Coalition (BTC)
  Oral Testimony.................................................    43
  Prepared Statement.............................................    46
Christopher L. Sagers, James A. Thomas Distinguished Professor of 
  Law, Cleveland State University
  Oral Testimony.................................................   100
  Prepared Statement.............................................   102
Clifford Winston, Senior Fellow, Economic Studies Program, The 
  Brookings Institution
  Oral Testimony.................................................   111
  Prepared Statement.............................................   113

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................     3
Material submitted by the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law     8
Additional Material submitted by the Honorable Steve Cohen, a 
  Representative in Congress from the State of Tennessee, and 
  Ranking Member, Subcommittee on Regulatory Reform, Commercial 
  and Antitrust Law..............................................    16
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, 
  Jr., a Representative in Congress from the State of Georgia, 
  and Member, Subcommittee on Regulatory Reform, Commercial and 
  Antitrust Law..................................................    21

                                APPENDIX
               Material Submitted for the Hearing Record

Material submitted by the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Ranking Member, 
  Subcommittee on Regulatory Reform, Commercial and Antitrust Law   146
Prepared Statement of Paul Hudson, President, Flyersrights.org, 
  and Executive Director, Aviation Consumer Action Project.......   199
Response to Questions for the Record from Stephen L. Johnson, 
  Executive Vice President, Corporate and Government Affairs, US 
  Airways, Inc...................................................   222
Response to Questions for the Record from Gary F. Kennedy, Senior 
  Vice President, General Counsel and Chief Compliance Officer, 
  American Airlines..............................................   225
Response to Questions for the Record from Christopher L. Sagers, 
  James A. Thomas Distinguished Professor of Law, Cleveland State 
  University.....................................................   227

 
COMPETITION AND BANKRUPTCY IN THE AIRLINE INDUSTRY: THE PROPOSED MERGER 
                  OF AMERICAN AIRLINES AND US AIRWAYS

                              ----------                              


                       TUESDAY, FEBRUARY 26, 2013

                       House of Representatives,

                  Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law

                      Committee on the Judiciary,

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 10:02 a.m., in 
room 2141, Rayburn Office Building, the Honorable Spencer 
Bachus (Chairman of the Subcommittee) presiding.
    Present: Representatives Bachus, Goodlatte, Farenthold, 
Marino, Holding, Collins, Rothfus, Cohen, Conyers, Johnson, 
Delbene, Garcia, and Jeffries.
    Staff present: (Majority) John Hilton, Counsel; Ashley 
Lewis, Clerk; (Minority) Perry Apelbaum, Staff Director & Chief 
Counsel; James Park, Minority Counsel; Veronica Eligan, 
Professional Staff Member.
    Mr. Bachus. Good morning. The Judiciary Subcommittee on 
Regulatory Reform, Commercial and Antitrust Law is in session.
    By way of introduction, this is the first hearing of the 
year for the Subcommittee. Chairman Goodlatte has given me the 
great privilege of Chairing this Subcommittee. And under its 
antitrust jurisdiction, the Judiciary Committee has the duty to 
examine the competitive impacts of significant transactions on 
the marketplace. It is responsibility that I take very 
seriously from the standpoint of consumer choice and the 
functioning of free markets.
    Today's hearing is specifically to examine the proposed 
merger between American Airlines and US Airways. The resulting 
airline with a 24 percent market share would become the largest 
of what might be called the four legacy U.S. carriers. The 
Department of Justice will conduct a detailed review of the 
proposed merger under the Hart-Scott-Rodino Act. There will be 
several other layers of scrutiny both here and in the U.S. and 
in Europe.
    This hearing is intended to provide information to the 
public, not to state a Subcommittee policy position, although I 
think there obviously will be independent--I mean, each Member 
will have independent opinions, and obviously are free to state 
those.
    The airline has been in a state of near constant change and 
innovation since Federal deregulation in 1978. We have a 
marketplace or we have a marketplace in which familiar names 
that most of us grew up with, like Pan Am, TWA if you traveled 
overseas, or in the south, Eastern, and Republic, and Southern 
no longer exist. They have either merged, bankrupted, or gone 
out of existence. But we have also seen the emergence of new 
carriers with different business models, like Southwest and 
Virgin.
    The embracing of electronic technology has created online 
booking and instant price comparison tools that have greatly 
benefitted travel by expanding choice. That is the competitive 
free enterprise system at work and is the cornerstone of our 
economy. However, there are questions that naturally arise 
during airline mergers and issues that have confronted some of 
the mergers. And today's hearing offers an appropriate forum to 
address those.
    The issue that many consumers would be interested in 
knowing about, to the extent it can be answered, is the 
potential impact on their cost of flying. Service routes are 
also a concern as are the levels of service that will be 
offered post-merger at the current hubs of American and US 
Airways. From a broad competitive perspective, there is the 
issue of airline market share at individual airports and the 
overall market share held by major carriers and the prospects 
and implications of future consolidation.
    Our goal today is to facilitate discussion just as 
consumers are served by clear and transparent pricing, so when 
they shop online for a plane ticket they are served by good 
information by comparing different points of views.
    We welcome all our witnesses and look forward to your 
testimony.
    I now recognize the Ranking Member for his opening 
statement.
    Mr. Conyers. Thank you.
    Mr. Bachus. Either one, whatever.
    Mr. Cohen. I yield to Mr. Conyers. I always yield to Mr. 
Conyers.
    Mr. Bachus. Thank you.
    Mr. Cohen. An honor to serve with Mr. Conyers. He is Mr. 
Rosa Parks.
    Mr. Bachus. I have served with him, too, and I would 
recognize him first.
    Mr. Conyers. Well, I thank you both for your generosity. We 
come here today looking at a very important part of the 
economic system that has guided this country. And I have always 
worried during previous airline mergers, and without prejudging 
the merits of the ones that brings us here today.
    We should recall that both parties to this merger bear a 
high burden in demonstrating that further consolidation in the 
airline industry is warranted. One of the arguments advanced in 
favor of some past mergers--Delta, Northwest, United, 
Continental--was the claim that there was too much capacity in 
the industry, which led to excessively low fares that prevented 
carriers, particularly so-called legacy carriers with their 
higher costs, from earning a sufficient income.
    We ought to consider whether this is still the case. While 
American is in bankruptcy--pardon me--it is poised to 
successfully reorganize with billions of dollars in cash and 
reduce costs as a result of reorganization. Moreover, US 
Airways posted record profits. These facts suggest that both 
airlines are, in fact, perfectly capable of surviving, even 
thriving, as stand-alone companies.
    Industry consolidation may benefit the airlines that remain 
by giving them power to raise fares and fees, but it comes with 
costs to the consumer. And as has been noted, it may result in 
higher fares, fewer consumer choices, particularly in hubs and 
city fares where two carriers overlap. In retrospective studies 
of the effects of Delta, Northwest, United, Continental 
mergers, it suggests that, in fact, fares did rise on some 
routes where the two merger partners used to compete.
    Given the size of the big three, legacy airlines that would 
remain after the merger, it is not entirely unreasonable to 
suggest that they would have even greater power to tacitly 
agree to raise prices, undermining price competition and 
harming consumers in the process. Indeed, if American and US 
Airways were to merge, more than 70 percent, and by some 
estimates as high as 86 percent, of the domestic airline 
industry would be controlled by just four airlines. I fear that 
the flying public will see relatively few benefits while 
bearing much of the costs of this potential merger.
    Another related issue is whether the low-cost carriers can 
continue to provide effective competitive pressure on what will 
be the big three legacy airlines should this merger occur. One 
of the arguments I hear most often in the prior airline 
consolidations was that the industry would remain very 
competitive after consolidation because the competition against 
large carriers, which were able to offer lower fares because of 
their lower operating costs.
    But of the LLCs, however, only Southwest is large enough to 
compete nationwide against the large legacy carriers. And there 
is reason to wonder whether Southwest will continue to play the 
traditional role of an LLC in competing on ticket prices given 
that it is now part of the big airline club.
    And finally, we must consider what impact this will have on 
workers at the two carriers. In stark contrast to previous 
airline mergers, the unions representing American and US 
Airways, with the exception of the machinists, have come out in 
public support of this merger. And the machinists have said 
that they could support it, but only after US Airways renews 
its contract with their own members first. Indeed, America's 
unions have been instrumental in pushing for this merger.
    And so I will submit the rest of my statement, Mr. 
Chairman, and thank you for your generosity.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, Ranking Member, Committee on 
     the Judiciary, and Member, Subcommittee on Regulatory Reform, 
                      Commercial and Antitrust Law
    This first hearing of the Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law in the 113th Congress is as good a time as 
any to remind ourselves that the main purpose of antitrust law is to 
ensure that business does not behave in ways that injures markets, and, 
ultimately, consumers.
    In the context of mergers, this means that any transaction that 
would result in a firm having market power--that is, the ability to 
raise prices or otherwise harm consumers without losing their 
business--is contrary to basic antitrust policy.
    So it is hardly a radical notion that we ought to be suspicious 
when there has been a rapid succession of mergers in a given industry.
    In my view, the very fact that many industries end up being 
dominated by just a handful of very large firms should disturb us, as 
basic economics and common sense should tell us that a few dominant 
firms will raise prices on consumers and offer them suboptimal products 
or services in exchange.
    Yet, over the last generation, we have seen a wave of mergers in 
industry after industry, including among large, direct competitors. 
Just a few examples include the Whirlpool-Maytag, AT&T-BellSouth, AOL-
Time Warner, and JPMorganChase-BankOne. In the banking industry alone 
there have been 47 mergers since 2001.
    And during this time, merger review and antitrust enforcement did 
not, in my view, account sufficiently for consumers' interests.
    This hands-off approach to antitrust merger enforcement reflected 
the view that corporate power should trump other interests, including 
the public interest. For a long time, the trend in antitrust law was 
against the American consumer.
    While I am hopeful that the nearly blind acceptance of the validity 
of mergers is coming to an end, I briefly review this history of 
mergers and antitrust because I wanted to place our consideration of 
the proposed merger of American Airlines and US Airways in proper 
context.
    Nearly five years ago, I chaired a hearing on the then-proposed 
merger of Delta Air Lines and Northwest Airlines before what was then 
the Task Force on Competition Policy and Antitrust Laws.
    I noted during that hearing that the deal raised several potential 
concerns, including that in the wake of several airline mergers up to 
that time, consumers had been prejudiced as delays increased, service 
declined, and fares rose.
    I also expressed concern that should the Delta-Northwest 
transaction be approved, it would spark a cascade of other mergers, 
such as between United Airlines and Continental Airlines and between 
American Airlines and US Airways, leading potentially to an unwarranted 
level of concentration in the airline industry.
    It appears that I was right to worry. In fact, two years after that 
hearing, United and Continental did merge, and today we have for our 
consideration the proposed merger of American Airlines and US Airways.
    While I do not wish to pre-judge the merits of an American-US 
Airways merger, there are several issues that the Department of Justice 
and other regulators should keep in mind when reviewing this deal.
    To begin with, the parties to the merger bear a high burden in 
demonstrating that further consolidation in the airline industry is 
warranted.
    One of the arguments advanced in favor of the Delta-Northwest and 
United-Continental mergers was the claim that there was too much 
capacity in the industry, which led to excessively low fares that 
prevented carriers--and particularly the so-called ``legacy'' carriers, 
with their higher costs--from earning a sufficient income.
    We ought to consider, however, whether this is still the case. 
While American is in bankruptcy, it is poised to successfully 
reorganize, with billions of dollars in cash and reduced costs as a 
result of its reorganization. Moreover, US Airways posted record 
profits last year.
    These facts suggest that both airlines are, in fact, perfectly 
capable of surviving, and even thriving, as standalone companies.
    Industry consolidation may benefit the airlines that remain by 
giving them the power to raise fares or fees, but it comes with costs 
to the consumer.
    As I noted with the Delta-Northwest merger, an American-US Airways 
merger may result in higher fares and fewer consumer choices, 
particularly in hubs and city-pairs where the two carriers overlap.
    And retrospective studies of the effects of the Delta-Northwest and 
United-Continental mergers suggest that, in fact, fares did rise on 
some routes where the two merger partners used to compete.
    Given the size of the ``Big Three'' legacy airlines that would 
remain after the merger, it is not entirely unreasonable to think that 
they would have even greater power to tacitly agree to raise prices, 
undermining price competition, and harming consumers in the process.
    Indeed, if American and US Airways were to merge, more than 70%--
and, by some estimates, as much as 86%--of the domestic airline 
industry would be controlled by just four airlines.
    I fear that the flying public will see relatively few benefits 
while bearing much of the costs of this potential merger.
    Another related issue to consider is whether the low-cost carriers, 
or LCC's, can continue to provide effective competitive pressure on 
what will be the ``Big Three'' legacy airlines should this merger 
occur.
    One of the arguments that I often heard in prior hearings on 
airline industry consolidation was that the industry would remain very 
competitive after consolidation because of the competition against 
large carriers from LCC's, which were able to offer lower fares because 
of their lower operating costs.
    Of the LCC's, however, only Southwest is large enough to compete 
nationwide against the large legacy carriers.
    And there is reason to wonder whether Southwest will continue to 
play the traditional role of an LCC in competing on ticket prices, 
given that it is now part of the big-airline club.
    Finally, we must consider what impact will this merger will have on 
workers at the two carriers.
    In stark contrast to previous airline mergers, the unions 
representing American Airlines and US Airways employees, with the 
exception of the International Association of Machinists and Aerospace 
Workers, have come out in public support of this merger, and the 
Machinists have said they could support it, but only after US Airways 
renews its contract with their members first. Indeed, American's unions 
have been instrumental in pushing for this merger.
    The view of these unions is that a merger will strengthen the 
future prospects for employees, both in terms of increased compensation 
and long-term job security.
    Nevertheless, it is difficult to ignore the possibility that at 
some point jobs may inevitably be lost as a result of the merger. After 
all, one of the rationales for merging is to cut inefficiencies and 
duplication, which usually translates into job losses.
    Nonetheless, I do accord great weight to the word of those who 
actually do the work that makes both of these companies run. So I thank 
the unions for making their views known to us as we review this merger.
    I hope that we can have a fruitful hearing so as to assess the 
benefits and the costs of this merger.
                               __________

    Mr. Bachus. Thank you. The Chairman of the full Committee, 
Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. I want to thank you 
for holding this hearing, and on an issue that is of great 
importance to me and to my constituents.
    In a free market economy like ours, companies are generally 
free to organize themselves and their assets as they see fit, 
including by merger. There is nothing wrong per se with 
mergers, even if they form large companies. The preservation of 
free and fair competition, however, is critical to a free 
market. Competition spurs innovation and ensures that the 
market allocates resources efficiently.
    It benefits consumers and fosters economic growth. Because 
a free market cannot flourish without competition, a merger 
that decreases competition can undermine a free market. Thus, 
antitrust laws set important limits on companies, freedom to 
merge with one another.
    Specifically, Section 7 of the Clayton Act prohibits 
mergers that substantiate lessen competition or tend to create 
a monopoly. This is meant to strike a balance between 
companies' freedom to organize their affairs while preserving 
the competition that is essential to a healthy market.
    Recently, two of the four legacy carriers in the U.S. 
airline industry, American Airlines, which has been in Chapter 
11 bankruptcy since late 2011, and U.S. Airways announced plans 
to merge. The resulting entity would be called American 
Airlines, but would be led by U.S. Air's chief executive 
officer.
    Pursuant to the Hart-Scott-Rodino Act, the Department of 
Justice must review this proposed merger to determine if it is 
anti-competitive. This is a highly technical inquiry, and the 
Department should be guided purely by the facts and the law, 
not by politics or ideology.
    The basic question the Department should seek to answer is, 
how this merger's impact on competition would affect consumer 
welfare. Congress has an oversight responsibility to ensure 
that the Department of Justice conducts its merger reviews in a 
thorough, fair, and reasonably prompt fashion. The Department 
should ask whether the merger would enable American to raise 
ticket prices or raise other ancillary fees or reduce services 
on particular routes, especially routes currently served by 
both airlines. It should ask whether there is sufficient 
competition on these routes, such as from low-cost carriers, to 
keep a post-merger American Airlines in competitive check. It 
also should ask whether post-merger a new carrier would move 
into a route served by American and begin to compete.
    To put it mildly, the airline industry has changed a great 
deal since it was deregulated in 1978. New airlines with new 
business models have sprung up to serve consumers. Other 
airlines have gone bankrupt. Some of the latter have returned 
from bankruptcy. Others have merged, and others have failed all 
together.
    In the last 5 years, the House Judiciary Committee has held 
hearings on two major airline mergers: Delta-Northwest in 2008 
and United-Continental in 2010. Five major airlines--United, 
Delta, American, US Air, and Southwest--now control an 
estimated 80 percent of the domestic market. If this merger 
goes through, that number will decline to 4. Should this be the 
last merger in the airline industry so far and no farther? 
Would allowing this merger finally strike the right balance 
between competition and the cyclical bankruptcies that have 
occurred in the industry recently?
    A major concern any time there is fluctuation in the 
airline industry is how smaller airports, which depend heavily 
on routes to and from larger hubs, would be affected. For 
travelers leaving from my district, the airport in Charlotte, 
North Carolina is a major hub destination, and US Air has 
invested heavily in Charlotte.
    Would American maintain or even expand this and other hubs 
post-merger? It is by no means clear that this merger would 
have all or any of the negative effects that an airline merger 
can produce. American and US Air maintain that their routes are 
mostly complementary, not overlapping, and that the merger will 
enhance competition by giving the current 4th and 5th largest 
airlines a stronger position from which to compete with the 
other 3.
    Congress has no formal role in the Department of Justice's 
merger review process. Congressional hearings, however, provide 
important public venues to ask, debate, and identify possible 
answers to these questions which are of great importance. 
Rather than rushing to judgment, my hope is that everyone 
involved will take care to evaluate the evidence and do what is 
best for competition and consumers.
    I look forward to the testimony of the witnesses, debate 
among the Members of the Subcommittee, and, in the end, a wise 
decision by the Department of Justice that ensures a 
competitive future for the airline industry and protects the 
welfare of American travelers.
    Thank you, Mr. Chairman.
    Mr. Bachus. Thank you. At this time, Mr. Cohen, the 
Subcommittee Ranking Member, is recognized.
    Mr. Cohen. Thank you, Mr. Chairman. This is the first 
hearing of the newly renamed Subcommittee on Regulatory Reform, 
Commercial and Antitrust Law. We used to call it CAL. I call it 
RRCAL.
    I thank Chairman Bachus for choosing the topic of this 
merger between American and US Airways for our first hearing, 
and I want to say I look forward to what I hope and know will 
be a productive working relationship in the 113th Congress. The 
third Saturday in October is not the only time Alabama and 
Tennessee get together.
    As an initial matter, I note that unlike with previous 
mergers, the unions representing workers at both these airlines 
have expressed strong support for the merger, and that is 
encouraging. Some news accounts suggest that the unions at 
American were particularly instrumental in agreeing to this 
move. Mr. Chairman, I would ask unanimous consent that the 
final joint release, dated February 14, from the different 
unions be entered into the record.
    Mr. Bachus. Without objection.
    Mr. Cohen. I also ask unanimous consent that the letter 
from Laura Glading, president of the Association of 
Professional Flight Attendants, and the statement from Captain 
Coffman, Chairman of the Allied Pilots Association, expressing 
support for the merger, both be entered into the record.
    Mr. Bachus. Without objection.
    [The information referred to follows:]




[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Cohen. Thank you, Mr. Chairman. I understand why labor 
supports this proposed merger. Employees of both carriers are 
poised to get a better deal than they would otherwise, which is 
more than I can say unfortunately for the employees of the 
former Northwest Airlines, many of whom were my constituents in 
Memphis.
    As we consider the merits of this merger, we ought to look 
back, though, what the similar effects of mergers that are 
similar in the recent past to see how it benefits consumers and 
what happens. And while I respect the views of labor in support 
of this merger and recognize that no two mergers of airlines or 
any other entities are necessarily alike, the merger of 
Northwest and Delta has indelibly been shaped by an image of 
airline mergers.
    Prior to the merger, Northwest operated a significant hub 
in Memphis, and for this reason and given Memphis' proximity to 
Delta's hub and headquarters in Atlanta, I expressed concern 
about the potential cost of the merger to consumers and 
employees in my home district.
    In this very room in 2008, Richard Anderson, Delta's CEO, 
said about the future of the Memphis hub, it will be 
additional. It will be more business for Memphis, not less. I 
expressed concern to him about reduced service or even outright 
elimination of the hub, and asked him about continuation of the 
Memphis-Amsterdam international flight, of which we had great 
pride. At that hearing, Mr. Anderson in this room testified 
there would be no hub closures, and he said the merger would 
maintain international flights to Amsterdam. He went further to 
say we could expect more international flights from Memphis and 
suggested Memphis to Paris was going to happen, and he said 
there would be more flights. This will enhance the status of 
traffic and service at the Memphis International Airport. He 
said it would add, not delay--not take away from Memphis 
International Airport.
    He said he knew Memphis from when he was at Northwest, and 
he loved the ribs, he loved the city, he knew how great the 
airport was, how well-managed it was, how the time on the 
tarmac and taking off was less, that they saved oil, and it was 
the best connections they could possibly have. Those facts were 
true. His response was not.
    I asked US Air and American to look at Mr. Anderson's 
statement and understand that Memphis International Airport is 
a place they should be. And when other airlines did not come to 
Memphis, US Airways did. They added additional flights from 
Memphis to Washington at better prices, and I appreciate that. 
We like that competition, and US Airways did something other 
airlines did not.
    When Frontier Airlines thought about coming into Memphis, 
Northwest cut their prices. That eliminated the opportunity for 
Frontier to come in. Later People Express expressed an interest 
in coming into Memphis. And because Delta had such a dominant 
market share, People Express did not.
    The opportunity in Memphis is there. Before the merger, 
there were 240 flights a day out of Memphis International 
Airport. As of this December, there 40 percent of that service, 
or simply 96 flights, not 240. It would not surprise me to see 
further cuts. And on Saturdays it looks like Dodge City. So 
ribs are plentiful. There is opportunity for US Airways to come 
into Memphis and to fly these routes, US Airways/American, and 
to serve Memphis.
    Delta has used its base in Memphis to keep carriers out and 
not have real competition. Memphis consumers pay higher prices 
than almost any airport in the country, and this has cost 
businesses to not choose Memphis as a place where they want to 
come because they do not get the service. Federal Express needs 
the service and supplies it. Federal Express takes some of 
their product and puts it all in the airlines, which can help 
your airlines serve Memphis.
    Call Fred Smith, Mr. Johnson. He will tell you, come to 
Memphis, and so do I.
    So there are plenty of reasons why when we look at this 
merger, and I understand wonderful things about--I have heard 
about Mr. Johnson and Mr. Kennedy, and we need to look at it 
differently. We have heard from Richard Anderson. We do not 
want a repeat performance. But the basis upon which he made his 
untrue statements are still valid. Memphis International 
Airport is a fine airport, great service, great weather, great 
opportunities to save on fuel, and a great city to serve.
    I appreciate your being here. I appreciate Mr. Bachus 
scheduling this hearing. I look forward to the testimony, and I 
look forward to US Airways and American serving Memphis, 
America's great city, and Memphis International Airport, the 
great airport that it is.
    Thank you, Mr. Bachus. And I will also give you a statement 
and ask unanimous consent to enter a statement from Mr. McGhee 
and Mr. Slover of the Consumer Union expressing concerns about 
this merger.
    Mr. Bachus. Without objection.
    [The information referred to follows:]


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                               __________

    Mr. Cohen. Thank you, sir, and I yield back the balance of 
my time. It does not exist, but that is traditional to yield it 
back. [Laughter.]
    Mr. Bachus. I guess let the record show that Mr. Cohen does 
not want you to merge with Delta Airlines. [Laughter.]
    Our first witness is--well, without objections, other 
Members' opening statements will be made a part of the record.
    [The prepared statement of Mr. Johnson follows:]


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                              ----------                              

    Mr. Bachus. And at this time, I will introduce the 
witnesses.
    Gary Kennedy, representing US Air--no, American. You are 
going to go first, yeah, that is right. As senior vice 
president, general counsel, and chief compliance officer to 
American Airlines, Mr. Kennedy directs all of American's legal 
affairs worldwide. Mr. Kennedy also directs American's 
corporate compliance program and oversees corporate governance 
matters.
    Before joining American Airlines in 1984, he practiced law 
in Salt Lake City. Mr. Kennedy is a magna cum laude graduate of 
the University of Utah, where he was a member of Phi Beta 
Kappa. He received his JD from the University of Utah School of 
Law.
    And we look forward to your testimony, Mr. Kennedy. And as 
I have told you privately before the hearing started, I have 
seen tremendous improvement in US Airway's operations, and the 
staff, and the service. And it has been a real transformation, 
and I compliment you and the management team at US Airways. And 
actually, you are American and I'm complimenting you. I should 
have been complimenting Mr. Johnson, right, so I apologize for 
that.
    And now I will get to Mr. Johnson and compliment you. Mr. 
Johnson, executive vice president of corporate and government 
affairs at US Airways, where he oversees corporate, legal, and 
regulatory affairs.
    Prior to joining US Airways in 2009, Mr. Johnson was a 
partner of Indigo Partners, LLC, a private equity firm 
specializing in acquisitions and strategic investments in the 
airline and aerospace industries. Mr. Johnson also served as 
executive vice president with American West Corporation prior 
to its merger with US Airways.
    He earned his MBA and JD from the University of California-
Berkeley and his BA in economics from Cal State University in 
Sacramento.
    Thank you, Mr. Johnson, for testifying. And what I said to 
Mr. Kennedy about US Airways, obviously applies to you. And I 
did tell both of you all, and I was thinking the testimony was 
going to be flipped, but it really is a well-managed airline. 
And I do not travel American, so I really do not have that many 
occasions to travel on American. But when I did, they were very 
professional.
    Our third witness is Mr. Kevin Mitchell with the Business 
Travel Coalition. He is chairman and founder of the coalition 
where he advocates for the corporate travel community in North 
America, Europe, and Asia. He has over 40 years' experience in 
restaurant, hospitality, sports management, business aviation, 
and business travel industries.
    Before joining or founding BTC, Mr. Mitchell served as vice 
president of CIGNA Corporation. And he received his BA in 
international relations from St. Joseph's University in 
Philadelphia in 1980.
    We thank you for testifying.
    Our fourth witness, Professor Sagers, Christopher L. 
Sagers, professor of law at Cleveland-Marshall College of Law 
in Cleveland, Ohio, where he specializes in administrative law, 
antitrust law and economics, and business regulation.
    Before joining the academy, Professor Sagers was in private 
practice in Washington, D.C., at the law firm of Arnold & 
Porter and Shea & Gardner. He earned his JD cum laude from the 
University of Michigan School of Law and his masters of public 
policy from the University of Michigan.
    We thank you for testifying, Professor Sagers.
    Our last witness is Dr. Clifton--it is Clifford, is it not? 
Clifford Winston, Ph.D., at The Brookings Institution. He is 
senior fellow in economic studies there. His research focuses 
on analysis of industrial organization, regulation, and 
transportation. He was the co-editor of the annual micro-
economic edition of Brookings' paper on economic activity, and 
has authorized numerous books and articles. Before coming to 
Brookings, Dr. Winston was an associate professor at MIT.
    Dr. Winston received his AB and Ph.D. from the University 
of California-Berkeley, and his masters from the London School 
of Economics.
    Thank you for testifying.
    And, Mr. Kennedy, you will go first with your public 
statement. Each of the witnesses' written statements will be 
entered into the record in its entirety. And I ask each witness 
to summarize his testimony in 5 minutes or less.
    To help you stay within that time, there is a timing light 
on your table, and when the light switches from green to 
yellow, you will have 1 minute to conclude your testimony. When 
the light turns red, it signals the witness' 5 minutes have 
expired. But I am actually more lenient than most people, so if 
you need to go on another minute, that is fine with me.
    I now recognize Mr. Kennedy for 5 minutes.

 TESTIMONY OF GARY F. KENNEDY, SENIOR VICE PRESIDENT, GENERAL 
    COUNSEL AND CHIEF COMPLIANCE OFFICER, AMERICAN AIRLINES

    Mr. Kennedy. Chairman Bachus, Ranking Member Cohen, and 
Members of the Subcommittee, thank you for the opportunity to 
testify today.
    My name is Gary Kennedy, and I am the senior vice 
president, general counsel, and chief compliance officer for 
American Airlines. I have been intimately involved in both the 
Chapter 11 restructuring of our company and the proposed merger 
between American and US Airways.
    As the Committee knows well, the airline industry has 
experience severe economic turbulence over the past decade. The 
shockwaves from the events of 9/11 created enormous difficulty 
in the aviation industry, and all U.S. carriers grappled with 
ways to survive in the wake of the emotional and economic 
upheaval created by those terrible events.
    In 2003, US Airways was on the brink of filing for 
bankruptcy protection, but thanks to the willingness of our 
organized labor representatives to take the steps necessary at 
that time to reduce costs, we avoided a chapter 11 filing. For 
the next 8 years, we struggled to find a way to financial 
stability. Despite our best efforts, our losses continued to 
mount, reaching $12 billion over the previous 10 years. In 
November 2011, our board came to the painful conclusion that 
time had run out. The only viable path forward was to 
restructure our business under Chapter 11 of the Bankruptcy 
Code.
    There is no easy to describe how difficult our bankruptcy 
reorganization has been for the company and our employees. 
Beginning at the top of the organization, we reduced our senior 
management ranks by 35 percent. We then moved through the 
balance of the organization making necessary changes, including 
the reduction of 15 percent of total management staff.
    Meanwhile, we began renegotiating certain of our secured 
obligations, our leases, and our contracts with vendors. We 
also negotiated new long-term contracts with each of our 
organized labor groups. These new contracts include 
productivity improvements and changes to health and retirement 
benefits. At the same time, we increased pay for our employees 
and mitigated job losses by offering retirement incentives.
    One of the most important objectives we achieved was to 
freeze rather than terminate our employee pension plans. As a 
result, we now expect to fulfill those obligations rather than 
unload them on the PBGC as other airlines have done.
    Of course all that we accomplished was done in the context 
of our Chapter 11 case and in consultation with the official 
Unsecured Creditors Committee appointed by the United States 
Trustee. By mid-summer last year, we made sufficient progress 
that we decided, in conjunction with the Creditors Commission, 
to embark on a formal process to consider a merger with US 
Airways.
    It was clear from the outset of our review that a merger 
with US Airways could create significant value for our 
stakeholders and bring substantial benefits to the traveling 
public. We have conservatively estimated that by 2015, revenue 
and cost synergies will outweigh cost dyssynergies by over $1 
billion. This combination will make our company a much stronger 
competitor against the other large airlines.
    We are under no illusions that mergers are easy or 
seamless. We have agreed from the outside to do everything in 
our power to learn both from the success and the mistakes of 
those who have gone before us. Many of the most important 
decisions have already been made. The combined company will use 
the great American Airlines brand, the company will remain 
headquartered in Dallas-Fort Worth area, and all hubs in both 
systems will continue to be hubs in the new American.
    Our CEO, Tom Horton, and US Airways CEO, Doug Parker, will 
jointly lead both the transition team and the New American as 
it emerges from bankruptcy. Mr. Parker will be CEO of the new 
company, and Mr. Horton will be chairman of the board.
    Now, I understand and recognize that many Members of 
Congress are skeptical of promises made in these situations, 
and also concerned about industry concentration. As to the 
former, we do not intend to make commitments that we cannot 
keep. And as to the latter, it is clear that this merger does 
not create a high degree of concentration.
    Above all, however, I would urge you to consider the facts 
with which I began my testimony. Nothing has been more damaging 
for the airline industry, our employees, our customers, and our 
shareholders than the years of economic turmoil we have 
experienced.
    This transaction is unique in that it is endorsed by all of 
our labor unions and embraced by management and the boards of 
both companies. We know we have a solemn obligation to 
implement this transaction with great care and thought, and we 
are eager to do so.
    Thank you for the opportunity to testify today.
    [The prepared statement of Mr. Kennedy follows:]
     Prepared Statement of Gary F. Kennedy, Senior Vice President, 
 General Counsel and Chief Compliance Officer, American Airlines, Inc.
    Chairman Bachus, Ranking Member Cohen and Members of the 
Subcommittee, thank you for the opportunity to testify today about the 
issues of airline competition, bankruptcy, and the proposed merger of 
American Airlines and US Airways. We appreciate the manner in which 
this hearing is structured as all of these issues are inter-related.
    As General Counsel of American Airlines, I have been intimately 
involved in both the Chapter 11 restructuring of the company and the 
proposed merger between American and US Airways. I would like to give 
you a sense of how we arrived at this point from American's point of 
view and why this transaction is so critical to the customers, 
employees and communities of both companies. I believe Mr. Johnson from 
US Airways will address what both companies hope to achieve going 
forward.
    As this Committee knows well, the airline industry has experienced 
severe economic turbulence over the past decade. The shock waves from 
the events of 9/11 created enormous difficulty in the aviation industry 
and all US carriers grappled with ways to survive in the wake of the 
emotional and economic upheaval created by those terrible events. This 
was followed by the unprecedented run-up of jet fuel prices in the 
summer of 2008 and the financial collapse of the economy that further 
strained our industry as corporations cut travel budgets, and 
discretionary spending on non-essential items plummeted. The 
consequences were significant. During this period, there were a series 
of airline bankruptcies, severe cuts in capital expenditures, the 
furlough of thousands of employees, the loss of air service to many 
communities, and three major commercial air carrier mergers.
    For most of the past decade, American Airlines took a different 
path than many of our competitors. In 2003, we were on the brink of 
filing for bankruptcy protection, but thanks to the willingness of our 
organized labor representatives to take the steps necessary at that 
time to reduce costs, we avoided a Chapter 11 filing. For the next 
eight years, as our major competitors reduced costs through their own 
Chapter 11 cases and created larger and more attractive networks 
through consolidation, we struggled to find a path to financial 
stability, while maintaining a generous package of benefits for our 
workers and quality service for our customers.
    As we worked hard to avoid a bankruptcy filing, our largest 
competitors were embarked on a different course and new entrants were 
poised to take advantage of the turmoil being experienced by the legacy 
carriers. In 2001, American was the largest airline in the world. With 
the mergers of Delta and Northwest, United and Continental, and 
Southwest and AirTran, American became the fourth largest carrier 
domestically and dropped to the third largest carrier globally. At the 
same time, low cost carriers, old and new, continued to grow and enter 
more markets. Today, the vast majority of our passengers are flying on 
routes with competition from one or more low cost carriers, and that 
number is expected to increase. That will certainly be the case in the 
Dallas/Fort Worth region and elsewhere when the Wright Amendment 
perimeter rule is lifted next year.
    In addition to the changes occurring on the domestic front, the 
configuration of international global airline alliances was also 
changing. Although the joint business venture among British Airways, 
Iberia, and American was finally approved after 13 years, we had fallen 
far behind our US competitors, all of which enjoyed the benefit of a 
much earlier approval of their joint ventures. In short, on a 
competitive and financial basis we continued to lag far behind the rest 
of the industry.
    American did not stand idly by during these years. We undertook a 
variety of steps to position ourselves for long-term success. We 
strengthened our network by focusing on markets with the greatest 
concentration of business travelers, and we fortified our alliances 
with the best international partners. We signed a historic and 
transformational aircraft purchase agreement for 550 new aircraft, one 
that promised to give us one of the most modern and fuel efficient 
fleets in the industry. And, we began investing again in our products, 
services and technology to create a world-class travel experience. 
Despite our efforts and the substantial progress we made to succeed in 
the long term, our losses continued to mount, reaching $12 billion over 
the previous 10 years. And, there was no end in sight.
    In November 2011, our Board came to the painful conclusion that 
time had run out. The only viable path forward was to restructure our 
business under Chapter 11 of the Bankruptcy Code. Of course, in the 
months and years leading up to our Chapter 11 filing, we gave strong 
consideration to possible merger partners. Given our weak financial 
condition at the onset of our restructuring and the fact that we had 
yet to establish a track record of financial improvement and value 
creation, we determined that we must first get our own house in order 
before we could properly evaluate a potential merger with another 
airline. Indeed, until we had a line of sight to a far more stable 
financial structure, both in terms of revenues and costs, we believed 
we would not be negotiating from a position of strength and, as such, 
would be more challenged in fulfilling our duty to maximize value for 
our owners.
    On the day we filed for relief under Chapter 11, we had a change in 
leadership. Our new CEO, Tom Horton, asked everyone at the company to 
work hard to achieve a successful restructuring, while continuing to 
run a top notch airline with great service to our customers. He 
reminded us that with a strong balance sheet, a competitive cost 
structure and restructured contracts that allowed us to compete on a 
level playing field, we could then appropriately consider a range of 
strategic options.
    There is no easy way to describe how difficult our bankruptcy 
reorganization has been for the company and our employees. Beginning at 
the top of the organization, we reduced our senior management ranks by 
35 percent. We then moved through the balance of the organization 
making necessary changes, including the reduction of 15% of total 
management staff. Meanwhile, we began renegotiating certain of our 
secured obligations, our leases, and our contracts with vendors. We 
eliminated significant expenses and tightened our belts in every 
department of the company. Most importantly, we entered into intense 
negotiations with our labor unions in an effort to improve productivity 
and reduce overall costs. While this was a long and difficult process, 
we achieved new long term contracts with each of our organized labor 
groups. These new contracts include productivity improvements and 
changes to health and retirement benefits that put American on a level 
playing field with the legacy carriers. At the same time, we increased 
pay for our employees and mitigated job losses by offering retirement 
incentives. One of the most important objectives we achieved was to 
freeze, rather than terminate, our employee pension plans. As a result, 
we now expect to fulfill those obligations, rather than unload them on 
the PBGC, as other airlines have done.
    Of course, all of what we have accomplished was done in the context 
of our Chapter 11 case and in consultation with the Official Committee 
of Unsecured Creditors appointed by the US Trustee.
    As we worked our way through our Chapter 11 case, we were 
approached by US Airways early last year with a merger proposal. At 
that time, we declined to engage in discussions with them. Instead, we 
continued to work on our reorganization. As we did, a number of 
positive developments quickly emerged. First, we began to see 
encouraging financial and operational results. Operating costs were 
down and, just as importantly, revenues began to rise--topping the US 
industry in year-over-year unit revenue improvement for six straight 
months--and our operational performance began to improve to the best 
levels in many years. By mid-summer we had enough certainty around our 
standalone plan and our improving financial position that we decided, 
in conjunction with the Creditors Committee, to embark on a formal 
process to consider strategic alternatives.
    As part of this process, we entered into a non-disclosure agreement 
with US Airways that allowed both companies to share information and 
engage in a detailed analysis of the potential benefits of a 
combination. The Creditors Committee, through its financial and legal 
advisors, actively participated in this undertaking. Later in the 
process, an Ad Hoc Committee, consisting of substantial holders of our 
unsecured debt, also reviewed the proposed combination in significant 
detail. It is fair to say that multiple parties scrutinized and 
evaluated this proposed transaction. Ultimately, we agreed to a 
structure with American stakeholders owning 72% of the combined 
companies.
    It was clear from the outset of our review that a merger with US 
Airways could create significant value for our stakeholders and bring 
substantial benefits to the traveling public. We have conservatively 
estimated that by 2015 revenue and cost synergies will outweigh cost 
dis-synergies by over $1 billion. The majority of these revenue 
synergies are derived by combining two complementary networks that will 
offer consumers more service at more times to more places. And because 
this will be a merger of complementary networks, these benefits come 
with virtually no loss of competition. Of the more than 900 domestic 
routes flown by the two carriers, there are only 12 overlaps. This is 
one reason we are convinced that this merger is consistent with good 
public policy. The combination will make our company a much stronger 
competitor against the other large airlines. Consumers will have three 
strong, healthy global network carriers from which to choose, as well 
as a number of low cost carriers, including Southwest, JetBlue and 
Virgin America. The new American will have the financial strength to 
invest the resources needed to improve the customer experience, 
including new aircraft, cutting edge products and services, and the 
technology and tools designed to help our employees deliver superior 
service to our customers.
    The combined airline will offer new routings for our passengers in 
thousands of additional markets. For American, the greatest benefit 
derives from two principal components. First, US Airways offers a 
substantial network in the Eastern section of the country. This will 
complement our strong operations in the Southeast, Midwest, and West 
Coast. Second, US Airways offers an impressive network in small and 
medium size communities. We view these as great assets that will 
provide us the opportunity to reach many communities that our customers 
are not able to access today. Like US Airways, we value service to 
small and medium size communities and have consistently looked for 
additional markets that can enhance our entire network.
    We are under no illusions that mergers are easy or seamless. We 
have agreed from the outset to do everything in our power to learn from 
both the successes and mistakes of those who have gone before us. Many 
of the most important decisions have already been made. The combined 
company will build on the great American Airlines brand and our 
AAdvantage loyalty program. The company will remain headquartered in 
the Dallas/Fort Worth area, and all hubs in both systems will continue 
to be hubs in the new American.
    Our CEO, Tom Horton, and US Airways' CEO, Doug Parker, will jointly 
lead both the transition team and the new American as it emerges from 
bankruptcy. Mr. Parker will be CEO of the new company and Mr. Horton 
will be Chairman of the Board. I can personally attest that despite the 
difficult path that got us here today, the spirit of cooperation and 
determination in both companies is extraordinary.
    For reasons that Steve Johnson will outline in greater detail, we 
believe this transaction will be good not only for our two airlines and 
employees, but also good for competition and the travelling public.
    I know that many Members of Congress are skeptical of promises made 
in these situations and also concerned about industry concentration. As 
to the former, we do not intend to make commitments that we cannot 
keep. And as to the latter, it is clear that this merger does not 
create a high degree of concentration. Above all, however, I would urge 
you to consider the facts with which I began my testimony. Nothing has 
been more damaging for the airline industry, our employees, our 
customers, and our shareholders than the years of economic turmoil we 
have experienced.
    This transaction will give us the opportunity to become a stronger 
competitor, one with a degree of financial stability that we have not 
experienced in many years. We will be a company that is better 
positioned to deliver for customers and its people. This transaction is 
unique in that it is endorsed by all of our labor unions and embraced 
by the management and boards of both companies. We know we have a 
solemn obligation to implement the transaction with great care and 
thought. We are eager to do so.
    Thank you again for the opportunity to testify today.
                               __________

    Mr. Bachus. Mr. Johnson.

  TESTIMONY OF STEPHEN L. JOHNSON, EXECUTIVE VICE PRESIDENT, 
       CORPORATE AND GOVERNMENT AFFAIRS, US AIRWAYS, INC.

    Mr. Johnson. Thank you, Chairman Bachus, and Ranking Member 
Cohen, Chairman Goodlatte, and Ranking Member Conyers. And 
thanks to the entire Committee for having us here today. It is 
an honor to testify before the Subcommittee about the merger of 
American Airlines and US Airways.
    The creation of the New American Airlines will be good for 
competition, good for consumers, and good for choice. Expanding 
our network for the benefit of our customers, our employees, 
our shareholders, and our communities is the motivation for 
bringing these companies together.
    Integration of the complementary networks of American 
Airlines and US Airways will enhance competition in an already 
highly competitive marketplace. It will also deliver 
significant benefits to each of those constituencies. Our 
customers and communities will benefit from more and better 
service. Our employees will receive improved pay, better 
benefits, and greatly enhanced job security.
    And, Mr. Chairman, I would like to acknowledge the fact 
that there is about 30 of Gary's and my colleagues here in the 
room with us today who came to join us for the hearing, and 
thank them personally for joining us.
    Our shareholders will benefit from improved financial 
stability and from $1 billion of synergies created by the 
merger. And we are proud that the combination has unprecedented 
support from our 100,000 employees, the financial markets, and 
the communities we serve.
    The US Airways team has been a leader in delivering 
exceptional customer service, but we have long recognized that 
we could do more. Airline passengers have made it clear that 
what they want are broader networks capable of taking them 
wherever they want to travel whenever they want to go. By 
combining the systems of American and US Airways, the New 
American Airlines will build the network our passengers want, 
one that will compete vigorously with the networks of Delta and 
Northwest, and with low-cost carriers like Jet Blue and 
Southwest.
    The passenger benefits of the New American Airlines stem 
from the complementary nature of our operation. By combining 
these operations, we add origins, destinations, and hubs to a 
network with very little duplication. Indeed, out of the nearly 
900 domestic routes we will serve, American Airlines and US 
Airways have only 12 nonstop overlaps.
    Also US Airways has historically provided extensive air 
service to small- and medium-sized communities, and this merger 
will allow us to extend that focus to the American Airlines 
system.
    Combining these networks also will create new, exciting 
international opportunities. We will provide thousands of 
passengers better alternatives with over 1,300 new routes 
worldwide. In addition, our customers will have the potential 
to access 130--sorry, have the potential to access over 130 
cities around the globe served by American, but not yet served 
by US Airways, and 62 cities served by US Airways but not yet 
served by American.
    And by adding US Airways to the oneworld global alliance, 
we will increase competition on international routes by 
creating attractive opportunities for additional international 
service to oneworld customers and to US Airways hubs.
    Domestic markets will become even more competitive. 
Although it will be the largest airline in the U.S., the New 
American Airlines will have less than 25 percent of domestic 
available seat miles, and will compete against the nationwide 
networks of Delta with 21 percent and United and Southwest, 
each with 19 percent. The New American Airlines will also 
compete against Southwest's significantly lower cost structure 
and a host of smaller, but fast-growing, lower-cost airlines, 
including Jet Blue, Spirit, Allegiant, and Virginia America.
    Also important, as we increasingly think about competing in 
a global airline business, the combination of American and US 
Airways will create a third U.S. airline that can compete 
successfully with major international airlines in key markets 
around the world.
    The New American Airlines will be a financially stronger 
company. The US Airways business has been consistently 
profitable, and the successful restructuring of American will 
return that business to profitability. And as a result of the 
combination, we expect to generate over $1 billion in net 
synergies as we increase revenues from new passengers taking 
advantage of our broader network and improved service, and 
reduce costs from scale and the elimination of duplicative 
systems in management.
    That improved financial performance will provide American's 
bankruptcy creditors with an enhanced opportunity for a full 
recovery, a result unheard of in airline bankruptcies. And it 
will create more financial stability in the extremely cyclical 
airline industry.
    That financial stability also will provide very significant 
benefits to our employees, including better pay and benefits, 
greatly improved job security, and better opportunity for 
advancement. Thus, it is not surprising that the merger has 
generated unprecedented support from employees of both 
companies, their labor unions, and from the communities in 
which they live.
    Antitrust review of these issues is important, and we are 
already working with the Justice Department to demonstrate the 
competitive benefits of this merger. We appreciate the 
opportunity to address these issues with the Subcommittee today 
and commit to working with you in your oversight capacity.
    We announced the merger only 12 days ago, so there are many 
issues yet to be resolved, but I will do my best to answer any 
questions you may have today. Thank you very much.
    [The prepared statement of Mr. Johnson follows:]


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                               __________

    Mr. Bachus. Thank you.
    Mr. Mitchell.

            TESTIMONY OF KEVIN MITCHELL, CHAIRMAN, 
                BUSINESS TRAVEL COALITION (BTC)

    Mr. Mitchell. Thank you. Mr. Chairman and Members of the 
Committee, this morning I am going to explain one threat to 
price transparency that would be enabled by this merger that 
has been agreed to by airlines, but has not yet caught the eye 
of the public. I am also presenting this testimony this morning 
on behalf of the American Antitrust Institute.
    In 2008, I warned this and other Committees in testimony of 
the dangers of the then proposed Delta/Northwest merger and 
what those dangers would hold for consumers. And I remember 
well that Northwest CEO, Doug Steenland, testified that 
Committee Members should not be concerned because the market 
disciplining effect of third party distributors, such as 
Expedia, is so pervasive and so important that they create this 
transparency, he said, that will keep prices low. He used this 
transparency, in fact, to justify the merger, and he was right 
back then about the effects of transparency.
    Today, however, airlines, including American and US 
Airways, have agreed on a brazen new worldwide business model 
for how to price and sell tickets. It is designed to destroy 
price transparency, which is the very antidote to consolidation 
needed to ensure a healthy marketplace. The model is called new 
distribution capability, or NDC, and the airlines trade group, 
IATA, is spearheading implementation.
    NDC is designed to terminate, by agreement among 
competitors, the current transparent model for the pricing of 
tickets where fares are published and publicly available for 
comparison shopping and purchase by all consumers on a non-
discriminatory basis.
    What problem are the airlines endeavoring to solve? IATA 
has decried publicly the commoditization of airline services 
caused by low fare search capabilities of the very online 
travel agencies that Mr. Steenland lauded. For example, Tony 
Tyler, Director General of IATA, stated in a press interview 
remarkably, and I quote, ``We've done a great job of improving 
efficiency and bringing down costs, but we've handed that 
benefit straight to our customers. As soon as someone has got a 
cost advantage, instead of charging the same price and making a 
bit of profit, they use it to undercut their competitors and 
hand the value straight to passengers or cargo shippers, and 
you've got to ask why,'' says Tyler. ``I think one of the 
reasons is the way we sell our product. It forces us to 
commoditize ourselves,'' end quote.
    How does an NDC work? A binding resolution codifies that 
airlines have agreed that they have the right to demand from 
consumers, before they would be privileged to receive a fair 
quote, personal information, including name, age, nationality, 
contact details, frequent flyer numbers of all carriers, 
whether the purpose of the trip is business or leisure, prior 
shopping purchase and travel history, and of all things, 
marital status
    Why is this program so toxic? Air fares would no longer be 
publicly filed and available on a non-discriminatory basis for 
consumers to anonymously comparison shop and purchase through 
travel agencies. Instead, each price would be unique depending 
on the profile of the consumer. This personal information can 
be used to extract higher prices from less price sensitive 
travelers, such as business travelers.
    In contrast, today when a consumer wants to travel from A 
to B, she can go to a travel agency that has the fares and 
schedules. All options in the marketplace are returned so she 
could easily compare prices without having to divulge personal 
information. It is this very price visibility that has checked 
the power of airlines to raise fares lest they lose out to 
competitors offering a better deal.
    Price transparency is even more important today because 
when Steenland testified there were six network carriers, then 
there were five, then there were four. Now we are heading to 
33. By eliminating transparencies, airlines will have created 
by concerted actions a new system of completely opaque pricing, 
and with it the ability to raise all fares across all systems.
    The nexus between NDC and this merger, this merger 
eliminates US Airways, a maverick on airline distribution 
issues. It will be far easier to coordinate expressly or 
tacitly among three network competitors, and far easier to 
impose this model, especially given the clout that the New 
American Airlines would have as the biggest carrier on the 
planet.
    The lack of transparency created by NDC further cements the 
dominance of these mega carriers. And once NDC is established 
here in the world's largest market, it is going to be lights 
out, game over for consumers.
    Two remedies. DoT has the authority to approve NDC. Given 
its anti-competitive effects and unprecedented invasion of 
privacy, DoT should reject it without condition.
    Number two, DoJ. They should serve IATA and its members who 
have been spearheading the NDC scheme with a CID to discover 
the purpose and objectives of NDC and the process by which 
horizontal competitors reached a binding agreement on how they 
would price and sell tickets.
    Thank you, Mr. Chairman. And I would just like to add that 
the American Antitrust Institute is looking at the competitive 
effects of NDC itself.
    [The prepared statement of Mr. Mitchell follows:]


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                               __________
    Mr. Bachus. Thank you.
    Professor Sagers.

      TESTIMONY OF CHRISTOPHER L. SAGERS, JAMES A. THOMAS 
   DISTINGUISHED PROFESSOR OF LAW, CLEVELAND STATE UNIVERSITY

    Mr. Sagers. Thank you very much. So my friend, Diana Moss, 
of the American Antitrust Institute told me that I should be 
getting hazard pay for being here today. And I am here, I am 
afraid, to suggest some reasons not to be so optimistic about 
this merger. I will notice that there are kind of a lot of 
captains uniforms behind me, and I have to say I am a little 
afraid that when I leave here to go home to Cleveland today, I 
am going to be on some sort of no fly list. And I hope that is 
not true.
    Mr. Bachus. They are all very friendly, I can tell.
    Mr. Sagers. I am sure they are. I am not going to say what 
airline I am on. And I will note as well that Dr. Winston, who 
I think is--he is only coincidentally to my left, and he is 
also going to probably say a few things in disagreement with 
me. He is an eminent person. No person could study the 
antitrust treatment and competition in airline markets without 
studying his work. And yet he and I are going to disagree about 
a few things.
    But the most encouraging thing I have heard today so far is 
Chairman Goodlatte's statement, which I was very pleased to 
hear describe antitrust law as non-ideological. And I could not 
agree more. It is non-ideological.
    I do not have, you know, my own phalanx of supporters 
behind me, and indeed I do not have any staff to come help 
support me in these sorts of things because I am only here to 
speak in favor of a policy that is supposed to protect 
everybody, including us average folks. And so guys like me come 
and talk about it alone.
    So here is my basic thought in the very brief time I have 
to describe this complex deal.
    I think that in policy consideration of transactions like 
these, complexity is the defendant's friend. Complexity is the 
merging party's friend. It is not the friend, though, of most 
other people that are affected by the transaction. I want, 
therefore, to try to describe a few things that, to me, seem 
relatively simple.
    First of all, there will be a lot of discussion, and it is 
going to seem complex because it seems to require a lot of 
understanding of complicated industry facts, of benefits 
proposed by the merger. Right? There is a lot of complexity 
surrounding the purported benefits.
    I am not even really going to talk about the benefits. I 
personally do not think they are worth dwelling on, at least 
not in this setting, because we all, every single one of us, 
have been to this rodeo before. We have seen many many mergers 
in many industries, and we have seen many mergers in the 
airlines in the 35 years since deregulation. And they have 
always been said to propose these same benefits or benefits 
like them, and quite often they have been disappointing. My 
sense is that the promises are typically not kept, and they 
have led to sometimes very painful disappointments.
    I am going to talk instead about what I also think is 
relatively simple, and that is the competitive effects. There 
is not time for me really to address it fully, but I will say 
this. In the written statements that I read last night, and I 
read them all, the most remarkable statement was that in this 
merger, among the thousands and thousands of daily flights to 
cities all across the United States that are controlled by 
these 2 carriers, the only overlaps that matter in the whole 
combined network will be 12 overlaps, 12 flights. We could 
delve into some complexities. I would rather focus on what 
seems to me simple. We should ask ourselves, among those 
thousands and thousands of flights, are there really only 12 
cities in which these 2 carriers provide competition with each 
other that would be lost through this merger? I do not think 
so.
    For a brief introductory analysis to what are the more 
likely effects, you can look at the white paper produced by the 
American Antitrust Institute, which is attached to Mr. 
Mitchell's written statement.
    The final thing I will say, and unfortunately I have a very 
brief remaining time to say it, is that a dominating theme of 
all discussion of airline mergers since deregulation has been 
the economic difficulties of the carriers. The claim is we have 
to merge. We have to consolidate to strengthen ourselves so 
that we can perform.
    Here are a few thoughts about that. First of all, the 
carriers really have never offered any very plausible 
explanation why merger. It has to be merger that is going to 
solve our economic problems. They can and they often have 
suggested a lot of detailed arguments.
    But again, I think the response is a relatively simple one, 
and it is that, well, we have had a long time. We have had 35 
years with dozens of mergers, every single one of which has 
been sold on the claim that synergies, cost savings, et cetera, 
are going to make us competitive. It has not worked. The 
airlines have remained--the legacy airlines, at least, have 
remained mostly economically in dire straits throughout that 
whole time.
    With that I will end. Thank you.
    [The prepared statement of Mr. Sagers follows:]


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    Mr. Bachus. Mr. Winston or Dr. Winston.

TESTIMONY OF CLIFFORD WINSTON, SENIOR FELLOW, ECONOMIC STUDIES 
               PROGRAM, THE BROOKINGS INSTITUTION

    Mr. Winston. Thank you. I am happy to be able to testify at 
this merger. I testified at the Delta/Northwest merger in 2008 
in support of that merger, and I support this merger. But I 
have some new perspectives to bring. I am not just going to 
read my old testimony. And what I think I will do in the short 
amount of time, given what we have heard, is repackage my 
written presentation in my oral presentation, beginning with my 
conclusion.
    All mergers, not just airlines, involve what we are to call 
the Williamson tradeoffs; that is, mergers trade off benefits 
from economies and expansion to get lower costs, okay. That is 
the positive claim to them. And then the anti-competitive 
concern that you are losing a competitor and that you will 
raise prices. So traditionally, when we think of these things 
we start off with tradeoffs, and naturally, you know, you will 
hear them and you have heard them, as expected.
    What I think is interesting now about airlines, and I did 
not stress this enough before, but I think it is increasingly 
true now, is we do not have to think of these any more as 
tradeoffs. Now admittedly, I will be bringing in an additional 
policy perspective, but I think that was appropriately done by 
Mr. Mitchell raising just concerns about what is going on with 
how tickets are distributed.
    And that additional policy perspective is the growing 
reality of where this industry is going, and that is the 
globalization. This is a global airline industry, right? We 
have to see where are we really going to be going. And when I 
mean globalization, I mean full open skies, something we have 
been moving toward, and ultimately cabotage, which is allowing 
foreign carriers to serve in the U.S.
    And, you know, if you think that is a strange policy, 
consider the automobile industry and imagine what it would be 
like if we did not have Honda, Toyota, et cetera, building and 
assembling cars here. And one wonders what is wrong with a 
picture like that when that is the case in autos, but we do not 
allow British and Irish planes to fly in the U.S.
    All right. Once you bring that perspective into mind, 
things change radically. You do not have tradeoffs. In other 
words, it is quite clear that with the airline's job to be as 
efficient as possible, okay, and reduce costs, and what policy 
makers' job to do is to promote globalization and policy, 
promoting open skies, finish the job with that, and cabotage. 
What that will do is give you your influx of competitors to 
make sure that the efficiency improvements are largely 
transferred to consumers. And so the concerns about competition 
just go out the window once you start thinking about that.
    All right. But something else very important becomes clear 
then. You get a deeper and, I think, more intuitive 
understanding of why carriers are merging. Think about what 
airlines really involve. It is a very risky investment, okay? 
And billions of dollars of seats that are in the sky, all 
right? And it is risky because there are lots of shocks that I 
will get to shortly, all right.
    What you want to do deal with risk, as we know, is to have 
a portfolio, and you could allocate those seats in response to 
shocks and risks. And in a globalized economy, then you can 
imagine what people will do. When things are tough in one 
place, they will move their capacity to another place, all 
right. Mergers enable you to do that.
    So I would suggest that the main justification for mergers 
which really has not been emphasized enough is really a way of 
dealing with risk, which is the inherent challenge in this 
industry.
    All right. So let me turn to that, why I think that. This 
all comes out of deregulation, you know. You can recall, but 
you have read, that airlines operated with a load factor of 55 
percent, so they have billions of dollars in capacity, and they 
are using only half of it. So, you know, in retrospect you can 
just see how crazy regulation was. What a waste, all right? But 
at the same time, airlines were shielded from the fundamental 
challenge; that is, matching capacity with demand and these 
shocks.
    So you have to commit to capacity to buy planes in advance, 
and you think you know what demand is. And then you have got to 
deal with fuel shocks, macroeconomic shocks, the Gulf War, 
September 11th, and, to top it off, sequestration, all right? 
That is really a very challenging thing to do.
    So what do you want to do? You want to have the ability to 
diversify, right, and be able to allocate your seats 
appropriately. That is what mergers do, and that is why the 
airlines have been doing it for all these decades, I would 
contend.
    Now, in the process of doing that, what do we see going on 
in the industry? What are the long-run trends? Well, real 
prices continue to go down. They continue to be below the SIFL, 
the standard industry fair level, under regulations, so the 
benefits of deregulation are preserved. And most importantly, 
load factors are going up. That is the key efficiency thing 
that we want to look at. We are not operating at 55 percent. We 
are much closer to 80 or 90.
    So I would suggest that, you know, these mergers are just 
part of a tool. They are not the only tool, but to deal in the 
long run with where this industry is going, and that is 
globalization.
    Now, I believe in the end, you know, Congress is critical 
here in pushing for that, all right? And then we get a win-win, 
and then presumably then the airlines should go along with it. 
We are allowing you to be more efficient. You allow us to spur 
competition in this industry.
    [The prepared statement of Mr. Winston follows:]


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    Mr. Bachus. Thank you. We will now proceed under the 5-
minute rule with questions, and I will begin by recognizing 
myself for 5 minutes.
    One thing, Mr. Mitchell, that you and Professor Sagers did 
not address, you talked about some possible negative 
implications of this merger. But if it does not go through, and 
there are some demonstrable negatives, very many, and I just 
wonder if you considered that. For instance, a failure of 
American Airlines being financially unsustainable.
    Mr. Mitchell. Well, American Airlines is exiting or will 
exit bankruptcy reorganization as a lower-cost carrier with 
billions of dollars in cash and cash equivalents, and new 
aircraft are on order. And their CEO has said countless times 
that they will be profitable as a stand-alone carrier. Likewise 
US Airways is enjoying some of its most successful earnings in 
its history.
    So I just do not buy into the notion that these are failing 
firms. It certainly does not apply as a failing firm against 
the guidelines, the antitrust guidelines. They are fit and able 
to compete. And to make the argument, as you hear now, then 
that they need to be large enough to compete effectively with 
the new Delta or the Continental-United, well, they claim 
themselves they can compete against them. If you use the logic 
that you always have to get bigger to compete with the next 
biggest carrier, we are going to end up with two mega carriers. 
I mean, the logic is flawed.
    And then finally, there are many smaller independent 
carriers that just do quite fine mixing it up.
    Mr. Bachus. Okay.
    Mr. Sagers. I would like to very briefly add one thing 
because I think this seems like the biggest issue, right, if we 
are going to have a huge business failure, we have to do 
something.
    My first point is I agree with Mr. Mitchell that it is 
unlikely. We do not see airline liquidations that often, 
despite the huge financial difficulty the industry has had in 
35 years.
    Much more importantly, we all have had a very painful, 
unhappy experience during the past few years with this same 
basic problem, which is that we in the United States do not 
have the stomach for business failure. By not being willing to 
tolerate it once in a while, we create a very serious problem, 
which is that firms that know that they will be rescued fail to 
learn how to compete in difficult markets, okay? And in this 
case the subsidy----
    Mr. Bachus. Let me say this. We have a bankruptcy law which 
allows you to go into bankruptcy, and then it allows the 
creditors, the company, the pension, the CBGC----
    Mr. Sagers. Right, right.
    Mr. Bachus [continuing]. To agree on the best route out of 
bankruptcy. And that agreement has been made.
    Mr. Sagers. We do have a bankruptcy law, but----
    Mr. Bachus. But what I am saying, what these companies are 
doing is exactly what the law avails of any company. And they 
have made a decision through the bankruptcy process that this 
is their best reorganization.
    Now, you know, you could argue with that, but they have 
availed themselves of the legal process.
    Mr. Sagers. I disagree.
    Mr. Bachus. Well, I know you do. But one thing that, and I 
have read your statements and what you have said in the press. 
But airline fares, I mean, you have talked about they have 
escalated, but they have actually, as far as taking into 
account inflation, they are one of the best, they are more 
competitive than they have ever been. I mean, the only reason 
they have been as cheap as they have is investors have pumped 
billions of dollars into failing airlines.
    And I would say this. You both mentioned that they maybe 
had a few more complementary routes, or not complementary, but 
duplications. But actually I cannot recall a merger of airlines 
that had fewer duplications than this.
    Mr. Sagers. I will reply if you allow me.
    Mr. Bachus. What?
    Mr. Sagers. I will reply if you will allow me.
    Mr. Bachus. All right.
    Mr. Sagers. Okay. First of all, they are not just doing 
what bankruptcy law allows. They are emerging from bankruptcy 
with a merger which is substantially uncompetitive. The subsidy 
that we gave to the banks during the bailout----
    Mr. Bachus. No, that is their bankruptcy plan, I think. 
That is legal.
    Mr. Sagers. Yes, sir.
    Mr. Bachus. I mean, that is bankruptcy.
    Mr. Sagers. That may very well be. Most people who emerge 
from Chapter 7 do not do it through a horizontal----
    Mr. Bachus. Well, most of them do not do it. But what they 
do, that is an option.
    Mr. Sagers. Yeah, unless it is illegal under antitrust 
laws.
    Mr. Bachus. And that is an option that the law gives them. 
And I would just say this. I am a railroad attorney. I remember 
Rock Island and where the government continued and turned them 
down saying it was anti-competitive and you lost 10,000 miles 
of rail and stranded over 4,000 shippers because you did not 
allow a viable merger. And I can tell you that everything I 
have read, this is going to make a stronger airline.
    And I will say this. You could have stopped those mergers 
before Delta and Northwest, I will agree with that. You could 
have stopped it before Continental and United. But you did not, 
and you created other airlines with a distinct advantage if you 
do not let these two airlines merge.
    And the employees are for this, you know. I have never seen 
more favorable support from employees, from unions and in a 
time of deficits from the Pension Guaranty Corporation, which 
is not unimportant.
    Mr. Mitchell. Mr. Chairman, could I add one point?
    Mr. Bachus. Sure.
    Mr. Mitchell. From ABC News, you know, we talked about the 
12 overlapping routes. But there are 100 cities that these two 
carriers currently compete on routes. That works out to 4,900 
routes.
    Mr. Bachus. Well, let me say this. If you call competing, 
which I saw a list that if you fly from Birmingham to D.C. and 
you want to fly through Dallas and take 12 hours as opposed to 
2 hours from Birmingham to D.C., you can call that, if they 
share that route. But I do not know of anyone that would take a 
12-hour flight or an 8-hour flight when they could go non-stop.
    Mr. Mitchell. But the real point----
    Mr. Bachus. And that was on somebody's list.
    Mr. Mitchell. The real point is that the 12 overlapping 
routes, overlapping routes in general are not as important as 
they were 4 or 5 years ago.
    Mr. Bachus. All right, thank you. Mr. Cohen.
    Mr. Cohen. Have all of you all flown through Atlanta? You 
all have?
    Voice. Atlanta?
    Mr. Cohen. Have any of you all flown through Memphis? Mr. 
Mitchell, is it more convenient and nicer to be in the Memphis 
Airport or the Atlanta Airport? [Laughter.]
    Mr. Mitchell. Every time I am there, I feel like I am 
living the dream. [Laughter.]
    Mr. Cohen. You got it, man. You have been there. Any of the 
rest of you been and think Atlanta is a better experience for 
your consumers than Memphis? Mr. Johnson?
    Mr. Johnson. Sir, I am just not familiar with the Memphis 
Airport. But after your discussion about it----
    Mr. Cohen. You and Mr. Anderson.
    Mr. Johnson. I am going to see the Memphis Airport as soon 
as I can.
    Mr. Cohen. Good. And you will like it. Is not the fact----
    Mr. Bachus. He likes the ribs, right?
    Mr. Johnson. He likes the Rendezvous, right?
    Mr. Cohen. The Rendezvous and others. But, you know, 
Memphis Airport is small. It is easy to get around. It smells 
good. You smell ribs everywhere. [Laughter.]
    Atlanta is just gigantic, and the only smell you get is 
maybe, you know, congestion. Will US Airways-American--it will 
be called ``American,'' Mr. Johnson--is there a likelihood that 
you would look into Memphis? And with all the things about 
competition, now are you going to leave Memphis to just to be 
the stepchild of Delta, or would you look into coming in there 
and providing competition, as US Airways has on the Memphis-
Washington route?
    Mr. Johnson. We think both--am I on? Both airlines serve 
Memphis now. We serve Memphis to a variety of our hubs. As you 
know from our testimony, our written testimony, the creation of 
the network that will come about by the New American Airlines 
will create opportunities to provide additional service to 
cities that we serve to our hubs, and we are hopeful that 
Memphis will be among that. But at this point in time, we have 
not had the opportunity to plan or talk about that, but 
certainly Memphis will be on our list, sir.
    Mr. Cohen. Mr. Mitchell, one of the things Mr. Anderson 
said or others said was that since the Memphis Airport is so 
much better, the time that airlines have to stay on the tarmac 
or just approach, that they save money on fuel. Is that 
accurate that that would be an attraction to an airline to come 
to Memphis because of fuel costs just sitting on the runway?
    Mr. Mitchell. I think there is abundant evidence of that. 
All you have to do is look at the statements over time of 
Southwest Airlines. They will, you know, stay away from any 
airport where expenses and charges are just a little bit too 
high for them. So, it makes an impact on the decision making at 
the airlines for sure.
    Mr. Cohen. Dr. Winston, you supported the Delta-Northwest 
merger. When you did so, did you take into consideration the 
horrific conditions that would result in a city like Memphis 
because of this merger?
    Mr. Winston. No, I did not. I had a broader perspective on 
the merger. I qualified the danger of prospective assessment of 
mergers because what we know is after the merger, there are so 
many changes in the network, entry and exit, that may relate to 
the merger, but in this case, as we know, probably had nothing 
to do with the merger because April 2008 was when we had our 
hearing, and the merger went forward, and then we had the great 
recession.
    How one could isolate what the merger did versus the great 
recession is very, very difficult. So the great recession 
should have----
    Mr. Cohen. Well, we had our problems in Memphis, there is 
truth to that. Should the great recession not have been made 
Memphis a better airport, as Mr. Mitchell says, because of the 
fact that you save money and you have less time. You are 
burning fuel sitting there waiting to take off as you do in 
Atlanta? And the great recession should have made Memphis a 
more profitable hub for Delta. You do not agree with that.
    Mr. Winston. I think that the problem with a place like 
Memphis, as other, what we call, not the largest hubs, is 
traffic. And again, if you are an airline, you want to fill 
your plane with people, you want to go where the people are.
    Mr. Cohen. Destination and origination. But nevertheless, 
airports have become like Federal Express except the airlines 
use people and Federal Express uses packages. And there are 
just places where you move people around. And Memphis is a good 
place.
    But let me ask you this. Mr. Mitchell, Dr. Winston thinks 
it would be good to have international competition. Do you want 
to have Air Shanghai be our primary carrier?
    Mr. Mitchell. I personally do not fly them too much. 
[Laughter.]
    But, you know----
    Voice. Do they fly out of Memphis?
    Mr. Mitchell. The notion that you can justify a merger 
based upon some future change in the marketplace, such as 
cabotage and open skies, is really not responsible. It is not 
going to happen in our lifetime. None of the 30 pilots or 
however many pilots are behind me want to wake up one morning 
working to find themselves working for the Spanish government. 
It is too complicated, and it certainly is no justification for 
a merger.
    Mr. Cohen. Thank you, sir. I was in Raleigh-Durham 
recently, and I had a flight on US Airways. And I had some 
time, and so I was able to look at the scheduling chart and saw 
that American flew. And American had really much better prices 
and much better deals on your frequent flyers going to 
Washington from Raleigh-Durham. Is that one of the 12 routes 
that you are talking about, or is that one of the some 100 
routes that Mr. Mitchell mentioned?
    Mr. Johnson. That is one of the 12 routes.
    Mr. Cohen. And what will happen there?
    Mr. Johnson. I imagine that we will retain a high level of 
service between Raleigh-Durham and Washington, D.C.
    Mr. Cohen. And will the price be US Airways prices or 
American Airlines prices?
    Mr. Johnson. I do not know. We have not talked about that 
at all. You know, as I said, we announced this merger 12 days 
ago, and those are things that we will work on over the coming 
year as we----
    Mr. Cohen. You know, it is not just Memphis. It was St. 
Louis with TWA, it was Cincinnati, it has been Pittsburgh, lots 
of hub cities who put a lot of investment in their airports. 
And it was a business that is important to their communities, 
suffered because of mergers.
    Mr. Mitchell, do you see any of the hub cities that have 
served American or US Airways seeing a similar fate as Memphis, 
Pittsburgh, St. Louis, Cincinnati, and maybe others have 
because of mergers?
    Mr. Mitchell. Well, it is possible, and that is going to 
have to be a very fact-intensive analysis by DoJ. But certainly 
Philadelphia could be impacted, Charlotte could be impacted, 
Phoenix could be impacted because of the geography of adjacent 
hubs.
    Mr. Cohen. Thank you, Mr. Bachus. I appreciate my time. Mr. 
Johnson, when you come to Memphis, let me know. We will get 
some ribs, and we will see Fred Smith. Thank you.
    Mr. Johnson. I look forward to it.
    Mr. Bachus. Mr. Farenthold.
    Mr. Farenthold. Thank you very much. Mr. Chairman, when you 
started out, you mentioned some of the airlines had gone away. 
You skipped Braniff, a great Texas airline I grew up with. And 
I mention that because it really looks like the only thing 
consumers in the U.S. are looking on airlines right now is 
price.
    You go back to the days when Braniff and Southwest were 
competing or Southwest and Muse Air, and you see some great 
competition on something other than price. And really all you 
have got now playing in that is Virgin is trying to offer a 
little bit different experience.
    But to me, it really is becoming commoditized, and I am 
concerned as we get the number of carriers down, we drop--you 
said there are 12 direct flights. And you are saying there are 
only about 100 flights. Now, I am from Corpus Christie, Texas. 
To fly anywhere from Corpus Christie, you got to change planes 
in Dallas or Houston. I think there are a lot of folks who are 
in non-hub cities or not traveling to hub cities, they are in 
the same boat.
    So, how many routes with one stop are you all competing on?
    Mr. Johnson. I do not know the number, but what I can tell 
you is any route with one stop in which we are competing has 
very significant competition because everybody serves those 
routes on a one-stop basis. And those routes you have four or 
five----
    Mr. Farenthold. And I do agree, US Airways typically has, I 
see, as lower fares when I am booking. I do not have the luxury 
I used to have of being able to travel on Wednesdays, you know. 
I have got to fly on the busier days.
    You were talking about no hub closures, and just looking at 
the map of the hubs, I am going to have to agree with Mr. 
Mitchell. The geography just does not seem to make sense. And 
AA has a history of closing hubs. I mean, you had Nashville and 
Raleigh-Durham, but on the East Coast now, you have Miami, 
Charlotte, Washington, Philadelphia, and New York. That is a 
whole lot of hubs in a closed proximity.
    How much assurance can you give us you are not going to 
shut one of those babies down?
    Mr. Kennedy. Congressman, a couple of considerations. If 
you look at the geographical distribution of the hubs, and you 
look also at the primary purpose of certain of those hubs, we 
have, as we have stated publicly, a high degree of confidence 
that the hubs that we have today will remain in place.
    For example, New York, which is the largest market in the 
world, that serves primarily for American.
    Mr. Farenthold. I am not worried about New York or L.A.
    Mr. Kennedy. But just by way of example, that New York 
serves as an international gateway, Miami as a gateway going 
south. And then when you look at Charlotte, which is a north-
south hub, and you look at Dallas, which is, you know, 
primarily Midwest and going east and west. When you look at 
those, we find them to be highly complementary of one another, 
and so I think it is unlike what you have seen in perhaps other 
merger situations.
    Mr. Farenthold. You guys are familiar that on some of the 
blogs and messages boards, like Flyer Talk, you are getting 70 
percent opposition to this merger from frequent flyers.
    It seems like you have got the public against you all on 
that. How are you all taking that?
    Mr. Johnson. Congressman, I have not seen those numbers. 
The feedback that we are getting from our customers, we are 
getting from the communities we serve, is exactly the opposite. 
Everybody is very excited about it.
    Mr. Farenthold. All right. Let me get back to the price 
competition, and maybe, Mr. Mitchell, you can help me out a 
little bit on this. I know you expressed a great deal of 
concern about sites requiring a great deal of personal 
information from you to determine what fares you are going to 
get. And I think this is partially the airline industry's fault 
in that they have made this so difficult with all of the 
ancillary fees.
    I get two free bags on United. My wife gets one free bag on 
United. I am a peasant on Delta, so I do not get any free bags. 
And Southwest gives everybody free bags. So, I mean, you have 
got to have some degree of information about the traveler.
    Do you think there is a way we can create a system where 
anonymously or semi-anonymously you can actually compare what 
the bottom line price between two airlines is going to be?
    Mr. Mitchell. Well, first of all, with respect to fares, we 
have that system today. You can go to any online or brick and 
mortar travel agency and understand all the options in the 
marketplace. But when it comes to ancillary fees, like check 
bag, baggage, and seat assignments, and so on, it is an 
absolute mess.
    For 5 years, the airlines' most important corporate 
customers have been demanding that these data on the checked 
bags be put into one place for comparison shopping.
    Mr. Farenthold. Let us get the airlines' response real 
quick, and I want to save about 15 seconds for me. Do you all 
have a solution to that?
    Mr. Kennedy. Well, let me just say a couple of things. 
First of all, American, US Air, we are strongly in favor of 
full transparency for consumers. That what we have been about.
    Mr. Farenthold. I am sorry, I am out of time. I do want to 
end this. I am concerned about this merger on a level as a 
frequent flyer. But we have given the opportunity to compete to 
all the other airlines. It seems to me with the merger that has 
gone through, it is only fair to offer you the opportunity, 
assuming you comply with the laws that are in place. But I 
remain concerned. It is very difficult for new players entering 
the competition. It is going to be a problem. And I will yield 
back.
    Mr. Bachus. Thank you, Mr. Farenthold. Those blogs, I think 
that 98 percent of the bloggers think that we are incompetent. 
[Laughter.]
    Mr. Farenthold. And you could do a scientific poll that we 
only get eight percent approval rating. [Laughter.]
    Mr. Bachus. Mr. Conyers.
    Mr. Conyers. Chairman Bachus, I want to ask a question you 
started off with. Is this merger really necessary? I think that 
there is a general thinking that there is support for it, but I 
wanted to ask, what if we really did not have this merger going 
on, Mr. Sagers? What do you think would happen?
    Mr. Sagers. Well, as I said, we are not going to see a 
liquidation of American Airlines I think in all likelihood. And 
I do not think we are going to see frequent liquidations of any 
carriers in the foreseeable future. We would preserve such 
competition as we have left for the near term.
    And I think that we would see perhaps an additional degree 
of market discipline for cost containment that we have 
forfeited, you know, in our airlines competition policy.
    Mr. Conyers. Mr. Mitchell, if this hearing was not held and 
that we would continue with our business, what do you think 
would go on in the industry?
    Mr. Mitchell. If the merger were not to occur?
    Mr. Conyers. Yes.
    Mr. Mitchell. Well, I think, you know, we will several 
network carriers competing aggressively against one another. I 
think both carriers will do just fine.
    Let us be honest. This is going to really help creditors. 
It is a better deal for labor. But it is all about the revenue, 
and if this merger were approved, we are going to three network 
carriers. The ability to coordinate fare hikes will be 
unprecedented. Last year there were 15 proposed fare hikes. 
Eight were rejected by one or two carriers.
    The probability that they will be rejected in the future 
begins to go way down when you have three carriers and 
coordinated effects. We have to balance three network carriers, 
if it comes to it, with more transparency in order to preserve 
the marketplace and competition.
    Mr. Kennedy. Congressman Conyers----
    Mr. Bachus. I was going to suggest, Mr. Conyers, and we 
will give you an extra minute to let the two representatives of 
the airlines answer your question.
    Mr. Conyers. All right.
    Mr. Kennedy. Congressman, I have been in the airline 
business for 29 years. I joined American in 1984. And in all 
those years, this is the most competitive business I think on 
the planet. It is ultra-competitive. And what is going to 
happen when these airlines combine, that competition will 
remain.
    We simply are trying to become a stronger, more vibrant 
competitor against those already in place. I think it is 
important for this industry. It is important when you look at 
the international alliances and the composition of both Star 
and the Sky Team Alliance.
    And so this is going to give consumers more choices. It is 
going to allow us to better compete with the other airlines.
    Mr. Conyers. Well, there is nobody that does not think you 
are not coming out of bankruptcy.
    Mr. Johnson. Congressman, if I might----
    Mr. Conyers. Yes, please.
    Mr. Johnson. It is, in fact, the case, and I thank Mr. 
Mitchell for noticing how well US Airways has been doing 
recently. And it is, in fact, the case that American has had a 
terrific restructuring and could easily emerge on a stand-alone 
basis.
    That is not really the question. The question is, why are 
we doing this and for whose benefit? Our customers have been 
telling us that they want a bigger network. They want a network 
competitive with United and Delta. They want more choices and 
more opportunities. They have been telling us that directly. 
And discouragingly for Mr. Kennedy and I, they have been 
telling us indirectly by leaving American Airlines and leaving 
US Airways to fly on Delta and United's new bigger networks. So 
we help our customers by this merger.
    Second, we help our employees. US Airways is a smaller 
airline. Has a smaller network and a revenue generating 
disadvantage versus the other big airlines. As a result of 
that, to be successful we have to pay our employees less, and 
we have made a bargain with our employees over time that we can 
give them good jobs and good benefits, but they are going to be 
less than those enjoyed by their counterparts at Delta and 
United. By merging and creating a network like Delta's and 
United's, we can pay our employees more, and we have an agreed 
path to pay them the same as Delta and United.
    In addition, when we talk to people in our principle 
cities, in these hubs that we have talked about so many times 
today, they do not talk to us about price issues or price 
concerns. They talk to us about finding ways for there to be 
more service, finding ways to grow the hub, finding ways to 
create more destinations for travel. All of that can be 
accomplished by this merger, Congressman. And that is what we 
are trying to do today.
    Mr. Conyers. Well, you are both doing okay now. You know, 
what I hear you saying is that it may get tougher later, and we 
want to be prepared, and so we are going to merge now. And I am 
not sure if that goes along with the American Antitrust 
Institute. Do either of you know what the economic scholars are 
thinking in terms of this kind of discussion, Mr. Sagers?
    Mr. Sagers. Yeah. I mean, you know, there are a lot of 
econometric study of airline fare changes. And it is in some 
dispute, but there is substantial evidence that on specific 
city pairs, prices go up when concentration goes up. And we 
hear a lot, by the way, about average prices going down, and 
that is very misleading.
    Mr. Bachus. Mr. Johnson, you respond, and then we will----
    Mr. Johnson. Sure. I mean, first, I will respond, but I 
want to make sure that we give Dr. Winston an opportunity to 
respond because he is the expert on airline pricing here today.
    What I can tell you is that after this merger, this is 
going to be a very, very competitive industry. There will be 
four airlines with each having less than 25 percent market 
share and each with nationwide networks that are very 
competitive.
    There will be two airlines, Alaska and Jet Blue, that 
provide significant competition in regions--Alaska in the west, 
Jet Blue in the east.
    Mr. Conyers. It will be more competitive after this merger.
    Mr. Johnson. I expect so.
    Mr. Conyers. And what would it be if there were not a 
merger?
    Mr. Johnson. In fact, the industry is very competitive now, 
Congressman, and it is going to be very competitive after this 
merger. After this merger, we will have Southwest continuing as 
a low cost, Jet Blue continuing as a carrier with a significant 
cost advantage. But three very fast-growing low-cost airlines, 
Spirit, Allegiant, Virgin America, all providing competition 
regionally and, as they grow, extra regionally.
    Mr. Bachus. Thank you. And I think that is what Mr. 
Winston's and others' testimony said.
    Mr. Holding?
    Mr. Holding. Thank you. I will preface my remarks by saying 
that I am a very happy frequent flyer of American Airlines. It 
serves the routes that I travel in best.
    I know an airline that was omitted in our discussions, 
Piedmont Airlines, which is a very fine North Carolina based 
airline. It was Airline of the Year in 1984. And I spent many 
an enjoyable mile flown on Piedmont Airlines.
    I fly out of Raleigh-Durham International, and it is a very 
important airline to my constituents. It is an economic booster 
for the Research Triangle Park that is very important to our 
businesses there.
    It is even finer than the Memphis Airport, I might add, the 
brand new, newly-built.
    How much is the overlap between American and US Air in the 
Raleigh-Durham market, Mr. Kennedy?
    Mr. Johnson. The overlap, I think, is just on the 
Washington, D.C. flight. American serves its hubs from Raleigh-
Durham. We serve our hubs from Raleigh-Durham. And so I think 
the overlap is just limited to that one flight.
    Mr. Holding. Right. And I noticed that the prices on 
American and US Air are virtually the same flying out of 
Raleigh-Durham to D.C. How much overlap do you have in 
Charlotte?
    Mr. Johnson. Virtually zero. American serves Charlotte to 
its hubs, and we have a very large connecting hub in Charlotte.
    Mr. Holding. Right. And I believe US Air serves D.C. out of 
Charlotte. I think they are probably the carrier that has the 
most flights out of Charlotte to D.C. What would you anticipate 
that the price difference is between Raleigh to D.C. and 
Charlotte to D.C. is?
    Mr. Johnson. I do not, but it sounds like you might know. 
[Laughter.]
    Mr. Holding. It costs a lot more money to fly from 
Charlotte to Washington than it does from Raleigh to 
Washington. And that is concerning. It is very concerning. Your 
direct competitors have a route from Raleigh to Washington, 
whereas US Air does not have a direct competitor in Charlotte, 
so it costs a lot more money. And that would certainly impact 
the folks who live in my congressional district.
    Do you anticipate that the fares would go up significantly 
in the future in Raleigh to Washington when you are no longer 
competing with one another?
    Mr. Johnson. Congressman, as we have said before, I mean, 
any discussion about fares or that sort of planning and 
strategy is something that is down the road for us. And, you 
know, those are issues that we will be discussing really with 
respect to fares and things like that, probably not until after 
the merger.
    Mr. Holding. So what are the top three factors that you 
would have under consideration when you are making your pricing 
decisions down the future, whether it is in this route or 
another route?
    Mr. Johnson. The top three factors: demand, the cost of 
providing the service, the opportunities to provide service 
over a hug. In other words, if we can attract passengers to go 
more places than the original destination, the hub, it gives us 
an opportunity to operate more efficiently and provide a more 
cost-effective service.
    Mr. Holding. And the factor of whether or not you have a 
direct competitor in that market is not in the top three 
factors?
    Mr. Johnson. The airline industry is a very competitive 
business, and we compete, and we compete in virtually every 
market that we operate.
    Mr. Holding. American Airlines operates a direct flight out 
of Raleigh-Durham to London Heathrow. It seems to be a popular 
flight. Do you know if that is a profitable flight or an 
unprofitable flight?
    Mr. Kennedy. Congressman, I am not aware of whether it is 
or is not profitable, but it is a service we have had for a 
number of years. And as you know, with the combination we had 
British Airways in terms of our joint alliance, we offer a 
tremendous variety of service into Heathrow and elsewhere. And 
I would hope that that service you are referencing continues, 
but I just do not know about its profitability.
    Mr. Holding. Is there any consideration of expanding the 
international flights out of Raleigh-Durham Airport that you 
know of?
    Mr. Kennedy. You know, one of the things about the industry 
is that we are always looking at where it is that we can expand 
our service. As I had mentioned, you know, we have an aircraft 
for 500 new aircraft that we just did the summer before last. 
And that is going to allow us to not only replacing aging 
aircraft, but also to expand our service.
    So our route network people at the company spend a 
tremendous amount of time looking at opportunities as to 
whether or not we can increase service, I do not know. I am 
going to have to ask our folks to look into this particular 
question and get back to you. But if the demand is there, then 
we would like to increase the service and provided, of course, 
that we can get, you know, landing rights on the other side of 
the equation.
    Mr. Holding. Thank you, and I would appreciate that follow-
up, not only on the international routes, but on the question 
of competition and how that will be in your analysis as far as 
the Raleigh-Durham Airport is considered. Thank you, Mr. 
Chairman.
    Mr. Bachus. Thank you, Mr. Holding.
    Mr. Johnson?
    Mr. Johnson of Georgia. Thank you, Mr. Chairman. Thank you 
for holding this hearing. And when I heard that my esteemed 
colleague, Steve Cohen, had said some things about the Memphis 
Airport and kind of compared it to the Atlanta Hartsfield-
Jackson Airport, I had to make sure that I came. [Laughter.]
    Mr. Cohen. I am sure it hurts.
    Mr. Johnson of Georgia. And I tell you, this is not to take 
anything away from the Memphis Airport, and Memphis may, in 
fact, have the best ribs and that kind of thing. But you will 
never have an experience like you will when you go through 
Atlanta's Hartsfield-Jackson Airport.
    Mr. Cohen. That is true. [Laughter.]
    Mr. Johnson of Georgia. I mean, the hospitality, the real 
southern hospitality, the ambiance, the warmth of the people 
there, and the food. I mean, everybody knows about Pascal's 
Fried Chicken that you can get out there at the airport. 
Everybody knows about the good peaches that come out of 
Georgia, and they go into that peach cobbler that just melts 
right in your mouth. You know, peanuts, pecans, Coca Cola. I 
mean, it cannot compare. It is incomparable.
    And so let us make sure that we clear the air on that 
issue. I do love barbecue every once in a while, but I can eat 
some fried chicken every day. [Laughter.]
    Now, Mr. Steven Johnson, thank you for testifying. Thank 
you all for testifying today on this issue.
    I am interested in the effects of this merger on union and 
non-union employees. You have indicated in your submitted 
testimony that the combination of these airlines will generate 
substantial net synergies, and establish the financial 
foundation for a more stable company, and better opportunities 
for our 100,000 employees. However, current and former 
employees may also be concerned about how the merger will 
affect benefits, such as their health care benefits and 
pensions.
    Mr. Johnson, how does the merger affect the benefits of 
current and former employees?
    Mr. Johnson. Well, Congressman, first I want to comment 
that the statement that you made about Atlanta I think has a 
lot to do with why most people consider Delta the most 
profitable and successful airline in the United States today. 
And that is one of the reasons why we need to create this new 
network to compete with things like that. So thank you very 
much for that.
    Mr. Johnson of Georgia. Thank you.
    Mr. Johnson. But could I ask Mr. Kennedy to answer this 
question? He is very deeply involved in the negotiations about 
that and more familiar with it.
    Mr. Johnson of Georgia. Sure. Mr. Kennedy?
    Mr. Kennedy. That was very well done, Mr. Johnson. Well, 
first of all, with regard to current and former employees, as 
to retirees, we are still working through our bankruptcy and 
determining what will happen with retiree benefits.
    I will say that as we have with current employees where we 
have changed the medical insurance benefits upon retirement, we 
are seeking to do the same with regard to retiree employees. 
With regard to pensions, as you know, we were successful in 
freezing our pension plans rather than terminating them, and 
that is terrific for all employees because we will pay all the 
benefits under our pension plans to our employees. We are not 
sending those obligations to the PBGC for payment. I know that 
has been done in the past, but we worked hard to go ahead and 
freeze those plans rather than terminate, and that is a success 
coming out of this bankruptcy.
    Mr. Johnson of Georgia. Thank you. Do you see any changes 
to the basic benefits occurring in years to come?
    Mr. Kennedy. I do not know what will happen in future 
years, but I will tell you that particularly with both our 
union employees and our non-union employees, when we structured 
our new contracts with our organized labor groups, we did so in 
a way that would provide to the company productivity 
improvements, but would also provide for pay increases for our 
employees. And we now have new 6-year contracts.
    Now, we do have work to do with this merger in terms of 
getting, you know, one contract among all the labor groups, but 
we have made substantial progress in getting that finished and 
ready to go. So I believe that while some of the changes we 
made with regard to productivity improvements are difficult, 
that employees will benefit not only from the pay increases we 
have in place, but as we grow the airline in the future.
    Mr. Johnson of Georgia. Thank you, Mr. Kennedy. I yield 
back.
    Mr. Bachus. Thank you.
    Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman, and thank you, panel, 
for being here today. It has been a great discussion.
    I live about five miles from the Greater Pittsburgh 
Airport. When Pittsburgh lost its hub status about 10 years 
ago, we dropped from over 500 flights to fewer than 50, and we 
lost thousands of jobs in the process, and a world class 
airport remains under-utilized. It has created an inconvenience 
for the traveling public and also for our business community to 
have not as many flights as we used to.
    Currently we have about 41 US Air flights and 15 American 
Airlines flights out of Greater Pitt. Can either Mr. Kennedy or 
Johnson give us any kind of assurance that the number of 
flights will not be reduced out of Greater Pitt?
    Mr. Johnson. Congressman, those are flights that we operate 
to our respective hubs. They work really well for both of us. I 
would anticipate that the merger is not going to change air 
service to Pittsburgh materially in any way.
    I will say that the people of Pittsburgh will have some 
advantages associated with those flights being combined on one 
carrier. They will be able to fly online to more places. They 
will be able to accumulate their frequent flyer miles on one 
airline instead of two. Travel will be more convenient. But I 
do not anticipate that it will change the air service to 
Pittsburgh at all.
    Mr. Rothfus. Has there been discussion about post-merger, 
changing hubs at all, moving hubs, consolidating hubs?
    Mr. Johnson. I think just the opposite. We anticipate that 
we are very happy with the hubs that we have. As Mr. Kennedy 
said, they are geographically diverse. They are functionally 
diverse. They all work for the separate airlines, so we 
anticipate they will be very successful after the merger. We do 
not anticipate adding any hubs.
    Mr. Rothfus. Well, I would like to talk a little bit about 
some of the hubs you have, particularly those in the New York 
area, you know, JFK, La Guardia, and then down to Philadelphia. 
You always hear about constant overcrowding, delays. Leisure 
and Travel magazine, for example, asked travelers to rank the 
worst airports in the country, and the top three are La 
Guardia, Philadelphia, and JFK. And here we have not only an 
under-utilized airport out in western Pennsylvania that I think 
could serve as a hub, and I would just ask the parties to 
consider that as you do your planning.
    Moreover, you know, we have a recent drilling arrangement 
out there at Greater Pittsburgh Airport that is going to be a 
benefit, or may be a benefit, to airlines to consider that. So 
again, I would ask you to consider that.
    Both of you testified a little bit about some of the small 
and middle-sized communities, and I have some of those in my 
district. And I'm just wondering if you either of you might 
opine on expansion to some of the underserved communities that 
might result from this merger.
    Mr. Johnson. If I could, Congressman, again we have not 
done any of that planning yet, and we will not be able to do 
any of that planning until we close the merger. But one of the 
great opportunities of this merger is the complementary nature 
of the networks. I had mentioned in my opening remarks that 
there are some 130 cities that American Airlines serves that US 
Airways does not serve, 62 cities that US Airways serves that 
American Airlines does not serve.
    When we make decisions about serving any market, 
particularly small- and medium-sized markets, there is an 
economic calculus that we undertake, and that economic calculus 
involves determining what the revenue potential is and then 
subtracting, if you will, the projected costs. And when we at 
US Airways look at new service, one of the big costs are 
developing infrastructure, recruiting and training employees, 
and creating a marketing presence in a community.
    In Pennsylvania where there are a number of communities 
that US Airways serves and American Airlines does not serve, 
that infrastructure exists. We have really quality employees 
there already, and there is a great marketing presence as you 
know. Those are great opportunities for expanding service from 
the American Airlines hub.
    Mr. Rothfus. We would be looking for, you know, 
opportunities to expand even additional communities, such as 
Johnstown, Pennsylvania.
    You know, related facilities that US Air currently has in 
Pittsburgh include an operations center that employs about 
1,800 people. Now, old American or American has an operations 
center in Dallas. What is the consideration for the operation 
centers for the respective airlines, and what can we expect to 
happen to the operation center at Greater Pitt?
    Mr. Johnson. Well, that is something we would have to 
discuss. We obviously will operate separate airlines until we 
close the merger, but then we will continue to operate separate 
airlines for, I would think, 15 to 18 months. That will 
continue to require two operation centers.
    During that period of time we will talk and plan and see 
what works in terms of ultimately combining those operation 
centers or, you know, finding an alternative way to manage 
that.
    Mr. Rothfus. I guess you are considering then a 
consolidation of the two at some point in the future?
    Mr. Johnson. I think in general airlines, you know, operate 
from a central operating system--sorry, central operating 
center. And I would expect that at some point in time, once we 
have completely merged the airlines and their operations that 
we would as well.
    Mr. Rothfus. We also have a maintenance center at Greater 
Pitt. Any consideration on that with US Air?
    Mr. Johnson. We have about 1,000 maintenance employees 
engaged in heavy maintenance in Pittsburgh. It is a very senior 
workforce, so it is reducing a little because of retirements of 
our great employees, so we expect that to be about 975 
employees at the end of the year. But it is a central part of 
our maintenance operation. We expect it to be not affected in 
any significant way by the merger, but as we plan and we look 
out into the future, it is a little hard to say at this point.
    Mr. Rothfus. Again, I would ask you to consider taking a 
look at Greater Pitt in any post-merger----
    Mr. Johnson. Obviously we are very close with your 
colleagues in the delegation and the governor, and even our 
friends in Philadelphia have asked that we do that. And I 
promise in the next couple of weeks to go to Pittsburgh myself 
and talk to the city and civil leaders there about these 
issues.
    Mr. Rothfus. Thank you. A question for Dr. Winston, a 
fascinating----
    Mr. Bachus. Well, actually----
    Mr. Rothfus. Thank you. Thank you, Mr. Chairman.
    Mr. Bachus. Thank you.
    Ms. Delbene.
    Ms. Delbene. Thank you, Mr. Chairman.
    Mr. Johnson, you brought up earlier the demand from your 
customers to have a larger network so that you would be able to 
serve more of their needs and to be more competitive with some 
of the larger carriers. Where do you see the balance between 
having that larger network internally versus having 
partnerships to meet those demands?
    Mr. Johnson. Well, I think we would always prefer to do it 
internally if we could. Partnerships serve a purpose that 
accomplishes something like a network, but an imperfect 
replication of a network. And you usually undertake that when 
there is some reason that you cannot create the network you 
want. Usually national ownership rules of airlines and things 
like that, bilateral agreements between countries for 
international flying. Those are the kinds of things that lead 
to partnerships and business arrangements because you cannot 
under the law achieve the network you want.
    Ms. Delbene. And when you look, and Mr. Kennedy as well, 
when you look at after the merger, do you intend to maintain 
the partnerships that you have today? And I guess I will 
preface that with I am from the other side of the country, from 
Washington State. And Alaska, for example, is a big carrier in 
our neck of the woods, and so the partnerships are very 
important.
    Mr. Kennedy. Alaskan Air has been a very important partner 
of ours, and so while, again, as Mr. Johnson said, we have not 
made any determinations of what the network will look 
afterwards. But that partnership has been very important to us, 
and it is a great airline. And so, you know, I would hope that 
that partnership would continue.
    Ms. Delbene. And I think Mr. Mitchell brought up the NDC 
earlier, and I wanted to give a chance to either you, Mr. 
Johnson, or you, Mr. Kennedy, to give your viewpoint price 
transparency, and NDC, and you feel that would be impacted 
after the merger, or just your view on NDC in general.
    Mr. Kennedy. Well, two things. One is, and perhaps I had 
said earlier this earlier, and I apologize if I did. But we are 
strongly in favor of price transparency to consumers. It is 
very important and always has been and needs to continue. I 
think where we disagree is talking about whether or not there 
ought to be a regulation or legislation that mandates how you 
need to provide that information. We do not think that is 
appropriate. We think particularly with the advent of 
technological changes that there are different ways to get 
information to consumers than what might be suggested 
otherwise.
    I am not particularly familiar with the IATA proposed 
regulation or measure that is referenced here. We will be happy 
to look at it and provide additional information, but I am just 
not familiar with it.
    Ms. Delbene. Okay. And your concerns, Mr. Mitchell, about 
NDC are not necessarily specific to the merger. You have 
concerns generally, is that correct?
    Mr. Mitchell. They are specific to the merger because the 
merger will allow an acceleration of this NDC in the 
marketplace. US Airways has long been a maverick in 
distribution issues. For example, in 2001 and '02 when the 
airlines withheld web fares from travel agencies and corporate 
travel departments, they only provided them to orbits. US 
Airways broke rank and began to provide the fares to the 
marketplace, likewise in 2006.
    So the big American swallowing up the maverick US Airways 
is only going to allow this to go forward more quickly. And 
once embedded in the largest marketplace in the world, it is 
going to cascade across all the other markets.
    The problem is no publicly available fares and schedules 
will be available anymore. It kills transparency. I will get a 
deal that is crafted just for me, and I will have nowhere to go 
to compare it publicly to see if I really got a deal at all.
    Ms. Delbene. And, Dr. Winston, since you are the pricing 
expert--I think someone said earlier--what do you think in 
terms of prices, and competitiveness, and the ability for 
consumers to have transparency? What do you think the impact of 
the merger or NDC has on that?
    Mr. Winston. Well, keep in mind, there is something very 
special about this industry. A small percent of the people do a 
huge amount of the flying. You know, something on the order of 
five or six percent of the travelers do like 40 percent of the 
flying.
    It is absolutely ludicrous to think that an airline will 
think, hey, a really good strategy for us to not have 
transparent prices for people who fly all the time who probably 
have these things memorized, and all of a sudden one day they 
do not what they are. I mean, talk about a way of alienating 
customers. I mean, I can imagine many strategies that are 
concocted all the time. I do not know where they come from, but 
this is just not how you make money in regular real businesses.
    So I am certainly supportive of concerns about 
transparency, but I think, you know, the nature of travel is 
that this would just be crazy to do, and almost an 
embarrassment really for anybody. If an airline proposed to do 
this, I would hope they would feel embarrassed for doing it.
    Ms. Delbene. Thank you. Thank you, Mr. Chair.
    Mr. Bachus. Thank you.
    Mr. Marino.
    Mr. Marino. Thank you, Chairman. Good afternoon, gentleman.
    Let me begin by saying I support the merger because the 
employees want it and because of the gentlemen sitting behind 
you in uniform took the time to be here. So I thank you for 
doing that as well.
    I do have some concerns, and my previous life was a 
prosecutor. So I ask short questions. I expect a yes or no 
answer. And if you have to follow it up, make it very brief.
    What is going to happen to consumer rates? What is going to 
happen to consumer rates? Are they going to go up?
    Mr. Johnson. No.
    Mr. Marino. Are they going to go down?
    Mr. Johnson. I do not know. As we have said, Dr. Winston is 
the man who can best describe that. But the studies show that 
notwithstanding the earlier mergers that we have talked about 
today, there have not been price increases of the sort that Mr. 
Mitchell and Professor Sagers suggest might happen here. So I 
do not expect prices to go up across the board.
    Mr. Marino. All right. I did some private practice in my 
time and did mergers and acquisitions. And whatever we call 
them, mergers, acquisitions, takeovers, you know, that is not 
important to me at this point. And in my experience I am told 
that they will reduce costs, and then several months later when 
I asked where the prices are, they said the prices do not go 
down, but the answer is, well, we kept them the same and 
prevented them from going up. And then several months later, 
the prices went up.
    So what is going to happen in the first 6 months, in the 
first year, in the first 3 years about pricing?
    Mr. Kennedy. Let me just say a couple of things. One is, we 
do not know what will happen. You know, the airline industry 
is, as I have mentioned, a highly competitive business with 
very thin margins. And that is going to exist after the merger 
as it is today. And that has an effect on pricing and what 
those levels are. And so I do not know what will happen. 
Pricing will simply be competing on price and schedule in the 
future as we do today.
    Mr. Marino. Thank you.
    Mr. Johnson. Congressman, I could just add that it will be 
a very competitive business, in many ways more competitive as 
we create an alternative for consumers to the very large 
networks of Delta and United. There will be four big airlines, 
each with less than 25 percent market share, each with a 
national network to serve customers, all competing with each 
other. Two airlines that have very vigorous competitors on a 
regional basis, Alaska Airlines and Jet Blue, and three fast-
growing low-cost carriers that compete with us at various 
points around the United States. It is a very competitive 
industry, and that competition is not going to decrease as a 
result of the merger.
    Mr. Marino. I think I know what the answer to this is going 
to be, but with all due respect I have to ask it. I am assuming 
that there has been no backroom deals that someone in the near 
future is going to get whacked whether it is the employees, or 
the pension, or the pilots?
    Mr. Johnson. There have been none.
    Mr. Kennedy. That is correct.
    Mr. Marino. All right. I live in the 10th congressional 
district of Pennsylvania, northeast, north-central 
Pennsylvania. How am I doing on time, sir?
    Voice. Fine.
    Mr. Marino. Small airport Montoursville. I have to drive to 
Montoursville to get to that. But then to get to D.C., I have 
to take a plane from Williamsport, to Philadelphia, to D.C. It 
takes over 6 hours when it is on time. I drive because it is 4, 
4 and a half hours and it is less expensive.
    Is anything going to improve for the smaller areas in which 
I live where my county, Lycoming County, is about 130,000 
people, but people have to travel into that county from 
surrounding counties to catch a plane?
    Mr. Johnson. Well, I cannot speak to your specific----
    Mr. Marino. Could you put it in writing for me and get it 
to me at some point?
    Mr. Johnson. I would be happy to.
    Mr. Marino. Okay. And my favorite pet peeve, and I am going 
to raise this. We all fly, but there are certain reasons why we 
have to change a flight. And no more who it is, what airlines. 
If I am changing a flight 4 or 5 days in advance or find out at 
the last minute that something has happened that I want to 
change that flight, the price goes up substantially. By the 
same token, when I call, just happen to be 6 days ahead of time 
instead of 7 days ahead of time, the price doubles, even though 
there are empty seats.
    Can you explain to me why? And I know one of the answers is 
going to say, well, you do not want to wait until the last 
moment, but you have got to come up with a better answer than 
that, please.
    Mr. Johnson. I understand that sometimes consumers find 
that frustrating, but we offer a variety of products. We will 
sell you a ticket that is fully refundable, and we sell you 
tickets that are non-refundable. And in general, if we sell a 
ticket that is not refundable and then someone has to change it 
or seek a refund, what we do is we charge them what they would 
have paid for a non-refundable ticket in general--or, sorry, 
for a fully-refundable ticket in general. That is how that 
works.
    Mr. Marino. Does anyone wish to respond to any of my 
questions? I know I focused on that, but quickly, please. I 
think I am running out of time or have run out of time.
    Mr. Bachus. Yes, you have.
    Mr. Marino. I have run out of time? Would you like to put 
it in writing and get it to me, gentlemen, please? Thank you.
    Mr. Bachus. Thank you.
    Mr. Garcia.
    Mr. Garcia. Thank you, Mr. Chairman. I want to turn your 
attention from the delights of Memphis or the incredible 
southern hospitality to the most southern airport in our 
country, which is the Miami International Airport.
    As you and Mr. Kennedy know, we have a huge dead service at 
that airport, and part of it was making sure we had one of the 
best terminals for American Airlines. Do you feel that we are 
going to cut any flights there? Are we going to increase 
traffic there and thereby help out our airport?
    Mr. Kennedy. I do not know specifically what we will do in 
the future at Miami, but----
    Mr. Garcia. Mr. Kennedy, I need you to be a little more 
specific because this not Memphis, and this is not a small 
regional airport. This is the crown jewel, to some degree, of 
international flying into Latin America, which I assume was one 
of the reasons that this becomes an interesting target. So I 
want a specific answer because in my community we are 
leveraged, as you well know, to the hilt because of this 
airport. And I am committed to this process going forward, but 
I want to understand what impact it is going to have on my 
community.
    Mr. Kennedy. Congressman, I am to be specific as I can.
    Mr. Garcia. Okay.
    Mr. Kennedy. American Airlines is committed to Miami, and 
we have been for many, many years. It is, as you know, a 
tremendous gateway. Not only is it a terrific O&D traffic right 
in Miami, but also going south into Latin America. And it is 
something that is a prized part of our operation.
    And so while I cannot specifically say what will happen in 
the future, I can tell you that if you look at the history of 
the last 5, even 10 years, we have grown our operation 
significantly, and we were a major proponent of the development 
of that airport. And I specifically in my previous job at 
American ran our real estate and construction business, so I 
know exactly what you are talking about in the terms of the 
debt load at Miami. But I also understand that that airport now 
is a first class airport. The new train, the new terminals, are 
absolutely fantastic. And we remain enormously committed----
    Mr. Garcia. It does not smell like ribs, though, unless the 
Memphis Airport. [Laughter.]
    Mr. Kennedy. No, sir, but it is a terrific airport, and 
everything we do in Miami is wonderful.
    Mr. Garcia. We had Secretary Napolitano down last week, and 
I appreciated the American Airlines representative there to 
help us. Clearly they are the biggest carrier at the airport; 
therefore, it is important their participation.
    One of the problems as you well know is that we have a huge 
number of passengers have missed connecting flights. Obviously 
we are very worried about the sequestration, the impact that is 
going to have. Almost 40 plus thousand people miss connecting 
flights on a monthly basis because the border and customs 
agents, we just do not have enough of them. As you well know, 
we built one of the largest reception centers in the country. 
We cannot fully staff it during peak times because there are 
not enough workers.
    So one of the things that we propose with the Secretary, 
and she seemed very willing to listen to, is the ability of us 
picking up some of the costs of providing government workers. 
So possible overtimes, training people, even paying for having, 
what do you call it, a global pass entry system. Is this 
something that the combined airlines could look at doing simply 
to increase your efficiency and help us with that cost as we go 
forward?
    Mr. Kennedy. Throughput at the airport is very important, 
and those lost connections just end up costing not only the 
customer, but cost us, so we are with you there. I think we 
have to balance whatever those costs might be to pay a portion 
of those costs against the lost revenue, if you will, and the 
inefficiency of having those lost connections. And we will be 
more than happy to work with you to see if that is something we 
should do.
    Mr. Garcia. If you could get back to me on that because it 
is certainly something that I know it would probably be a lot 
cheaper to pay a little bit of overtime and not have, you know, 
100 passengers or 50 passengers miss a flight every few hours 
because of--I am sure my colleagues on the other side would 
call it government inefficiency. I just call it maximum 
capacity. And so we have got to make it more efficient to do 
this.
    But having you help us with that I think is key to 
continuing our growth. I think we had a growth of 17 percent 
last year, so we are very proud of that, and we are proud we do 
not smell like ribs either. So it is Cuban coffee, Versailles 
Cuban coffee that wafts around in our airport.
    Just one final question. In terms of as you look at size, 
right, clearly you want to be more competitive. Clearly you 
want to offer more. Our airport is one of those throughput 
places. Do you think we are going to get more folks in South 
Florida working for you, or do you think we are going to reduce 
the workforce, because we have been increasing, right? And so I 
just want to----
    Mr. Johnson. I can say just to echo Mr. Kennedy's comments 
that people at US Airways are very excited about Miami and very 
excited about adding back to the US Airways network in effect. 
In fact, there are some 35 cities just on the east coast alone 
that US Airways has service that are not served from Miami. All 
of those are opportunities to look at.
    Mr. Garcia. It is almost like living in the United States 
it is so nice there.
    Mr. Johnson. I spend a lot of time in Miami, so I agree 
that it is a great place.
    So, you know, I think you should be optimistic about 
Miami's future. It is a critical part of the operation. Latin 
America and South America in particular is going to be one of 
the fastest-growing parts of the global economy. And the New 
American Airlines is very well placed to take advantage of 
that, and there is no better place than Miami as a jumping off 
point for that. So I would be optimistic about the future.
    Mr. Garcia. All right. Thank you very much. Thank you, Mr. 
Chairman.
    Mr. Bachus. Thank you.
    Mr. Jeffries.
    Mr. Jeffries. Thank you, Mr. Chairman.
    The American airline industry is certainly extremely 
critical to our economy, to our commerce, to ability to keep 
families together, our social network, educational 
infrastructure. By any measure, the airline industry is 
critical, an important part of who we are. And I think all of 
us, and certainly the American public, want to see the industry 
succeed, be successful, be able to offer competitive rates and 
transport people to their desired destinations.
    But the experience that I think the industry has had over 
the last 35 years paints a very different story or very 
troubling story just when you consider the raw numbers. I 
gather there have been 160 bankruptcies since 1978. US Air has 
experienced two in the last decade. American Airlines is coming 
out of bankruptcy.
    Part of the response seems to have been the mergers. We are 
now looking at our 3rd significant merger in the last 5 years. 
I think there is bankruptcy fatigue, and we may be soon 
experiencing merger fatigue.
    But I would be interested in getting either of the two 
airline representatives' perspectives on why over the last 35 
years has the industry struggled to such a degree. And what 
confidence can you convey to us that this merger is part of the 
solution as opposed to simply another band aid on what has been 
a persistent wound that we have seen over the last 35 years?
    Mr. Kennedy. You are correct in your assessment of the 
industry. It is one that has been fraught with difficulties. It 
is a volatile industry. It is one, however, that is also, as 
you point out, so vitally important.
    And, you know, there are a number of measures that affect 
the industry, whether it is high fuel prices, whether it is 
problems overseas with different stability of governments, even 
problems, sort of affect our industry and the demand for air 
travel.
    And so that is not going to go away. But what it does mean 
I think for not only our companies but also for this country is 
we need to have a strong airline industry, not only to be able 
to service our own country, but also compete against the other 
major international airlines.
    And so to answer your question, I believe that this merger, 
while not solving those external factors that so much affect 
our industry, but having a healthy carrier and a healthy 
industry, this will help us be stronger, and be able to 
compete, and be able to withstand some of those external shocks 
that affect us that are outside of our control.
    Mr. Johnson. I mean, it really has been a very fascinating 
35 years, and particularly the last 10 have been very difficult 
as we have, you know, lurched from crisis to crisis. But the 
airline industry is, I think, finally becoming more stable, and 
as Mr. Kennedy points out, that is a really good thing.
    We have finally gotten ourselves, I think, to a point where 
we have the ability to, you know, to earn a fair return on our 
investment, invest in new routes and improve service, to 
provide good pay and job security for our employees. I mean, 
over the course of the last decade, I think we destroyed 
160,000 jobs or something like that in our industry.
    And during that decade, we closed something like a dozen 
hubs. I think they have all been mentioned here today. But we 
have finally gotten ourselves to a point where we can continue 
to pay--oh, I am sorry--where we can pay our employees, create 
good job security, create advancement opportunities for them, 
allow them to be more comfortable having a career in the 
airline industry.
    And we have gotten ourselves to the point as an industry 
where we can make commitments to hubs like we have made today 
and feel comfortable that we are going to be able to provide 
that service and continue to grow it. Bu most importantly, what 
this has allowed the airlines to do is become more competitive, 
be more stable and, therefore, to be more competitive, to 
provide more choice to customers, provide more products to 
customers, to provide more innovation to customers both in the 
United States and around the world.
    Mr. Jeffries. Everyone has mentioned these external shocks 
to the system, whether that is fluctuating oil prices and war, 
terrorist attacks. I think even sequestration was mentioned by 
Dr. Winston.
    You said what was important for the industry is to have the 
capability to match capacity with demand. And you indicated 
that in your view, mergers would better enable these two 
companies, and I gather, anyone in the industry to do that in a 
more effective and efficient way.
    Your theory seems to be based on the notion that the bigger 
the company the better it is able to deal with matching 
capacity with demand. Now, that seems to be a too big to fail 
theory, and we have had some experience in that regard in other 
areas. But I want to give you an opportunity, one, to indicate 
why you think mergers will put these companies in a better 
position, and also if you could reference some of the other 
tools that are available that you indicated in your testimony, 
to enable companies, perhaps aside from a merger, to match 
capacity and demand.
    Mr. Winston. Are you asking me? All right. The key thing in 
matching capacity with demand is an optimal network, all right? 
Now, what you have to understand is that for 40 years, airlines 
did not have an optimal network. Matter of fact, they had a 
sub-optimal network; that is, they were regulated from 1938 to 
'78, okay? And they were not allowed to enter new routes if 
they wanted to. It was difficult even to exit routes.
    So they started off way behind in a very bad network, all 
right? So it is not an accident that Southwest has had 
advantages because they were not a legacy carrier. They were 
intrastate and were able to develop their network from scratch, 
so to speak, or, you know, in a better position under 
deregulation, the other carriers, all right?
    So really what we are observing, believe it or not, is 
still the development of an optimal network, okay, subject to a 
lot of shocks. It does not necessarily mean that bigger is 
better, but given where you were often is to the extent that 
you can balance traffic in particular areas, coordinate the 
traffic better, and move your fleet around as appropriate in 
response to changes in macro-economic conditions.
    Now, of course, the best tool is also going to be pricing, 
right? You want to fill up your plane, you lower your prices. 
You obviously have high demand, you are not going to have to do 
that.
    So in combination with pricing, improved service, all 
things that will help generate demand at the same time that you 
have the freedom and flexibility to have a network with a fleet 
that is aligned with that network, that gets you optimization 
in terms of your operations and what your carrier is capable of 
doing.
    To the extent that the merger is a tool in creating that 
optimal network--that is, you have some of your network 
developed, but it would be a lot better if you could have 
another part of it included with your network, balancing 
traffic flows, coordinating operations, so on and so forth, 
that is where the mergers can help. But let me stress that this 
is something that takes a long time to achieve properly. The 
carriers just do not come together and that is it. They start 
then pruning the network.
    Now, if you want to see a very clear example of this, look 
at the railroad industry. That whole industry has completely 
transformed to be state-of-the-art of the world where it was 
close to liquidation because it was deregulated and did a lot 
of restructuring through mergers. And that is an extreme case, 
but in its own way, the airlines are trying to do a similar 
thing. And mergers are a tool. Not the only tool. They do not 
always work brilliantly, but that is really what they are 
about.
    Mr. Jeffries. Thank you.
    Mr. Bachus. Thank you. We are going to go in a second round 
of just Mr. Cohen and I, so we have got about 10 minutes left. 
But anybody in the audience who needs to take a break now, you 
can go ahead.
    Mr. Winston, you are absolutely right. The regulations 
almost put the railroads out of business, and deregulation 
saved them. And we are seeing continuous innovation in the rail 
industry. And it was capital starved and was not able to 
generate enough profit to maintain its infrastructure. And so 
that brings me really to my first question to Mr. Johnson or 
Mr. Kennedy.
    You are going to realize changes in efficiency in operating 
structure of how many, a billion and a half? A billion, billion 
and a half, is that what the number----
    Mr. Johnson. We have announced net synergies of more than a 
billion dollars. Those synergies on a gross basis, if you will, 
are larger than that, but the creation of approximately $1.5 
billion of synergies or $1.4 billion of synergies has allowed 
us to make the arrangements with our employees that we have 
talked about here today. We have invested about $450 million a 
year in our employee wages, and benefits, and retirement.
    Mr. Bachus. So of that $1.5 billion, almost $500 million 
will be in improved compensation for employees?
    Mr. Johnson. Four hundred fifty.
    Mr. Bachus. Somewhere in that neighborhood. And how will 
that other billion, how will it be used, and how will that 
benefit the traveling public?
    Mr. Johnson. I think in many ways. First, it will create a 
more financially sound and stable company. We talked in 
response to Congressman Jeffries' questions about the shocks 
and the difficulties that the airline industry faced over the 
last decade. First and foremost, we will be able to better 
withstand shocks and better able to deal with the uncertainties 
and the cyclicality of the airline industry.
    The second thing is it will allow us to invest in our 
airline. We have already talked about the investment that we 
are making in our employees and their well-being. But as Mr. 
Kennedy can talk about in more detail, it allows us to buy new 
airplanes, to provide new products to customers, and 
importantly, to have the financial wherewithal to experiment 
and try different models and add destinations to our system, 
knowing that if they do not work, we have the financial 
wherewithal to deal with that.
    So it allows us to take more risk and through that, provide 
benefits to our customers.
    Mr. Bachus. Now, I have noticed that the airlines that 
generate enough profits to buy new airplanes, more fuel-
efficient airplanes, more modern airplanes, do tend to either 
capture market share or they have to, if you have to compete 
with, you are at a disadvantage. So I would think that you 
would modernize your fleet, as you say, is a part of the plan?
    Mr. Johnson. At US Airways we have been modernizing our 
fleet for the last 6 or 7 years, and that is certainly the 
experience we have had, Mr. Chairman.
    Mr. Kennedy. I would just add that customers really are 
asking for, demanding a new modern fleet not only for the 
comfort, but for the products and services that we offer. And 
that is all very capital intensive and inordinately expensive. 
And so we need those funds to be able to continue to invest in 
this business along the way.
    Mr. Bachus. And American has not been able to make those 
investments. At least it has become more difficult.
    Mr. Kennedy. Indeed the last 10 years have been very 
difficult for us, and we have really struggled financially. We 
finally made the announcement of the aircraft orders a year and 
a half ago, and that is what is necessary because we had quite 
an aging fleet at American and not a fuel efficient fleet. And 
given the price of oil, that is going to help substantially as 
well. But nevertheless, it is a real significant financial 
commitment.
    Mr. Bachus. All right. Let me ask either one of you, you 
know, American is a part of the oneworld system, and you have 
some antitrust immunities. US Air is a part of the Star 
Alliance and you do not. Would a combination benefit in that 
regard?
    Mr. Johnson. Well, the combination, yes, I think it will 
benefit travelers very extensively. We are a member of the Star 
Alliance, but we are in some respects a sort of second class 
member of the Star Alliance. We are not involved in the 
antitrust immunity joint venture. There is another Star 
Alliance partner, United Airlines, which is very much bigger 
than us.
    By moving to the oneworld alliance, first and foremost, we 
take the smallest alliance and make it roughly the same size as 
the other two. We create opportunities for the oneworld 
partners to serve the East Coast of the United States in ways 
that they have not been able to before. They have certainly had 
access to American's hub at JFK and their hub at Miami, but 
those, as we have said, are kind of special purpose hubs that 
serve a unique clientele.
    We have more typical distribution airline hubs in 
Philadelphia and Charlotte that will benefit oneworld 
considerably. So we think it is great. Mr. Kennedy? He knows a 
lot more about the antitrust immunity and that part of the 
business.
    Mr. Kennedy. As you may know, it took us about 13 years to 
get our deal finished and get the antitrust immunity, which is 
a good thing. We are behind the curve compared to the other----
    Mr. Bachus. And I think it is absolutely essential that you 
have that to be able to compete. That is a given to me. I would 
think it would be a disadvantage for US Air not to have it now. 
And this would be an advantage that would level the playing 
field for you.
    Mr. Kennedy. Yes, we would agree with that.
    Mr. Bachus. My last question, I heard you all say that 
American flies to 130 cities that US Airways does not fly. I 
think that was the number, was it?
    Mr. Johnson. Correct.
    Mr. Bachus. And then US Airways flies to 62 cities that 
American Airlines does not serve.
    Mr. Johnson. That is correct.
    Mr. Bachus. So I would think obviously that you are talking 
about 192 cities that would be any one who is a customer either 
American or US Airways would pick up an opportunity to fly on 
one airline to 192 cities, which would be a tremendous benefit.
    Mr. Johnson. As we look at the opportunities to develop the 
network after the merger, Mr. Chairman, those 162 cities--
sorry--192 cities are, you know, the leading candidates for 
added service.
    Mr. Bachus. All right. And again, I want to close where I 
tried to start when I complimented Mr. Kennedy. But US Airways 
has shown, I think, a lot of innovation. Here at Reagan I have 
noticed you are using two gates, and you have added probably 30 
destinations, 30 or 40 new destinations, you know, all over the 
east. And I think you have shown of imagination in how you did 
that.
    And as I said, I do not fly American that often. But, you 
know, if I am going to go to Dallas, I am not going to go to 
Charlotte first. I am going to fly American. And so I do not 
see how that is a competition. I mean, if I go to Dallas, I am 
going on American from Birmingham. If I got to D.C., I am not 
going to go through Dallas.
    But the service, the reliability on US Air, the customer 
service is excellent. On the airplane, the on-time performance, 
and all the airlines. I heard something about baggage, but, my 
gosh, we have gone to 2 bags out of 1,000 are late. And it used 
to 5 and 10, so it is an incredible success there. You know, 
there was a time when, you know, there was a real chance that 
you did not get your bag, and for the airlines, they have made 
tremendous advances.
    And I will say this. All the information says that airline 
tickets have not kept pace with inflation. I mean, it is one of 
the best deals going. I think it is six times less of an 
increase than oil prices, which is hard to believe when that is 
one of your main expenses. I do not how you do that other than 
investors losing $30 billion.
    Mr. Cohen.
    Mr. Cohen. Thank you, Mr. Bachus.
    Mr. Mitchell, Professor Sagers, I just wonder, you know, we 
heard the testimony that there are 192 or whatever cities that 
are served by American and US Air exclusively, and that, you 
know, 132 are American. They do not compete, et cetera. And we 
heard the same thing with Delta-Northwest. Well, Delta-
Northwest would be complementary because we do not serve too 
many routes together.
    Does this kind of sound like some companies might have got 
together and cut up the country and determined, you know. When 
you look at like the statement that none of them have over 25 
percent and there are four of them, but they are close to 25 
percent and you multiply by 4, and that is 100, does not that 
sound like somebody is cutting up the pie?
    Mr. Sagers. Very briefly, there is no reason to suggest 
that they did this on purpose, that they got together and 
agreed to do this. This sort of lack of head to head 
competition, I mean, can be explained to some degree by the 
lack of a significant number of competitors. It was not a 
liberal firebrand who first came up with the idea that 
oligopolies do not compete with each other. It was George 
Stigler at the University of Chicago.
    When there are a small number of competitors, it is easier 
for them to sort of implicitly agree not to compete vigorously 
head to head. So I do not know that that is exactly why the 
networks have developed as they are, and there are regulatory 
issues that have also contributed. But I think it is perfectly 
reasonable to suspect that that is a contributor to the current 
lack of overlap. Even if there is one, I do not think there is 
that big a lack of overlap frankly. And it is reasonable to 
expect that it will get worse when there are four big ones 
instead of five.
    Mr. Cohen. Mr. Mitchell, do you agree or disagree?
    Mr. Mitchell. With his statement?
    Mr. Cohen. Well, do you have an opinion on whether or not 
there was some type of, you know, Pillsbury bakeoff.
    Mr. Mitchell. You know, the way the hub system in this 
country developed over time is long and storied. But as soon as 
it reached a certain point, there were market divisions going 
on where you stay out of my hub and I will stay out of your 
hub. I mean, this is as old as deregulation and before.
    That is why it is so critically important that if we do go 
to three systems, three network systems, that we have all the 
consumer protections in place, we have all the transparency in 
place, because the NDC that I described earlier is the 
structure around which and through which the markets can be 
clearly, clearly divided. And that is going to be a problem far 
worse than a fare increase.
    Mr. Cohen. What you described really scares me, and it 
sounds like big brother in a major way. And I understand you 
have talked to maybe my staff here on the Judiciary Committee 
about this. Is there legislation that you have suggested or 
proposed or would propose to counter this?
    Mr. Mitchell. Well, there is one piece of legislation that 
I think would be a very important consumer protection, and that 
would be we have this thing called Federal preemption where all 
of the consumer protections are consolidated at the DoT. The 
States have absolutely no authority here, and consumers have no 
rights at the State level.
    Now, if you put in legislation that allows every single 
State to have its own consumer protection rules, you will have 
a big, expensive patchwork. However, like the energy industry, 
there is an opportunity to create one set of consumer 
protections that are enforceable at the state level. That would 
keep the airlines honest. And as we go down the three network 
carriers, there is more opportunity to be dismissive of 
customers, and we see it every day.
    Mr. Cohen. We look forward to working with you on that. 
What do you see as the impact of the prior mergers, 
particularly Delta-Northwest, but also United-Continental, 
overall on air fare, service quality, and consumer choice? Has 
it been beneficial or not beneficial?
    Mr. Mitchell. I think that we have had the great recession, 
so it is very difficult to understand exactly what went on with 
pricing. However, I believe that if you look at all the 
promises, all the expectations, all of the projections, and 
studies, and analyses, before this merger is approved, there 
should be a forensic analysis of the outcomes of those two 
mergers. That is very, very important.
    Mr. Cohen. Dr. Winston, you used the great recession as a 
reason why Delta would have cut the Memphis hub down to 40 
percent, even though Mr. Anderson said it would not. Atlanta 
did not suffer. Why did Atlanta escape the great recession? 
They escaped Sherman. Why did they escape the great recession? 
They did not escape Sherman, excuse me.
    Mr. Winston. Traffic. Still a lot of traffic there.
    Mr. Cohen. Because they routed it from Memphis to Atlanta. 
That was simple enough. That was not the great recession. That 
was Anderson's decision.
    Mr. Winston. The country did not stop flying during the 
great recession. The country still flew, and it was still 
flying as it normally does in the big hub areas. I mean, that 
is something that is sort of overlooked in this is that, again, 
most of the travel, like 75 percent of it, it is in large hub 
routes: New York, L.A., Chicago, San Francisco, D.C., New York. 
You know, you go through those, and you have got most of the 
travel unfortunately in this country where you have got a lot 
of competitors. And that is where the airlines want to be.
    I mean, unfortunately or fortunately, you know, there are 
other places to go, but it is a much, much smaller part of the 
system. And it is very vulnerable then to changes to what is 
going on in the macro economy and so on and so forth. But 
Atlanta is on the ``good side'' of things. Memphis 
unfortunately, it is not.
    Mr. Cohen. But it was not because of the great recession. 
It was because they chose to divert the traffic. All of my 
colleagues who flew through Memphis preferred flying through 
Memphis from Louisiana, Arkansas, Mississippi. Now they have to 
go through it because they cut out the regional routes. They 
really eliminated Pinnacle Airlines from coming in to Memphis.
    Mr. Winston. All else constant, I agree with you. 
Unfortunately all else is not constant. The airlines have to 
sort of, you know, route their planes where they are going to 
be able to maximize traffic.
    Mr. Cohen. Do you agree that a fortress hub, the old legacy 
airlines created fortress hubs, and that fortress hubs can keep 
other carriers out of those markets through pricing strategies?
    Mr. Winston. What keeps airlines out of other hubs or 
airports is airport policy, exclusive use gates. You want to 
improve competition in this industry? Start looking at 
airports. It is not the airlines, it is the airports, all 
right?
    The estimates on the increases in fares due to exclusive 
use gates are in the billions of dollars, all right? So for the 
next hearing, can I suggest we explore airport privatization 
and allow airports to compete, and it could change an awful lot 
of what is going on in this industry.
    Mr. Cohen. Well, eventually you will own China to own all 
of our airports. We are not selling
    Let me ask this final question. Mr. Kennedy, you plan to 
keep Mr. Johnson at American Airlines, or your family does. Is 
that correct? He is going to continue to work for the merged 
airline? [Laughter.]
    Mr. Kennedy. Mr. Johnson?
    Mr. Cohen. Yeah.
    Mr. Kennedy. I do not know. Do you want to work for the new 
airline? [Laughter.]
    Mr. Johnson. I absolutely do.
    Mr. Cohen. Good, because I do not want to waste ribs on him 
if he is not going to stay with the airline. [Laughter.]
    And you come, too. And Elvis is living in Memphis, so there 
will be plenty of people still wanting to come there. Thank 
you.
    Mr. Johnson. I will look forward to that, sir.
    Mr. Bachus. The CEOs started together at American Airlines.
    Mr. Johnson. They did.
    Mr. Kennedy. They did, yes.
    Mr. Bachus. I would say this is the close of the hearing, 
but for the record, Southwest had not gone out of business, so 
there are four. There will be four networks at least. Some 
people may wish they had gone out of business.
    We appreciate your testimony, and I will say for one that 
this is, as I said before, this is one of the most persuasive 
arguments from everything I have read for the merger. And as 
with any merger, there is a chance that there will be some, you 
know, price increases. But I do not guarantee there are going 
to be price increases in either respect because they cannot 
keep flying for what they are doing now.
    But thank you for your testimony. I think that your next 
hearing will be in the Senate on the 19th. And hopefully this 
will prepare you for that, particularly if there is a senator 
from Memphis or---- [Laughter.]
    Or Pittsburgh waiting on you over there. Thank you very 
much for your testimony.
    Mr. Johnson. Thank you.
    Voice. Thank you, sir.
    Mr. Bachus. Without objection, all Members shall have 5 
legislative days to submit to the Chair additional written 
questions for the witnesses, which we will forward and ask the 
witnesses to as promptly as they can answer to be made a part 
of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    With that, again I thank the witnesses.
    This hearing is adjourned.
    [Whereupon, at 12:27 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X

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               Material Submitted for the Hearing Record

 Material submitted by the Honorable Steve Cohen, a Representative in 
Congress from the State of Tennessee, and Ranking Member, Subcommittee 
           on Regulatory Reform, Commercial and Antitrust Law


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