[Senate Hearing 113-318]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-318

                     AIRLINE INDUSTRY CONSOLIDATION

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

                                HEARING

                               before the

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 19, 2013

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation








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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
WILLIAM COWAN, Massachusetts         RON JOHNSON, Wisconsin
                                     JEFF CHIESA, New Jersey
                    Ellen L. Doneski, Staff Director
                   James Reid, Deputy Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
                                 ------                                

       SUBCOMMITTEE ON AVIATION OPERATIONS, SAFETY, AND SECURITY

MARIA CANTWELL, Washington,          KELLY AYOTTE, New Hampshire, 
    Chairman                             Ranking Member
BARBARA BOXER, California            ROGER F. WICKER, Mississippi
BILL NELSON, Florida                 ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                TIM SCOTT, South Carolina
MARK BEGICH, Alaska                  TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
WILLIAM COWAN, Massachusetts         RON JOHNSON, Wisconsin
















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 19, 2013....................................     1
Statement of Senator Cantwell....................................     1
Statement of Senator Ayotte......................................     2
Statement of Senator Blunt.......................................    45
Statement of Senator Klobuchar...................................    47
Statement of Senator Warner......................................    49
Statement of Senator Pryor.......................................    51

                               Witnesses

Hon. Susan L. Kurland, Assistant Secretary for Aviation and 
  International Affairs, U.S. Department of Transportation.......     4
    Prepared statement...........................................     5
Gerald L. Dillingham, Ph.D., Director, Physical Infrastructure 
  Issues, U.S. Government Accountability Office..................     7
    Prepared statement...........................................     8
Doug Parker, Chairman and Chief Executive Officer, US Airways 
  Group, Inc.....................................................    23
    Prepared statement...........................................    24
Gary F. Kennedy, Senior Vice President, General Counsel and Chief 
  Compliance Officer, American Airlines, Inc.....................    26
    Prepared statement...........................................    28
Charles A. Leocha, Director, Consumer Travel Alliance............    29
    Prepared statement...........................................    30

                                Appendix

Response to written questions submitted by Hon. Maria Cantwell 
  to:
    Hon. Susan L. Kurland........................................    61
    Gerald L. Dillingham, Ph.D...................................    61
    Doug Parker..................................................    63
Response to written question submitted by Hon. Brian Schatz to 
  Doug Parker....................................................    65
Response to written questions submitted by Hon. Roger F. Wicker 
  to:
    Hon. Susan L. Kurland........................................    66
    Gerald L. Dillingham, Ph.D...................................    66
    Doug Parker..................................................    67
    Charles A. Leocha............................................    67

 
                     AIRLINE INDUSTRY CONSOLIDATION

                              ----------                              


                        WEDNESDAY, JUNE 19, 2013

                               U.S. Senate,
  Subcommittee on Aviation Operations, Safety, and 
                                          Security,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:06 p.m. in room 
SR-253, Russell Senate Office Building, Hon. Maria Cantwell, 
presiding.

           OPENING STATEMENT OF HON. MARIA CANTWELL, 
                  U.S. SENATOR FROM WASHINGTON

    Senator Cantwell. The Senate Commerce Committee and 
Subcommittee on Aviation Operations and Safety will come to 
order.
    Today's hearing examines the proposed merger between US 
Airways and American Airlines and the overall impact on 
consolidation in the American airline industry.
    If the Department of Justice approves the proposed merger 
between American Airlines and US Airways, the new American 
Airlines, it will not only be the Nation's largest air carrier, 
but the world's largest air carrier.
    The new American Airlines would offer more than 6,700 daily 
flights to 336 destinations and 56 countries. The U.S. 
Department of Justice Antitrust Division is reviewing the 
merger. Its traditional analysis for horizontal mergers focuses 
on the overlap of competitive routes between merging airlines. 
And there are a number of important consumer issues at hand.
    If this merger is to be approved, it will lead to even more 
consolidation of the domestic airline industry. New American, 
Delta, United, and Southwest Airlines combined will control 
over 70 percent of the domestic airline capacity. And more 
important to consumers than any national percentage is, will 
this merger mean higher ticket prices, more fees, and fewer 
options per flights? With some prior mergers, air passengers in 
some cities have become increasingly captive to a given airline 
or experience high fares and reduced services on a given route, 
whether that is direct or through a one-stop airline hub. The 
question also arises, will the merger impact airline employees, 
suppliers, regional partners, customers, and affected 
communities? The impacts on these stakeholders should not be 
overlooked.
    Another consumer issue that I expect to come up today is 
the issue of slots at DCA. Obviously some people may not be 
familiar or as intimate with this--the Committee is--but slot 
allotted time for takeoff and landing. Reagan National is one 
of the few airports in the country that is slot controlled. 
This means there are a fixed number of openings per hour for 
airlines to arrive and depart. Airlines can buy and sell and 
lease these rights to operate time slots, and airlines must use 
all their slots at least 80 percent of the time or face losing 
it.
    A few years back, US Airways and Delta traded slots between 
Reagan and La Guardia. When it approved the deal in 2011, DOT 
set a number of slots US Airways could own at Reagan National 
Airport. So I expect that the consumer interest in these slots, 
because this new American would control over two-thirds of 
takeoff and landings at Reagan National, would be something 
that Department of Justice and DOT must deal with.
    In the year 2000, tiered airlines controlled more than 90 
percent of U.S. domestic capacity. As a result of 9/11, the 
Great Recession, high volatility, and fuel prices, the industry 
obviously has shrunk. What we must do today is make sure that 
we are thinking about the flying public and their interests at 
this hearing in this proposed merger.
    So I look forward hearing the testimony of all the 
witnesses, and want to point out that my colleague, Senator 
Klobuchar, held a similar hearing before the Subcommittee in 
Judiciary on Antitrust, Competition, and Consumer Rights. So I 
look forward to her questioning or any thoughts that she might 
have as she conducted a similar review and hearing.
    So now I want to turn to the Ranking Member, Senator 
Ayotte, for her opening statement.

                STATEMENT OF HON. KELLY AYOTTE, 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Ayotte. Thank you, Madam Chairwoman, and I thank 
you for holding this hearing to examine the issues associated 
with the proposed merger between US Airways and American 
Airlines. I also want to thank our witnesses for being here. We 
appreciate your expertise. We look forward to hearing your 
opinions on this subject. And we appreciate the importance of 
this process going forward in this hearing today.
    As some of you may know, today marks my first Aviation 
Subcommittee Hearing serving as Ranking Member. And although 
this is the first official hearing that we have held this year, 
issues under the Subcommittee's jurisdiction have been anything 
but inactive. From contract tower closures to controller 
furloughs, events in the first half of this year clearly 
demonstrate the immediate connection between Washington 
decision-making and the health of our national air space 
system.
    That connection will perhaps be no more apparent than as 
applied to the merger that is under examination today. The 
proposed merger between US Airways and American should, to 
many, come as no surprise. Over the last decade, we have 
certainly experienced external shocks to the industry that have 
helped foster a trend of consolidation among the major 
carriers, and that is a consideration as we look at this merger 
and as the Department of Justice looks at this merger.
    In fact, this merger would mark the fourth merger among 
major carriers in just the last 5 years, and it would decrease 
the number of large carriers from five to four, which combined 
would control up to 70 percent of the domestic market.
    Of course, the Department of Justice must first approve 
this $11 billion proposed transaction, and under the authority 
provided by the Hart-Scott-Rodino Act, the Department of 
Justice must analyze and make a determination using its 
horizontal merger guidelines as to whether or not the combined 
US Airways and American Airlines merger would violate the 
Clayton Act. That is simply, would creation of the new airline 
substantially lessen competition? This question will underlie 
each and every issue that is discussed today.
    And certainly as we look at this merger, it would result in 
the airline becoming the largest U.S. carrier with up to 24 
percent of domestic airline market share. And the real question 
is, how will this impact competition, and certainly, most 
importantly, how does it impact consumers?
    There are many benefits that US Airways and American have 
identified as a result of this merger, including that the new 
American will offer more than 6,700 daily flights to 336 
destinations and 56 countries, create over 1,300 new routes 
worldwide, and domestically will provide access to over 48 
cities served by American that are not currently served by US 
Air, and 64 cities served by US Air, but not served by 
American.
    As the Department of Justice looks at this merger and as we 
hear the testimony of the witnesses today, I know that this 
will be a careful evaluation to make sure that this merger is 
positive for not only our economy, but also positive for 
consumers with respect to the impact on competition.
    And so, I look forward to the testimony of our witnesses 
today. I also appreciate that the chair has mentioned the DCA 
slot issue because this is a very important issue in terms of 
providing access to many of our smaller communities to the 
capital of this country. So I look forward to addressing that 
issue and hearing what the witnesses think about the impact on 
the DCA slot issue.
    Thank you.
    Senator Cantwell. Thank you, Senator Ayotte.
    We will turn to our witnesses, and we may end up having 
votes at 3 o'clock this afternoon, so we want to get through as 
much testimony as we can and questions by members. So we really 
appreciate your assistance in that.
    We are going to hear from the Honorable Susan Kurland from 
the Department of Transportation. Mr. Gerald Dillingham, thank 
you for being here again. You testified before us in the full 
committee on aviation issues just last month. Mr. Douglas 
Parker, CEO of US Airways; Mr. Gary Kennedy of American 
Airlines, Vice President and General Counsel, and Charlie 
Leocha--is that right, Leocha?
    Mr. Leocha. Leocha.
    Senator Cantwell. Leocha, thank you, from the Consumer 
Travel Alliance. Welcome to all of you, and we appreciate you 
being here this afternoon.
    Ms. Kurland?

         STATEMENT OF HON. SUSAN L. KURLAND, ASSISTANT

       SECRETARY FOR AVIATION AND INTERNATIONAL AFFAIRS,

               U.S. DEPARTMENT OF TRANSPORTATION

    Ms. Kurland. Thank you, Chairman Cantwell, Ranking Member 
Ayotte, and members of the Committee. I appreciate the 
opportunity to appear before you to discuss airline industry 
consolidation. In the more than 30 years since airline 
deregulation, consumers have reaped enormous benefits as market 
forces have determined airline fares and services. During this 
period, air transportation was transformed from a luxury that 
few could afford to an affordable and indispensable service 
that connects families and businesses across America and the 
globe.
    While deregulation brought enormous benefits for consumers, 
the results were not as positive for the airline industry, 
particularly, the legacy carriers. The legacy airline industry 
has been characterized by highly cyclical periods of profits 
and losses, and when profits were made, they were at extremely 
thin margins.
    In the years since the steep rise in oil prices during the 
summer of 2008 and the global economic recession that followed, 
the U.S. airline industry has taken a number of steps to 
operate more successfully in a seemingly permanent high cost 
environment. And as a result, the balance sheets and bottom 
lines for many airlines are showing significant improvement. 
Airline management credit mergers as having played a key role 
in the industry's climb to financial sustainability.
    Given the importance of the airline industry to the 
economy, consumers benefit from having a financially healthy 
industry. However, the consolidation and capacity cuts that are 
part of the industry's restructuring efforts raise questions 
about their effect on consumers, both in the short and the long 
term.
    The Department of Justice has a lead role in reviewing 
proposed airline mergers, given its statutory authority to 
enforce the antitrust laws. DOT does have a role, however. 
Using its special aviation expertise, DOT typically conducts 
its own analysis of mergers and confers with the Antitrust 
Division about its findings and concerns. Each transaction we 
review is considered on a case-by-case basis.
    Concerns also have been raised regarding the effect of 
mergers on service to smaller communities. While some of the 
recently merged carriers have maintained or added service to 
these types of communities, others have substantially cut 
service, choosing instead to concentrate on larger markets. As 
a result, various stakeholders and analysts have expressed 
concern that mergers can lead to cuts to smaller communities.
    The impact of airline mergers on service to such 
communities is one of the areas on which the Department of 
Transportation is focusing during our review of the proposed 
merger of American and US Airways. Air service to small and 
medium-sized communities is a priority for the Department of 
Transportation. And as a general matter, with or without a slot 
divestiture, we do not believe that efforts to maintain 
competition as a result of a merger should be inconsistent with 
an airline's ability to continue to offer service to these 
communities.
    In conclusion, the Department is committed to promoting an 
air transportation industry that is responsive to the needs of 
all of its stakeholders. Our goal is to achieve an environment 
where economic sustainability for our carriers can co-exist 
with an air transportation system that is both highly 
competitive and which continues to serve the needs of 
communities throughout the United States.
    Thank you again for the opportunity to be here this 
afternoon.
    [The prepared statement of Ms. Kurland follows:]

 Prepared Statement of Hon. Susan L. Kurland, Assistant Secretary for 
 Aviation and International Affairs, U.S. Department of Transportation
    Chairman Cantwell, Ranking Member Ayotte, and members of the 
Committee:
Introduction
    I appreciate the opportunity to appear before you to discuss the 
state of the airline industry and the role of the Department of 
Transportation (DOT) in the review of the proposed American Airlines/US 
Airways merger.
State of the Airline Industry
    Let me begin by providing a broader historical context for this 
transaction. In the more than 30 years since airline deregulation, 
consumers have reaped enormous benefits, as market forces have 
determined airline fares and services. During this period, air 
transportation was transformed from a luxury that few could afford, to 
an affordable and indispensable service that connects families and 
businesses across America and the globe. The new entrant carriers 
brought innovative business models and substantial price competition to 
a marketplace dominated by the incumbent, high-cost legacy carrier 
business model, just as the architects of deregulation had predicted.
    While deregulation brought enormous benefits for consumers, the 
results were not as positive for the airline industry, particularly the 
legacy carriers. The legacy airline industry has been characterized by 
highly cyclical periods of profits and losses and, when profits were 
made, they were at extremely thin margins. Even as most low-cost 
carriers continued to profitably grow through most of the challenges of 
the last decade, the legacy carriers suffered significant losses and 
have restructured their businesses through the bankruptcy process. 
Following several consecutive years of losses from 2001 to 2005, the 
industry returned to modest profitability in 2006 and 2007, only to 
confront rapidly increasing fuel costs and then a global recession. 
2008 and 2009 were some of the most challenging years in the history of 
U.S. aviation, primarily due to the global recession. Analysts began to 
question the financial sustainability of an industry that chased market 
share rather than profits and consistently failed to earn its cost of 
capital. Airlines began aggressively taking corrective action by 
reducing capacity and moving toward more fuel-efficient aircraft and 
operations.
    In the years since the steep rise in oil prices during the summer 
of 2008 and the global economic recession that followed, the U.S. 
airline industry took steps to operate more successfully in a seemingly 
permanent high-cost environment. Airline managements, at legacy, 
hybrid, and low-fare carriers, have prioritized financial performance 
over gains in market share by cutting capacity, executing several 
mergers, and unbundling certain products and services for sale 
resulting in billions of dollars in ancillary revenue. They also 
focused on significantly reducing non-fuel related expenses in a number 
of ways and began to manage their networks more efficiently. As a 
result of these structural changes in the industry, the balance sheets 
and bottom lines for many airlines are showing significant improvement. 
Airline managements credit mergers as having played a key role in the 
industry's climb to financial sustainability.
    As recently as five years ago, there were six major U.S. network 
carriers. Since then, Delta has acquired Northwest, and Continental 
merged with United. US Airways, having joined forces with America West 
in 2005, is now seeking to merge with American. Consolidation has also 
taken place in the low-fare carrier segment of the industry as a result 
of the combination of Southwest and AirTran. Mergers are, however, very 
difficult for the companies, their employees, and the customers they 
serve as varying fleets, systems, corporate cultures, and route 
networks are blended and rationalized into viable business plans. These 
changes take years to accomplish, especially on the network side and 
occur while the marketplace continues to evolve.
    Given the importance of the airline industry to the economy and 
economic growth, consumers benefit from having a financially healthy 
industry. However, the consolidation and capacity cuts that are part of 
the industry's restructuring efforts raise questions about their effect 
on consumers both in the short-and long-term. They put upward pressure 
on airfares, as load factors continue to surge past historical highs. 
While inflation-adjusted fares remain low relative to recent decades, 
they have increased 16 percent since 2009. The economic effects of the 
current transformation of the industry have been further reinforced by 
persistently high and volatile fuel costs and have been exacerbated by 
the restructuring of the regional airline industry as well.
    In a deregulated industry, airlines are free to determine the 
routes they will serve and the prices they will charge, disciplined by 
competition. Mergers often produce shifts in management focus, changes 
in relationships with regional airlines, and significant network 
restructuring that can have an impact on cities used to a particular 
level of air service. As some airline managements have argued, larger 
airline networks will sustain service to more communities, especially 
small and medium-sized communities. While some of the recently merged 
carriers have maintained or added service to these types of 
communities, others have substantially cut service, choosing instead to 
concentrate on larger markets. As a result, various stakeholders and 
analysts have expressed concern that mergers can lead to troubling cuts 
to small communities.
    Airlines seek financial sustainability and good returns for their 
shareholders; consumers seek lower fares and better service. While 
these interests are not necessarily diametrically opposed as airlines 
benefit when more people travel and consumers benefit from the product 
and service options of larger global carriers, it is competition that 
determines the appropriate balance between firm and consumer interests 
in a deregulated market. As the industry continues its transformation 
and adapts to a dynamically changing economy, the Department is 
committed to doing what it can to foster an economically viable air 
transportation industry--including entry into air transportation 
markets by new and existing air carriers--and to prevent unfair and 
deceptive practices in the airline industry.
DOT's Authority to Review Merger Transactions
    While I am sure you can understand that I am not able to discuss 
the specifics of the proposed American/US Airways merger, or any 
proposed transaction that is before us for review, I will briefly 
describe DOT's role in this process.
    The Department of Justice (DOJ) has the lead role in reviewing 
proposed airline mergers, given its statutory authority to enforce the 
antitrust laws. This practice is consistent with Congress' 
determination that the deregulated airline industry should generally be 
subject to the same application of the antitrust laws as other 
unregulated industries. DOT does have a role, however. Utilizing its 
special aviation expertise, DOT typically confers with the Antitrust 
Division. Each transaction we review is considered on a case-by-case 
basis consistent with antitrust principles and practice.
    Both the antitrust laws and the transportation statutes governing 
DOT strive to ensure that consumers receive the benefits of 
competition. This is the prism through which the Department analyzes 
airline mergers. I can therefore assure you that the Department is 
committed to fostering an environment that embraces competition and 
provides consumers of all types with the price and service benefits 
that competition brings.
    We also recognize that the airline industry is dynamic. Cyclical 
economic conditions, the competitive environment, infrastructure access 
and capacity, and industry innovation all need to be taken into account 
to allow the industry to adapt to rapidly changing economic conditions.
    Should DOJ decide not to challenge a particular transaction on 
antitrust grounds, DOT would then address follow-on issues that fall 
within its jurisdiction, including international route transfers, 
economic fitness, code-sharing, and possible unfair or deceptive 
practices.
    As to international routes, the carriers must apply to DOT for 
approval to consolidate the international routes they individually hold 
under one certificate, which is part of the merger process. By statute 
(49 U.S.C. 41105), DOT may approve a transfer of such routes only if we 
find that it is consistent with the public interest. As part of that 
analysis we must examine the transfer's impact on the viability of each 
airline party to the transaction, competition in the domestic airline 
industry, and the trade position of the United States in the 
international air transportation market.
    We would only decide an international route transfer case after we 
had established a formal record and given all interested persons the 
opportunity to comment. If DOT determines that the transfer would be 
contrary to the public interest on competitive grounds or for another 
reason, DOT could disapprove the transfer in whole or in part.
    DOT may also review any code-share arrangements concluded between 
the merging carriers. In DOT's experience, code-share arrangements 
would likely be necessary during the early phases of integration after 
the transaction is closed.
    Finally, at DOT, we take our responsibility for consumer protection 
seriously. For example, if carriers in pursuing or implementing a 
merger were to engage in unfair or deceptive practices, we have ample 
authority to protect affected consumers based on our unfair and 
deceptive practices statute (49 U.S.C. 41712).
Conclusion
    Civil aviation plays a critical role in the U.S. economy amounting 
to $1.2 trillion in 2009 and generating more than 10 million jobs, with 
earnings of almost $394.4 billion. Airlines connect national and global 
communities--linking friends and family, suppliers and producers, 
retailers and manufacturers, facilitating business partnerships, and 
fostering educational and cultural exchanges of all types. Every 
American has both a personal and an economic interest in access to safe 
and affordable air travel. It is therefore easy to understand why so 
many people take an interest in airline mergers.
    Our consideration of aviation economic policy focuses on what is 
best for a healthy and a competitive industry, for its workers, and for 
the communities and consumers that it serves. Our goal must be to 
strike what is often a very difficult balance in the face of a complex 
and dynamically changing industry. Importantly, in doing so we must 
also consider the longer term, collective impact on all stakeholders, 
most importantly America's traveling public.
    Chairman Cantwell, this concludes my testimony. I would be happy to 
answer any questions you may have.

    Senator Cantwell. Thank you.
    Dr. Dillingham?

 STATEMENT OF GERALD L. DILLINGHAM, Ph.D., DIRECTOR, PHYSICAL 
            INFRASTRUCTURE ISSUES, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Dr. Dillingham. Thank you, Madam Chairwoman, Ranking Member 
Ayotte, and members of the Subcommittee. I, too, appreciate the 
opportunity to appear before you this afternoon to discuss the 
potential competitive implications of the proposed merger 
between American Airlines and US Airways. This proposed merger 
follows several other large airline mergers, including Delta-
Northwest, United-Continental, and most recently, Southwest-Air 
Tran.
    As you are aware, if allowed by the Department of Justice, 
which has the responsibility for reviewing this merger under 
U.S. antitrust laws, the new American would surpass United 
Airlines to become the largest U.S. passenger airline. A key 
aspect of DOJ's review is a loss of competition on airline 
routes, and whether any loss of competition is offset by gains 
in efficiencies that would benefit the flying public.
    The loss of a competitor that serves the market on a non-
stop basis is most significant from a competitive perspective 
because non-stop service is typically preferred by most 
passengers. Although US Airways and American overlap on only 12 
non-stop routes, there are no other non-stop airline 
competitors on seven of those 12 routes. However, because both 
airlines operate extensive networks, the potential loss of 
competition when connecting traffic is considered could be far 
more extensive. Specifically, our analysis shows that combining 
these airlines would result in a loss of one effective airline 
competitor in about 1,600 airport pair markets, affecting more 
than 53 million passengers during the last year.
    The competitive effects could be reduced, however, because 
at least one other airline competitor exists in almost all of 
the overlapping markets. Conversely, the merger could create a 
new effective airline competitor with at least 5 percent of the 
market share in 210 airport pairs affecting 17.5 million 
passengers during the last year.
    While the airlines have not announced specific plans for 
changes in their network or operations that might occur should 
the merger eventually be allowed to proceed, the combined 
airline could be expected to change its network structure over 
time, including where it maintains hubs. Concurrently, American 
and US Airways do not share any network hubs. Therefore, the 
amount of airport market share overlap that currently exists at 
these hubs is relatively small. But the new American Airlines 
market share could grow or contract at these hub airports.
    Closing or reducing capacity at hubs is not unprecedented, 
as is evidenced by their occurrence in previous airline 
mergers. In addition, four of the U.S. airports that these two 
airlines serve are slot controlled. We found that slot controls 
limit access to new entrants and expansion by smaller carriers. 
Therefore, slot controlled airports tend to limit competition 
and have higher fares compared to other hub airports. The new 
American Airlines would control one-third of the slots at 
LaGuardia and two-thirds of the slots at Washington Reagan 
where US Airways already controls over half the available 
slots.
    Internationally, both American and US Airways have 
worldwide networks serving a combined 107 international cities 
from U.S. airports. The two airlines do not directly compete on 
any of the same international city pairs, but they both serve 
37 of the same international destinations through their U.S. 
hubs. However, because both airlines are part of a immunized 
alliance, it is unclear what effect, if any, this merger might 
have on competition for international services. DOT will be 
responsible for reviewing any changes in these alliances.
    Madam Chairwoman, Ranking Member Ayotte, and members of the 
Subcommittee, this concludes my prepared statement. I will be 
happy to answer any questions at the appropriate time.
    [The prepared statement of Dr. Dillingham follows:]

 Prepared Statement of Gerald L. Dillingham, Ph.D., Director, Physical 
      Infrastructure Issues, U.S. Government Accountability Office
   Highlights of GAO-13-403T, Airline Mergers, Issues Raised by the 
          Proposed Merger of American Airlines and US Airways

Why GAO Did This Study
    In February 2013, American and US Airways announced plans to merge 
the two airlines and entered into a merger agreement. Valued at $11 
billion, the merged airline would retain the American name and be 
headquartered in Dallas-Fort Worth. This follows the mergers of United 
Airlines and Continental Airlines in 2010 and the acquisition of 
Northwest Airlines by Delta Air Lines (Delta) in 2008. This latest 
merger, if not challenged by DOJ, would surpass these prior mergers in 
scope to create the largest passenger airline in the United States. The 
passenger airline industry has struggled financially over the last 
decade and these two airlines believe a merger will strengthen them. 
However, as with any merger of this magnitude, this proposal will be 
examined by DOJ to determine if its potential benefits for consumers 
outweigh the potential negative effects.
    This testimony focuses on (1) the role of Federal authorities in 
reviewing merger proposals, (2) key factors motivating airline mergers 
in recent years, and (3) the implications of merging American and US 
Airways. To address these objectives, GAO drew from its previous 
reports on the potential effects of prior airline mergers and the 
financial condition of the airline industry issued from July 2008 
through May 2010. GAO also analyzed DOT's airline operating and 
financial data, airline financial documents, and airline schedule 
information since 2002.
What GAO Found
    The Department of Justice's (DOJ) antitrust review will be a 
critical step in the proposed merger between American Airlines 
(American) and US Airways. DOJ uses an integrated analytical framework 
set forth in the Horizontal Merger Guidelines to determine whether the 
merger poses any antitrust concerns. Under that process, DOJ assesses, 
among other things, the extent of likely anticompetitive effects of the 
proposed merger in the relevant markets, in this case, airline city-
pair markets, and the likelihood that other airlines may enter these 
markets and counteract any anticompetitive effects, such as higher 
fares. DOJ also considers efficiencies that a merger or acquisition 
could bring--for example, consumer benefits from an expanded route 
network. The Department of Transportation (DOT) aids DOJ's analysis.
    Airlines seek mergers to reduce costs and improve revenues. GAO has 
previously reported that mergers can result in increased revenues by 
offering improved network connections and schedules, but also through 
higher fares on some routes. Cost savings can be generated by 
eliminating redundancies and operational efficiencies, including 
reducing service, but can be muted by problems in combining different 
aircraft, technologies, and labor forces. In the case of US Airways and 
American, they estimate that a merger would yield $1.4 billion in 
annual benefits from increased revenues and reduced costs.
    If not challenged by DOJ, the merged American would surpass United 
to become the largest U.S. passenger airline by several measures. While 
US Airways and American overlap on only 12 nonstop routes, no other 
nonstop competitors exist on 7 of those 12. Our analysis of 2011 and 
2012 ticket data also showed that combining these airlines would result 
in a loss of one effective competitor (defined as having at least 5 
percent of total airport-pair traffic) in 1,665 airport-pair markets 
affecting more than 53 million passengers while creating a new 
effective competitor in 210 airport-pairs affecting 17.5 million 
passengers. However, the great majority of these markets also have 
other effective competitors.



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                Testimony of Gerald L. Dillingham, Ph.D.
    Chairman Cantwell, Ranking Member Ayotte, and Members of the 
Subcommittee:

    I am pleased to be here today to discuss the potential implications 
of the merger proposal recently announced by American Airlines 
(American) and US Airways. In February 2013, these two airlines 
announced plans for American to merge with US Airways through a stock 
swap the airlines valued at $11 billion. This follows the acquisition 
of Northwest Airlines (Northwest) by Delta Air Lines (Delta) in 2008, 
the merger of United Airlines (United) and Continental Airlines 
(Continental) in 2010, and Southwest Airlines' (Southwest) acquisition 
of Air Tran Airways (AirTran), in 2011. If approved by the Department 
of Justice (DOJ), the American-US Airways merger would surpass United's 
in terms of number of employees, seat capacity, and operating revenues 
to create the largest passenger airline in the United States. However, 
as with any merger of this magnitude, this proposal is being examined 
by DOJ with assistance from the Department of Transportation (DOT) to 
determine if the potential benefits for consumers outweigh the 
potential negative effects.
    Extensive research and the experience of millions of Americans 
underscore the benefits that have flowed to most consumers from the 
1978 deregulation of the airline industry, including dramatic 
reductions in fares and expansion of service. These benefits are 
largely attributable to increased competition from the entry of new 
airlines into the industry and established airlines into new markets. 
At the same time, however, airline deregulation has not benefited 
everyone; some communities--especially smaller communities--have 
suffered from relatively high airfares and a loss of service. We have 
been analyzing aviation competition issues since enactment of the 
Airline Deregulation Act of 1978.\1\ Our work since 2000 has focused on 
airline competition and industry performance, including the financial 
health of the passenger airline industry, the growth of low cost 
airlines, changing business models of airlines, and prior mergers.\2\ 
In the airline context, DOJ has the primary responsibility to evaluate 
most mergers in order to carry out its antitrust responsibilities.\3\ 
In addition, American remains under Chapter 11 bankruptcy protection, 
however the bankruptcy court approved the merger with US Airways in May 
2013.
---------------------------------------------------------------------------
    \1\ Pub. L. No. 95-504, 92 Stat. 1705 (1978).
    \2\ See list of related GAO products attached to this statement.
    \3\ Under the Hart-Scott-Rodino Act, an acquisition of voting 
securities and/or assets above a set monetary amount must be reported 
to DOJ (or the Federal Trade Commission for certain industries) so the 
department can determine whether the merger or acquisition poses any 
antitrust concerns. 15 U.S.C. Sec. 18a(d)(1). Both DOJ and the Federal 
Trade Commission have antitrust enforcement authority, including 
reviewing proposed mergers and acquisitions. DOJ is the antitrust 
enforcement authority charged with reviewing proposed mergers and 
acquisitions in the airline industry.
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    My statement today presents the (1) role of Federal authorities in 
reviewing merger proposals, (2) key factors motivating airline mergers 
in recent years, and (3) implications of merging American and US 
Airways. My testimony is based on several reports we previously 
prepared for this Committee--our 2008 report on the potential effects 
of the proposed merger between Delta and Northwest and our 2009 report 
on the financial condition of the airline industry and the various 
effects of the industry's contraction on passengers and communities--as 
well as our 2010 Statement for this Committee on the United-Continental 
merger \4\ and other past work on aviation issues since 2000. In 
addition, we conducted analysis of the proposed American and US Airways 
merger, including some analysis of the airlines' financial, labor, 
fleet, and market conditions. To describe the role of Federal 
authorities, in particular DOJ and DOT, in reviewing airline merger 
proposals we relied on information developed for our 2008 report and 
updated it as necessary.\5\ For example, we reviewed new merger 
guidelines issued in 2010 and recent merger decisions. To provide an 
overview of the factors motivating airline mergers in recent years, we 
relied on information developed from past reports on the airline 
industry and updated it as necessary.\6\ For example, we reviewed 
American Airlines bankruptcy and merger documents. To identify the 
implications of the proposed merger of American and US Airways, we 
reviewed airline documents about the merger, financial analyst reports, 
and analyzed data submitted by the airlines to DOT since 2002 (BTS Form 
41 financial data, origin and destination ticket sample, and 
operations). We also analyzed airline schedule data. We assessed the 
reliability of these data by (1) performing electronic testing of 
required data elements, (2) reviewing existing information about the 
data and the system that produced them, and (3) interviewing agency 
officials knowledgeable about the data. We determined that the data 
were sufficiently reliable for the purposes of this testimony.
---------------------------------------------------------------------------
    \4\ GAO, Airline Mergers: Issues Raised by the Proposed Merger of 
United and Continental Airlines, GAO-10-778T (Washington, D.C., May 27, 
2010).
    \5\ GAO, Airline Industry: Potential Mergers and Acquisitions 
Driven by Financial and Competitive Pressures, GAO-08-845 (Washington, 
D.C.: July 31, 2008).
    \6\ Commercial Aviation: Airline Industry Contraction Due to 
Volatile Fuel Prices and Falling Demand Affects Airports, Passengers, 
and Federal Government Revenues, GAO-09-393 (Washington, D.C.: Apr. 21, 
2009) and GAO-08-845.
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    We conducted this work in accordance with generally accepted 
government auditing standards. Those standards require that we plan and 
perform the audit to obtain sufficient, appropriate evidence to provide 
a reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives.
Background
    The airline industry has experienced considerable merger and 
acquisition activity since its early years; especially immediately 
following deregulation in 1978. Figure 1 provides a timeline of mergers 
and acquisitions for the four largest surviving airlines, assuming an 
American-US Airways merger, based on passengers served. A flurry of 
mergers and acquisitions occurred during the 1980s, when Delta and 
Western Airlines merged, United acquired Pan Am's Pacific routes, 
Northwest acquired Republic Airlines, and American and Air California 
merged. In 1988, merger and acquisition review authority was 
transferred from DOT to DOJ.\7\ Since 2000, American acquired the 
bankrupt airline TWA in 2001, America West acquired US Airways in 2005, 
while the latter was in bankruptcy; Delta acquired Northwest in 2008; 
United acquired Continental in 2010; and Southwest acquired AirTran in 
2011. Certain other attempts at merging since 2000 failed because of 
opposition from DOJ or employees and creditors. For example, in 2000, 
an agreement was reached that allowed Northwest to acquire a 50 percent 
stake in Continental (with limited voting power) to resolve the 
antitrust suit brought by DOJ against Northwest's proposed acquisition 
of a controlling interest in Continental.\8\ A proposed merger of 
United and US Airways in 2000 also resulted in opposition from DOJ, 
which found that in its view, the merger would violate antitrust laws 
by reducing competition, increasing air fares, and harming consumers on 
airline routes throughout the United States. Although DOJ expressed its 
intent to sue to block the transaction, the parties abandoned the 
transaction before a suit was filed. In 2006, the proposed merger of US 
Airways and Delta fell apart because of opposition from Delta's pilots 
and some of its creditors, as well as its senior management.
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    \7\ Civil Aeronautics Board Sunset Act, Pub. L. No. 98-443, 98 
Stat. 1703 (1984).
    \8\ GAO, Aviation Competition: Issues Related to the Proposed 
United Airlines-US Airways Merger, GAO-01-212 (Washington, D.C.: Dec. 
15, 2000) p. 10, footnote 6.



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    Since deregulation in 1978, the financial stability of the airline 
industry has become a considerable concern for the Federal Government 
due, in part, to the level of financial assistance it has provided to 
the industry through assuming terminated pension plans and other forms 
of assistance. From 1979 through 2012, there have been at least 194 
airline bankruptcies, according to Airlines for America (A4A), an 
airline trade group. While most of these bankruptcies affected small 
airlines that were eventually liquidated, 4 of the more recent 
bankruptcies prior to American's (Delta, Northwest, United, and US 
Airways) are among the largest corporate bankruptcies ever, excluding 
financial services firms. During these bankruptcies, United and US 
Airways terminated the defined benefit pension plans for their labor 
groups and $9.7 billion in claims were shifted to the Pension Benefit 
Guarantee Corporation (PGBC).\9\ Further, to respond to the financial 
shock to the industry from the September 11, 2001, terrorist attacks, 
the Federal Government provided airlines with $7.4 billion in direct 
assistance and authorized $1.6 billion (of $10 billion available) in 
loan guarantees to six airlines.\10\
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    \9\ PBGC was established under the Employee Retirement Income 
Security Act of 1974 (Pub. L. No. 93-406, 88 Stat. 1003 (1974) (ERISA) 
and set forth standards and requirements that apply to defined benefit 
plans. PBGC was established to encourage the continuation and 
maintenance of voluntary private pension plans and to insure the 
benefits of workers and retirees in defined benefit plans should plan 
sponsors fail to pay benefits. PGBC operations are financed, for 
example, by insurance premiums paid by sponsors of defined benefit 
plans, investment income, and assets from pension plans trusted by 
PBGC, and recoveries from the companies formerly responsible for the 
plans.
    \10\ The six airlines receiving loan guarantees were Aloha, World, 
Frontier, US Airways, ATA, and America West.
---------------------------------------------------------------------------
    Although the airline industry has experienced numerous mergers and 
bankruptcies since deregulation, growth of existing airlines and the 
entry of new airlines have contributed to a steady increase in 
capacity, as measured by available seat miles. Previously, we reported 
that although one airline may reduce capacity or leave the market, 
capacity returns relatively quickly through new airline entry and 
expansion of the remaining airlines.\11\ However, in recent years this 
dynamic may be changing. Domestic capacity growth stalled in 2008 owing 
to the recession and high fuel prices and has not rebounded despite a 
strengthening economy and demand for air travel (see fig. 2).
---------------------------------------------------------------------------
    \11\ GAO, Commercial Aviation: Bankruptcy and Pensions Problems Are 
Symptoms of Underlying Structural Issues, GAO-05-945 (Washington, D.C.: 
Sept. 30, 2005).



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    In recent years, a key factor limiting capacity growth has been 
high fuel prices, according to industry analysts. In the early part of 
the last decade while network airlines \12\ were restructuring their 
costs through bankruptcy, low cost airlines like Southwest and JetBlue 
expanded owing to lower costs, especially for labor (see fig. 3). As a 
result, while in 2002, network airlines offered 67 percent of domestic 
seat capacity versus 23 percent for low cost airlines, by October 2012, 
network airlines share of domestic seats had fallen to 52 percent and 
low cost airline's share had risen to 33 percent. However, the 
expansion of low cost airlines in recent years may have slowed owing to 
higher fuel costs that diminished their relative cost advantage over 
network airlines. With fuel costs consuming a greater proportion of 
airline operating costs for all airlines, any cost advantage that low 
cost airlines had with respect to labor costs over network airlines is 
diluted.
---------------------------------------------------------------------------
    \12\ Network (or legacy) airlines are essentially those airlines 
that were in operation before the Airline Deregulation Act of 1978 and 
whose goal is to provide service from ``anywhere to everywhere.'' To 
meet that goal, these airlines support large, complex hub-and-spoke 
operations with thousands of employees and with hundreds of aircraft of 
various types, with service at numerous fare levels to domestic 
communities of all sizes and to international destinations. For 
purposes of this report, we have defined American, Continental, Delta, 
Northwest, United, and US Airways as network airlines and Allegiant, 
AirTran, Frontier, Midwest, JetBlue, Southwest, Spirit, and Sun Country 
as low cost airlines.



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    Finally, DOJ and DOT's analysis of merger impacts have relied on an 
expectation that entry by low cost airlines, especially Southwest, 
would check airline fare increases following a merger. However, that 
practice might erode as Southwest expansion has slowed and it recently 
merged with a key low cost rival, reducing the number of low cost 
airlines that might challenge post merger fare increases. In 1993, DOT 
published a report entitled the The Southwest Effect that concluded 
that low cost airlines like Southwest lowered fares in markets they 
entered and that DOT policy should be to encourage the growth of 
Southwest and airlines like it.\13\ Congressional action and DOT policy 
in subsequent years, especially in the award of operating rights called 
``slots'' at congested airports like Washington Reagan and New York 
LaGuardia, favored new entrant airlines like Southwest. Similarly, DOJ 
cited the relinquishment of 36 slots by Continental to Southwest at 
Newark Liberty International Airport as alleviating its principle 
concerns in determining not to object to the United-Continental merger 
in 2010. A November 2008 paper by Goolsbee and Syverson, found that 
even the threat of entry by Southwest in a market helped to lower fares 
in that market, but only if Southwest already operated at one of the 
market endpoints.\14\ More recently though, a 2013 study suggests that 
the Southwest Effect may not be as prominent following a merger. This 
study found that Southwest raised fares in markets following the 
mergers of Delta-Northwest and US Airways-America West more than 
average fare increases overall, unless another low cost airline was 
already in that market.\15\ The merger of Southwest with a key rival in 
2011 could further lessen the potential that Southwest would deter or 
counteract higher fares in markets following a merger.
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    \13\ Randall Bennett and James Craun, U.S. Department of 
Transportation, The Airline Deregulation Evolution Continues: The 
Southwest Effect, May 1993.
    \14\ Austan Goolsbee and Chad Syverson, ``How Do Incumbents Respond 
to the Threat of Entry? Evidence from the Major Airlines,'' The 
Quarterly Journal of Economics, (November 2008).
    \15\ Najmus Sakib bin Salam, Is There Still A Southwest Effect? 
Transportation Research Record publications, Volume no. 2325 (May 
2013).
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The Department of Justice's Antitrust Review Is a Critical Step in the 
        Airline Merger and Acquisition Process
    The DOJ's review of airline mergers and acquisitions is a key step 
for airlines hoping to consummate a merger. For airlines, as with other 
industries, DOJ uses an analytical framework set forth in the 
Horizontal Merger Guidelines (the Guidelines) to evaluate merger 
proposals.\16\ In addition, DOT plays an advisory role for DOJ and, if 
the combination is consummated, may conduct financial and safety 
reviews of the combined entity under its regulatory authority.\17\ 
Finally, because American has been under Chapter 11 bankruptcy 
protection since 2011, the merger also required Federal bankruptcy 
court approval.
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    \16\ The Guidelines were jointly developed by DOJ's Antitrust 
Division and the Federal Trade Commission (FTC) and describe the 
inquiry process the two agencies follow in analyzing proposed mergers. 
The current version of the Guidelines was revised in August 2010.
    \17\ 49 U.S.C. Sec. 41110.
---------------------------------------------------------------------------
    Most proposed airline mergers or acquisitions must be reviewed by 
DOJ as required by the Hart-Scott-Rodino Antitrust Improvements Act 
(Act).\18\ In particular, under the Act, an acquisition of voting 
securities or assets above a set monetary amount must be reported to 
DOJ (or the FTC for certain industries) so the department can determine 
whether the merger or acquisition poses any antitrust concerns.\19\ To 
analyze whether a proposed merger or acquisition raises antitrust 
concerns--whether the proposal will likely create, enhance, or entrench 
``market power'' or facilitate its exercise \20\--DOJ follows an 
analytical process set forth in the Guidelines.\21\ The commentary to 
the Guidelines identifies five factors that the department considers in 
reviewing a merger but notes that their importance varies according to 
the nature of the industry and the scope of the merger. The five 
factors considered by DOJ are:
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    \18\ Pub. L. No. 94-435, 90 Stat. 1383 (1976).
    \19\ See 15 U.S.C. Sec. 18a(d)(1). Under the Hart-Scott-Rodino Act, 
DOJ has 30 days after the initial filing to notify companies that 
intend to merge whether DOJ requires additional information for its 
review. If DOJ does not request additional information, the firms can 
close their deal (15 U.S.C. Sec. 18a(b)). If more information is 
required, however, the initial 30-day waiting period is followed by a 
second 30-day period, which starts to run after both companies have 
provided the requested information (15 USC Sec. 18a(e)(2)). Companies 
often attempt to resolve DOJ competitive concerns, if possible, prior 
to the expiration of the second waiting period. Any restructuring of a 
transaction--e.g., through a divestiture--is included in a consent 
decree entered by a court, unless the competitive problem is 
unilaterally fixed by the parties prior to the expiration of the 
waiting period (called a ``fix-it first'').
    \20\ ``Market power'' is the ability to maintain prices profitably 
above competitive levels for a significant period of time.
    \21\ United States Department of Justice and Federal Trade 
Commission, Horizontal Merger Guidelines (Washington, D.C., rev. Aug. 
19, 2010).

   the relevant product and geographic markets in which the 
        companies operate and whether the merger is likely to 
        significantly increase concentration in those markets, which in 
---------------------------------------------------------------------------
        the case of airlines principally applies to city-pair markets;

   the extent of potential adverse competitive effects of the 
        merger, such as whether the merged entity will be able to 
        charge higher prices or restrict output for the product or 
        service it sells;

   whether other competitors are likely to enter the affected 
        markets and whether they would counteract any potential 
        anticompetitive effects that the merger might have posed;

   the verified ``merger specific'' efficiencies or other 
        competitive benefits that may be generated by the merger and 
        that cannot be obtained through any other means; and

   whether, absent the merger or acquisition, one of the firms 
        is likely to fail, causing its assets to exit the market.

    In making the decision whether the proposed merger is likely 
anticompetitive, DOJ considers the particular circumstances of the 
merger as it relates to the Guidelines' five-part analysis. The greater 
the potential anticompetitive effects, the greater the offsetting 
verifiable efficiencies for DOJ to clear a merger must be. However, 
according to the Guidelines, efficiencies almost never justify a merger 
if it would create a monopoly or near monopoly. If DOJ concludes that a 
merged airline threatens to deprive consumers of the benefits of 
competitive air service, then it will seek injunctive relief in a court 
proceeding to block the merger from being consummated. For example, a 
proposed merger of United Airlines and US Airways was opposed by DOJ, 
which found that, in its view, the merger would violate antitrust laws 
by reducing competition, increasing air fares, and harming consumers on 
airline routes throughout the United States. In some cases, the parties 
may agree to modify the proposal to address anticompetitive concerns 
identified by DOJ--for example, selling airport assets or giving up 
slots at congested airports--in which case DOJ ordinarily files a 
complaint with the court along with a consent decree that embodies the 
agreed-upon changes.
    DOT conducts its own analyses of airline mergers and acquisitions. 
While DOJ is responsible for upholding antitrust laws, DOT reviews the 
merits of any airline merger or acquisition and submits its views and 
relevant information in its possession to DOJ. DOT also provides some 
essential data--for example, the airlines' routes and passenger 
traffic--that DOJ uses in its review. In addition, presuming the merger 
moves forward after DOJ's review, DOT can undertake several other 
reviews if the situation warrants. Before commencing operations, any 
new, acquired, or merged airlines must obtain separate authorizations 
from DOT--``economic'' authority from the Office of the Secretary \22\ 
and ``safety'' authority from the Federal Aviation Administration 
(FAA).\23\ The Office of the Secretary is responsible for deciding 
whether applicants are fit, willing, and able to perform the service or 
provide transportation. To make this decision, the Secretary assesses 
whether the applicants have the managerial competence, disposition to 
comply with regulations, and financial resources necessary to operate a 
new airline. FAA is responsible for certifying that the aircraft and 
operations conform to the safety standards prescribed by the 
Administrator, for instance, that the applicants' manuals, aircraft, 
facilities, and personnel meet Federal safety standards. Also, if a 
merger or other corporate transaction involves the transfer of 
international route authority, DOT is responsible for assessing and 
approving all transfers to ensure that they are consistent with the 
public interest.\24\
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    \22\ 49 U.S.C. Sec. 41104.
    \23\ 49 U.S.C. Sec. 44702.
    \24\ 49 U.S.C. Sec. 41105. DOT must specifically consider the 
``transfer-of-certificate'' authority's impact on the financial 
viability of the parties to the transaction and on the trade position 
of the United States in the international air transportation market, as 
well as on competition in the domestic airline industry.
---------------------------------------------------------------------------
    In addition, American has been under Federal bankruptcy protection 
since November 2011.\25\ In May 2013, the Federal judge overseeing the 
bankruptcy approved American's merger with US Airways as part of the 
reorganization.\26\ Shareholders of US Airways must also approve the 
merger for it to be consummated.
---------------------------------------------------------------------------
    \25\ 11 U.S.C. Sec. 1101 et seq. Chapter 11 of the United States 
code governs business reorganizations. This chapter is designed to 
accommodate complicated reorganizations of publicly held corporations. 
Among other things, it allows companies, with court approval, to reject 
agreements made under collective bargaining and renegotiate contracts 
with other creditors. With the approval of the bankruptcy courts (which 
administer the bankruptcy laws), companies may also modify retiree 
benefits.
    \26\ On April 15, American filed a formal restructuring plan to 
exit bankruptcy protection based on its merger with US Airways. On 
May10, 2013, the presiding judge in the American Airlines bankruptcy 
signed an order approving the merger between American Airlines and US 
Airways. In re AMR Corp., United States Bankruptcy Court for the 
Southern District of New York, No. 11-15463-SHL.
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Financial Benefits to Shareholders Drive Airline Mergers
    On February 13, 2013, American and US Airways announced an 
agreement to merge the two airlines. The airlines have also notified 
DOJ of their intent to merge. The new airline would retain the American 
name and headquarters in Dallas-Fort Worth while the current US Airways 
Chief Executive Officer would keep that title with the new airline, and 
the current American CEO would become Chairman of the new American. The 
proposed merger will be financed exclusively through an all stock 
transaction with a combined equity value of $11 billion split roughly 
with 72 percent ownership to American shareholders and 28 percent to US 
Airways shareholders. The airlines have not announced specific plans 
for changes in their networks or operations that would occur if the 
combination is consummated, but the airlines' conservatively estimate 
that the merger will result in $1.4 billion in annual benefits to 
shareholders of the new airline as outlined in table 1.

------------------------------------------------------------------------
 Table 1.--Estimated Annual Benefits and Costs from American--US Airways
                      Merger (Dollars in Billions)
------------------------------------------------------------------------
                       Benefit                          Estimated value
------------------------------------------------------------------------
Revenue (network) benefit                                          $1.12
------------------------------------------------------------------------
Cost benefits                                                        .64
------------------------------------------------------------------------
Increased labor costs                                              (.36)
------------------------------------------------------------------------
Total annual benefits                                              $1.40
------------------------------------------------------------------------
Source: US Airways.

    A key financial benefit that airlines consider in a merger is the 
potential for increased revenues through additional demand (generated 
by more seamless travel to more destinations), increased market share, 
and higher fares on some routes. As we reported in May 2010, mergers 
may generate additional demand by providing consumers more domestic and 
international city-pair destinations.\27\ Airlines with expansive 
domestic and international networks and frequent flier benefits 
particularly appeal to business traffic, especially corporate accounts. 
The American-US Airways merger is estimated by airline executives to 
generate $1.12 billion in revenue synergies from improved network 
connectivity, increased corporate and frequent flier loyalty, and 
optimization in the use of their aircraft.
---------------------------------------------------------------------------
    \27\ GAO-10-778T.
---------------------------------------------------------------------------
    At the same time, capacity reductions in certain markets from a 
merger or acquisition could also serve to generate additional revenue 
through increased fares on some routes. Some studies of airline mergers 
and acquisitions during the 1980s showed that prices were higher on 
some routes from the airline's hubs soon after the combination was 
completed.\28\ Several studies have also shown that increased airline 
dominance at an airport results in increased fare premiums, in part, 
because that dominance creates competitive barriers to entry.\29\ At 
the same time, though, even if the combined airline is able to increase 
prices in some markets, the increase may be transitory if other 
airlines enter the markets with sufficient presence to counteract the 
price increase. In an empirical study of airline mergers and 
acquisitions up to 1992, Winston and Morrison suggest that being able 
to raise prices or stifle competition does not play a large role in 
airlines' merger and acquisition decisions.\30\
---------------------------------------------------------------------------
    \28\ See Severin Borenstein, ``Airline Mergers, Airport Dominance, 
and Market Power,'' American Economic Review, Vol. 80 (May 1990); 
Steven A. Morrison, ``Airline Mergers: A Longer View,'' Journal of 
Transport Economics and Policy (September 1996); and Gregory J. Werden, 
Andrew J. Joskow, and Richard L. Johnson, ``The Effects of Mergers on 
Price and Output: Two Case Studies from the Airline Industry,'' 
Managerial and Decision Economics, Vol. 12 (October 1991).
    \29\ See Severin Borenstein, ``Hubs and High Fares: Dominance and 
Market Power in the U.S. Airline Industry,'' RAND Journal of Economics, 
20, 344-365 (1989); GAO, Airline Deregulation: Barriers to Entry 
Continue to Limit Competition in Several Key Markets, GAO/RCED-97-4 
(Washington, D.C.: Oct. 18, 1996); and GAO, Airline Competition: 
Effects of Airline and Market Concentration and Barriers to Entry on 
Airfares, GAO/RCED-91-101 (Washington, D.C.: Apr. 16, 1991).
    \30\ See Steven A. Morrison, and Clifford Winston, ``The Remaining 
Role for Government Policy in the Deregulated Airline Industry.'' 
Deregulation of Network Industries: What's Next? eds. Sam Peltzman and 
Clifford Winston, (Washington, D.C., Brookings Institution Press 2000) 
pp. 1-40.
---------------------------------------------------------------------------
    The other key financial benefit that airlines consider when merging 
with or acquiring another airline is the cost reduction that may result 
from combining complementary assets, eliminating duplicative 
activities, and reducing capacity. As we reported in May 2010, a merger 
or acquisition could enable the combined airline to reduce or eliminate 
duplicative operating costs, such as duplicative service, labor, and 
operations costs--including inefficient (or redundant) hubs or routes--
or to achieve operational efficiencies by integrating computer systems 
and similar airline fleets.\31\ By increasing the fleet size, airlines 
can increase their ability to match the size of aircraft with demand 
and adjust to seasonal shifts in demand. Other cost savings may stem 
from facility consolidation, procurement savings, and working capital 
and balance sheet restructuring, such as renegotiating aircraft leases. 
Airlines may also pursue mergers or acquisitions to more efficiently 
manage capacity--both to reduce operating costs and to generate 
revenue--in their networks. Given recent economic pressures, 
particularly increased fuel costs, the opportunity to lower costs by 
reducing redundant capacity may be especially appealing to airlines 
seeking to merge. In the case of the American-US Airways merger, 
airline executives estimate that the merger will allow $640 million in 
cost savings from reducing overlapping facilities at airports and in 
combining purchasing, technology, and corporate activities.
---------------------------------------------------------------------------
    \31\ GAO-10-778T.
---------------------------------------------------------------------------
    Despite these benefits, there are several potential barriers to 
successfully consummating a merger, potentially reducing the benefits 
and increasing the costs. As we reported in July 2008,\32\ the most 
significant operational challenges involve the integration of 
workforces, organizational cultures, aircraft fleets, and information 
technology systems and processes, challenges that can be difficult, 
disruptive, and costly as the airlines integrate.\33\ For example, in 
the case of the American-US Airways merger, with unions supporting the 
merger, pilots' and others' pay will increase by $360 million annually 
if the merger is completed. However, merging workforces can take time-
for example, US Airways' pilot seniority lists have not been resolved 
following their merger with America West in 2005. Integrating 
technology, especially reservation systems, can also be difficult and 
costly. For example, United has struggled to integrate computer and 
reservation systems following its merger with Continental in 2010.
---------------------------------------------------------------------------
    \32\ GAO-08-845.
    \33\ Airlines also face potential challenges to mergers and 
acquisitions from DOJ's antitrust review, which is discussed in the 
previous section.
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The Proposed American and US Airways Merger Would Create The Largest 
        U.S. Passenger Airline
    If approved by DOJ, the merged American-US Airways would surpass 
United as the largest U.S. passenger airline. Table 2 shows that 
combining American and US Airways Airlines would create the largest 
U.S. airline based on data for the four quarters ending October 2012, 
as measured by capacity (available seat miles) and operating revenues. 
The combined airline would also have the largest workforce among U.S. 
airlines based on February 2013 employment statistics, with a combined 
101,197 full-time equivalent employees (table 3). The airlines' 
workforces are represented by different unions, except dispatchers 
(table 4). Some of American's unions have already signed memorandums of 
understanding for future contracts if the airlines are merged. The 
combined airline would need to integrate 1,215 aircraft (table 5). 
American has a predominantly Boeing fleet, while US Airways has a 
largely Airbus fleet. In addition, in July 2011, American placed a $40 
billion order for 200 Boeing 737 series and 260 Airbus A320 series 
aircraft. Despite its bankruptcy, the bankruptcy court allowed the 
order to proceed. American has also been trying to sell its regional 
airline, American Eagle, and its fleet of almost 280 aircraft.

----------------------------------------------------------------------------------------------------------------
  Table 2.--Total Assets, Operating Revenue, and Capacity of Top U.S. Airlines (4 Quarters Ending October 2012)
----------------------------------------------------------------------------------------------------------------
                                           Capacity as measured by
                                            available  seat miles     Total operating revenue     Total assets
                                                 (thousands)                (thousands) a         (thousands)
----------------------------------------------------------------------------------------------------------------
Combined American-US Airways                             226,545,216              $38,847,509       $130,928,916
----------------------------------------------------------------------------------------------------------------
United                                                   218,563,833               37,470,318        154,554,977
----------------------------------------------------------------------------------------------------------------
Delta                                                    200,931,079               36,615,819        144,019,527
----------------------------------------------------------------------------------------------------------------
Southwest b                                              128,365,001               17,023,282         75,640,126
----------------------------------------------------------------------------------------------------------------
Alaska                                                    27,655,088                4,561,605         19,770,760
----------------------------------------------------------------------------------------------------------------
Source: Bureau of Transportation Statistics Form 41.
a Revenues include revenues from regional operations but assets exclude regional carrier assets unless wholly
  owned, as in the case of American Eagle.
b Includes AirTran.
------------------------------------------------------------------------
 Table 3.--Full-Time Equivalent Employees of Top U.S. Airlines (February
                                  2013)
-------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Total
------------------------------------------------------------------------
Combined American-US Airways a                                   101,197
------------------------------------------------------------------------
United                                                            82,212
------------------------------------------------------------------------
Delta                                                             73,320
------------------------------------------------------------------------
Southwest                                                         45,846
------------------------------------------------------------------------
JetBlue                                                           12,636
------------------------------------------------------------------------
SkyWest                                                            9,931
------------------------------------------------------------------------
Alaska                                                             9,279
------------------------------------------------------------------------
Hawaiian                                                           4,423
------------------------------------------------------------------------
Source: Bureau of Transportation Statistics.
a Includes American Eagle.
------------------------------------------------------------------------
       Table 4.--Union Representation for Various Employee Groups
------------------------------------------------------------------------
                                    Employee groups
              ---------------------------------------------------------- 
------------------------------------------------------------------------
American       Allied       Association   Transport      TWU
                Pilots       of            Workers
                Associatio   Professiona   Union (TWU)
                n (APA)      l Flight
                             Attendants
                             (APFA)
------------------------------------------------------------------------
US Airways     US Airline   Association   International  TWU
                Pilots       of Flight     Association
                Associatio   Attendants    of
                n (USAPA)    (AFA)         Machinists
                                           and
                                           Aerospace
                                           Workers
                                           (IAM)
------------------------------------------------------------------------
Source: American Airlines and US Airways.
----------------------------------------------------------------------------------------------------------------
                             Table 5.--American and US Airways Aircraft Fleet (2013)
----------------------------------------------------------------------------------------------------------------
                                               American                US Airways                 Merged
----------------------------------------------------------------------------------------------------------------
Embraer 190                                                                          18                       18
----------------------------------------------------------------------------------------------------------------
Boeing 737                                                 194                       28                      222
----------------------------------------------------------------------------------------------------------------
Boeing 757                                                 104                       24                      128
----------------------------------------------------------------------------------------------------------------
Boeing 767                                                  72                       10                       82
----------------------------------------------------------------------------------------------------------------
Boeing 777                                                  49                                                49
----------------------------------------------------------------------------------------------------------------
Airbus 319                                                                           93                       93
----------------------------------------------------------------------------------------------------------------
Airbus 320                                                                           72                       72
----------------------------------------------------------------------------------------------------------------
Airbus321                                                                            75                       75
----------------------------------------------------------------------------------------------------------------
Airbus 330                                                                           16                       16
----------------------------------------------------------------------------------------------------------------
MD-80                                                      188                                               188
----------------------------------------------------------------------------------------------------------------
CRJ a                                                       59                                                59
----------------------------------------------------------------------------------------------------------------
E135 a                                                      21                                                21
----------------------------------------------------------------------------------------------------------------
E140 a                                                      74                                                74
----------------------------------------------------------------------------------------------------------------
E145 a                                                     118                                               118
----------------------------------------------------------------------------------------------------------------
Total                                                      879                      336                    1,215
----------------------------------------------------------------------------------------------------------------
Source: American Airlines and Diio.
a American Eagle aircraft.

    If approved by DOJ, the airlines would combine two distinct 
networks supported by different hubs, where the airlines connect 
traffic feeding from smaller airports. American's major hubs are in 
Chicago O'Hare (ORD), Dallas (DFW), New York (JFK), Los Angeles (LAX), 
and Miami (MIA), and US Airways has hubs in Charlotte (CLT), 
Philadelphia (PHL), Phoenix (PHX), and Washington D.C. (DCA), as shown 
in figures 4 and 5.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    A key concern for DOJ in reviewing an airline merger is the loss of 
a competitor on nonstop routes. The loss of a competitor that serves a 
market on a nonstop basis is significant from a competitive perspective 
because nonstop service is typically preferred by most passengers and 
routes that only have nonstop service do not benefit from the 
availability of alternative, albeit lower valued, connecting service. 
Based on October 2012 traffic data, the two airlines overlap on 12 
nonstop airport-pair routes, which are listed in figure 6.\34\ For 7 of 
these 12 nonstop overlapping airport-pairs (generally between an 
American hub and a US Airways hub) there are currently no other 
competitors on a nonstop basis and in only one instance is a low cost 
airline (Southwest) present. And unlike the United--Continental merger, 
where most of the endpoint cities had other airports in the region, 
fewer of these airport pairs have significant other airports in the 
region. This is especially true for the Charlotte (CLT)--Dallas (DFW) 
and Phoenix (PHX)--DFW pairs where few alternate options are available 
at either endpoint.
---------------------------------------------------------------------------
    \34\ This compares coincidently to the same number of nonstop 
overlapping airport pairs in the United--Continental merger.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    The amount of overlap in airport-pair combinations is far more when 
considering all connecting traffic; however, on most of the overlapping 
airport-pair markets, there is at least one other competitor. Based on 
2011 and 2012 ticket sample data, for 13,963 airport-pairs \35\ with a 
minimum level of passenger traffic per year, there would be a loss of 
one effective competitor in 1,665 airport pair markets affecting more 
than 53 million passengers by merging these airlines (see fig. 7).\36\ 
As the figure shows, compared to the last major airline merger in 2010 
between United and Continental, there would be 530 more airport pairs 
losing an effective competitor. This would affect 18 million more 
passengers compared to the merger between United and Continental. In 
addition, any effect on fares may be dampened by the presence of a low 
cost airline in 473 of the 1,665 airport pairs losing a competitor.\37\ 
The combination of the two airlines would also create a new effective 
competitor with at least a combined 5 percent market share in 210 
airport-pairs affecting 17.5 million passengers.
---------------------------------------------------------------------------
    \35\ It is generally preferable, time permitting, to assess city-
pair, rather than airport-pair, changes in competition. Some larger 
U.S. cities (New York, Chicago, Los Angeles, Washington, D.C.) have 
more than one commercial airport that can compete for passenger 
traffic. DOJ generally considers the relevant market to be a city-pair 
combination, but also examines the airport pair if relevant.
    \36\ We assessed more than 96,000 airport pairs with any passenger 
traffic over the last 4 quarters ending October 2012, but eliminated 
any airport-pair with 520 or fewer annual passengers in one direction 
or 1,040 for two-way traffic because they would to be too small to 
ensure statistical accuracy. We defined an effective competitor as 
having at least 5 percent of total airport pair traffic. These are the 
same minimum passenger and market share that we have previously used to 
assess whether an airline has sufficient presence in a market to affect 
competition. See GAO-10-778T and GAO-08-845.
    \37\ We defined low cost airlines as JetBlue, Frontier/Midwest, 
AirTran, Allegiant, Spirit, Sun Country, and Southwest.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Note: All origin and destination airport pairs with at least 520 
passengers in either direction. An effective competitor holds at least 
---------------------------------------------------------------------------
5 percent of market share.

    If approved by DOJ, the combined airline could be expected to 
rationalize its network over time, including where it maintains hubs. 
The two airlines do not share any airport hubs; therefore, the amount 
of airport market share overlap that currently exists at these hubs is 
relatively small but could grow at some hubs while contracting at 
others under a merger (see table 6). For example, New York could serve 
as a better hub and international gateway than Philadelphia in the 
Northeast, while Miami could be a better hub than Charlotte in the 
Southeast. In addition, 59 out of 116 domestic airports served by US 
Airways from Charlotte are also served by American from Miami (MIA). 
Closing hubs is not unprecedented, following the American acquisition 
of TWA in 2001, St Louis ceased to be an American hub and following the 
Delta-Northwest merger, service at Delta's hub in Cincinnati and 
Northwest's hub in Memphis has been greatly reduced.----------------------------------------------------------------------------------------------------------------
       Table 6.--Domestic Passenger Market Share at Hub and Key Airports (4 Quarters Ending October 2012)
----------------------------------------------------------------------------------------------------------------
                                                                               US Airways share (%)
                                American share (%)                                                    Total (%)
----------------------------------------------------------------------------------------------------------------
Dallas (DFW)                                      67                                              7           74
----------------------------------------------------------------------------------------------------------------
Miami (MIA)                                       66                                              6           72
----------------------------------------------------------------------------------------------------------------
                                                   7  Charlotte (CLT)                            63           70
----------------------------------------------------------------------------------------------------------------
                                                   5  Philadelphia (PHL)                         49           54
----------------------------------------------------------------------------------------------------------------
                                                  15  Washington DC (DCA)                        34           49
----------------------------------------------------------------------------------------------------------------
Chicago (ORD)                                     36                                              7           43
----------------------------------------------------------------------------------------------------------------
New York (LGA)                                    20                                             14           34
----------------------------------------------------------------------------------------------------------------
                                                   5  Phoenix (PHX)                              27           32
----------------------------------------------------------------------------------------------------------------
Los Angeles (LAX)                                 18                                              5           23
----------------------------------------------------------------------------------------------------------------
New York (JFK)                                    15                                              3           18
----------------------------------------------------------------------------------------------------------------
Source: DOT origin and destination ticket sample data.
Note: Hub airports in bold.

    Three of the airports noted in table 6 are slot-controlled airports 
with restricted access for new entrants or expanded service. As we 
reported last year, slot-controlled airports have more limited 
competition and tend to have higher fares compared to other hub 
airports.\38\ Based on February 2012 slot holdings, a combined American 
and US Airways would control one-third of the slots at LaGuardia and 
two-thirds of the slots at Washington Reagan as noted in Table 7.
---------------------------------------------------------------------------
    \38\ GAO, Slot-Controlled Airports: FAA's Rules Could be Improved 
to Enhance Competition and Use of Available Capacity, GAO-12-902 
(Washington, D.C., Sept. 13, 2012).----------------------------------------------------------------------------------------------------------------
         Table 7.--Slot Holdings of American and US Airways at Slot-Controlled Airports (February 2012)
----------------------------------------------------------------------------------------------------------------
                                                                     Combined
                                          American    US Airways    American-US    United     Delta      Other
                                         share (%)     share (%)     share (%)   share (%)  share (%)  share (%)
----------------------------------------------------------------------------------------------------------------
Washington DC (DCA)                              14            54            68          9         12         11
----------------------------------------------------------------------------------------------------------------
New York LaGuardia (LGA)                         22            11            33          5         46         16
----------------------------------------------------------------------------------------------------------------
New York (JFK)                                   18             1            19          4         40         36
----------------------------------------------------------------------------------------------------------------
Newark (EWR)                                      5             3             8         81          6          6
----------------------------------------------------------------------------------------------------------------
Source: FAA.

    Both American and US Airways have worldwide networks and serve many 
international destinations. Between the two airlines, they serve 107 
international cities from airports in the United States, 37 of them in 
common, according to published February 2013 schedules. However, the 
two airlines do not directly compete on any of the same international 
city pair markets, though both serve slot-controlled London Heathrow 
airport with more than 830,000 passengers over the last year.\39\ For 
international routes, U.S. airlines aggregate traffic from many 
domestic locations at a hub airport where passengers transfer onto 
international flights. In other words, at Philadelphia, where US 
Airways has a large hub, passengers traveling from many locations 
across the U.S. transfer onto US Airways' international flights. 
Likewise, American aggregates domestic traffic at New York's JFK for 
many of its international flights to some of the same destinations. As 
such, a passenger traveling from, for example Nashville, may view these 
alternative routes to a location in Europe as substitutable.
---------------------------------------------------------------------------
    \39\ Of these 830,000 passengers, US Airways transported 52,000 and 
American Airlines transported 778,000.
---------------------------------------------------------------------------
    Whether service to international destinations from different 
domestic hubs will be viewed as a competitive concern will likely 
depend on a host of factors, such as the two airlines' market share of 
traffic to that destination and whether there are any barriers to new 
airlines entering or existing airlines expanding service at the 
international destination airports. US Airways is part of the larger 
Star Alliance, and American is a member of the smaller oneworld 
alliance. \40\ US Airways has announced it will leave the Star Alliance 
and join American in oneworld as part of the merger. The DOT has 
authority to approve antitrust immunity applications,\41\ but DOJ may 
also comment if it has antitrust concerns. According to a 2011 paper 
prepared by DOJ economists, ``Over the past 17 years, DOT granted 
immunity to over 20 international alliance agreements, permitting 
participants in these alliances to collude on prices, schedules, and 
marketing.'' \42\ They found that in granting immunity to larger groups 
of airlines in the three major international alliances, the number of 
independent competitors over the North Atlantic was significantly 
reduced adversely affecting consumers through higher fares. Because 
both airlines are already part of immunized alliances it is unclear 
what effect, if any, this merger might have on competition in 
international service. According to DOT officials responsible for 
reviewing and approving the immunity requests, the agency has analyzed 
and documented the impact of immunized alliances in its many public 
orders and has concluded that in its experience, integrated airline 
alliances enable a number of valuable consumer benefits, including 
lower prices for many travelers.
---------------------------------------------------------------------------
    \40\ An airline alliance is an agreement between two or more 
airlines to cooperate on a substantial level. The three largest 
passenger airline alliances are the Star Alliance, SkyTeam and 
oneworld. Alliances provide a network of connectivity and convenience 
for international passengers. Alliances also provide convenient 
marketing branding to facilitate travelers making inter airline 
``codeshare'' connections within countries.
    \41\ 49 U.S.C. Sec. Sec. 41308, 41309.
    \42\ See William Gillespie and Oliver Richard, ``Antitrust Immunity 
and International Airline Alliances'', Economic Analysis Group of the 
Department of Justice's Antitrust Division, EAG 11-1, February 2011. 
The views are those of the authors and not the department.
---------------------------------------------------------------------------
    Chairman Cantwell, Ranking Member Ayotte, and Members of the 
Subcommittee, this concludes my prepared statement. I would be happy to 
answer any questions that you may have at this time.

    Senator Cantwell. Thank you, Dr. Dillingham.
    Mr. Parker, thank you very much for being here. I look 
forward to your testimony.

STATEMENT OF DOUG PARKER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
                     US AIRWAYS GROUP, INC.

    Mr. Parker. Thank you. Good afternoon, Chairman Cantwell, 
Ranking Member Ayotte, and members of the Subcommittee. My name 
is Doug Parker. I am Chairman and Chief Executive Officer of US 
Airways Group. Thank you for the opportunity to testify today 
about the merger of US Airways and American Airlines, which 
will create the world's best airline through a combination that 
will be good for competition, consumers, and choice.
    And, Madam Chair, I'd like to acknowledge the employees 
from American Airlines and US Airways here in the room with us 
today, who came to join us for the hearing. They are a huge 
part on why we are here today. And we, and I, in particular, 
are extremely appreciative for their support. So thank you all 
for being here. I very much appreciate it.
    This is an exciting time for the airline industry. The 
industry has transformed, placing a sharper focus on enhancing 
service and expanding choice for passengers, establishing 
stable and prosperous careers for our employees, and partnering 
with airports and communities to better serve our mutual 
customers.
    Only 10 years ago, our focus and results were starkly 
different as the airline industry was struggling to recover 
from the tragic events of 9/11. At that time, I was working as 
CEO of America West Airlines, a small Phoenix-based carrier. 
But to adapt to the changing world and to become a stronger 
competitor, we merged with US Airways in 2005. That merger has 
worked very well, and we were able to combine into a much 
stronger competitor.
    But the industry has continued to evolve in response to 
consumer demand for bigger and better networks. Delta has 
merged with Northwest, United has merged with Continental, and 
Southwest has merged with Air Tran. Earlier this year, we 
announced a merger agreement with American Airlines. We are 
extremely excited about what that means for our customers, and 
our employees, our investors, and the communities we each 
serve. The combination of American and US Airways will create a 
new, more competitive global airline.
    The decision to merge was driven by the unparalleled 
benefits derived from integrating our two networks. Once 
combined, the new American Airlines will operate over 1,500 
aircraft, employ more than 100,000 employees, and serve more 
than 300 communities around the world. We have conservatively 
estimated that we will expand our passenger base by over 2.6 
million travelers each year and generate over $1 billion in 
annual net synergies from increased revenues delivered by our 
combined enhanced network and cost reductions from elimination 
of duplicative systems.
    We have no illusions. This will not be easy. The U.S. 
domestic airline industry is and will remain extremely 
competitive with two other large network airlines, both with a 
head start from their own recent mergers, plus a number of 
fast-growing low cost carriers. Internationally, the 
marketplace is equally competitive with two other larger global 
alliances and a host of other airlines competing, some of them 
with government support. But the combination of American and US 
Airways and the enhancement of the One World Alliance will 
allow us to compete more successfully in both domestic and 
international markets.
    Consumers will benefit from this enhanced competition. The 
new American, a better airline with a significantly expanded 
network on a sound financial footing, will challenge our 
competitors and offer the flying public more and better travel 
choices. The merger will join two highly complementary 
networks, filling critical gaps for each carrier, and enabling 
us to bring heightened levels of service to those communities 
that neither airline could afford to provide on its own.
    We will remain committed to small and medium-sized 
communities. The new American Airlines will give passengers in 
small and medium-sized communities better connecting options 
and service to more places than ever before at more convenient 
times. Where appropriate, we expect to increase such service.
    The best example of our commitment to smaller communities 
is our service to and from the nation's capital. Because of our 
hub operations, US Airways is able to serve 40 small and 
medium-sized communities from Reagan National Airport, 
something no other airline can or will do.
    I believe that great things are ahead for the new American 
Airlines and our employees. Our customers and the communities 
we serve will be the primary beneficiaries of this merger, a 
fact acknowledged by the civic and business leaders across our 
two systems. We will only benefit if we can improved service to 
our customers, and we can.
    Thank you. I will be happy to take any questions.
    [The prepared statement of Mr. Parker follows:]

    Prepared Statement of Doug Parker, Chairman and Chief Executive 
                    Officer, US Airways Group, Inc.
    Good afternoon Chairman Cantwell, Ranking Member Ayotte, and 
members of the Subcommittee on Aviation Operations, Safety, and 
Security. My name is Doug Parker and I am Chairman and Chief Executive 
Officer of US Airways Group, Inc. Thank you for the opportunity to 
testify today about the merger of US Airways and American Airlines, 
which will create the world's best airline through a combination that 
will be good for competition, consumers, and choice. And, Mr. Chairman, 
I'd like to acknowledge the employees from American Airlines and US 
Airways here in the room with us today who came to join us for the 
hearing. They are a big part of why we are here today and we are 
extremely appreciative of their support.
    This is an exciting time in the airline industry. The industry has 
transformed, placing a sharper focus on enhancing service and expanding 
choice for passengers, establishing stable and prosperous careers for 
employees, and partnering with airports and communities to better serve 
our mutual customers. Also, 2012 was one of the best years yet for 
domestic airlines in terms of safety and operational performance, and 
that's something we can all be proud of.
    Only 10 years ago, our focus and results were starkly different as 
the airline industry was struggling to recover from the tragic events 
of 9/11. At the time, I was working as CEO of America West, a small 
Phoenix-based airline. At America West, like at all the other airlines, 
we were anxious to get back on our feet, we wanted to encourage more 
people to fly and create better opportunities for our employees. To 
adapt to the changing world and to become a stronger competitor, we 
merged with US Airways in 2005, creating an airline that could attract 
more customers than we could independently, while maintaining a cost 
advantage over some of our larger competitors. That merger worked very 
well. We were able to combine two carriers that likely could not have 
independently survived the enormous industry loss years of 2008 and 
2009 into a stronger competitor that in 2012 produced record profits 
and had the highest shareholder return of any company in the Fortune 
500. The merger resulted in more consumer choice and saved over 30,000 
jobs.
    But the industry continued to evolve in response to consumer demand 
for bigger and better networks. Delta merged with Northwest, United 
merged with Continental, and Southwest merged with AirTran. We at US 
Airways were cognizant of that trend, but while we worked to meet our 
customers' demands for broader networks, we were unable to participate 
in the series of mergers. Until now.
    Earlier this year, we announced a merger agreement with American 
Airlines. We are very excited about what that means for our customers, 
our employees, our investors, and the communities we each serve. The 
combination of American and US Airways will create a new, more 
competitive global airline. We will be roughly the same size as United 
and Delta, and better able to compete with each of those airlines. 
Altogether, we will have less than 25 percent of domestic available 
seat miles.
    The decision to merge was driven by the unparalleled benefits 
derived from integrating our two networks. Once combined, the new 
American Airlines will operate over 1,500 aircraft, employ more than 
100,000 employees and serve more than 300 communities around the world. 
We have conservatively estimated that we will expand our passenger base 
by over 2.6 million travelers each year and generate over $1 billion in 
annual net synergies from increased revenues delivered by our combined, 
enhanced network and cost reductions from scale and elimination of 
duplicative systems.
    We have no illusions--this will not be easy. The U.S. domestic 
airline industry is, and will remain, extremely competitive. There are 
two other large network airlines--both of which are themselves products 
of recent mergers--that already have a head start. Plus, there are a 
number of fast growing, low-cost airlines. Internationally, the 
marketplace is equally competitive with two other global alliances, 
both larger than the oneworld alliance that US Airways will join as a 
result of the merger, and a host of other airlines competing, some with 
the support of governments. But the combination of American and US 
Airways, and the enhancement of the oneworld alliance, will allow us to 
compete more successfully in both domestic and international markets.
    More than ever, consumers want the ability to reach a broad range 
of destinations, whenever they want, on one airline system. Because of 
the limited size and scope of our respective networks, neither American 
nor US Airways is able to respond fully to that demand and both operate 
at a competitive disadvantage to the larger networks of Delta and 
United. The merger will join two highly complementary networks across 
the globe, filling critical competitive service gaps for each airline, 
and create a better and more competitive alternative for consumers.
    A broader airline network is better for passengers because it gives 
them more choices, a wider variety of services, and more competition on 
more routes. The network is able to provide these choices and services 
because it aggregates demand that independently cannot support 
profitable service, but collectively can do so. Adding more origins and 
destinations to hubs has an exponential effect on the number of 
possible routings served by a network, the number of passengers that 
can be served, and the ways that they can be served. For example, this 
merger will improve service between Madison, Wisconsin and Columbia, 
South Carolina and between Rochester, Minnesota and Burlington, 
Vermont. It is these benefits which we seek to provide to passengers by 
combining the complementary networks and nine hubs of American and US 
Airways. And by providing those benefits, the new American will enhance 
competition.
    Consumers will benefit from this enhanced competition. The new 
American--a better airline with a significantly expanded network, on a 
sound financial footing--will challenge our competitors and offer the 
flying public more and better travel choices including service to 336 
destinations in 56 countries. Also, we expect to compete fiercely for 
travelers' loyalty with the first and best mileage rewards program, 
AAdvantage. When we merge programs we will provide our customers the 
opportunity to earn and redeem rewards across more destinations in a 
much larger network, especially in desirable international locations. 
Importantly, we will keep the iconic American Airlines brand.
    Nationally, the merger will join two highly complementary networks, 
filling critical gaps for each carrier and enabling us to bring 
heightened levels of service to those communities that neither airline 
could afford to provide on its own. The number of passengers 
benefitting from the existing combination of service will grow as 
communities receive new online connecting service. Domestically, 
American currently serves 48 cities not served by US Airways and US 
Airways serves 64 cities not served by American. The superior combined 
network will create over 1,300 new connecting routes, benefitting 
millions of passengers. In particular, US Airways will fill American's 
and oneworld's critical network gaps in the Northeastern and 
Southeastern United States allowing passengers access to American's and 
oneworld's systems, and American's and oneworld's passengers more 
convenient access to those populous regions. Likewise, American will 
fill US Airways' network gaps in the Central United States with the 
unique cities served from its Chicago and Dallas hubs and provide US 
Airways' passengers expanded international travel opportunities.
    We will remain committed to extensive service to small-and medium-
sized communities throughout our merged network and, where appropriate, 
we expect to increase such service and add destinations. US Airways 
historically has provided extensive service to smaller communities and 
the merger will allow us to continue to extend that focus, building on 
complementary service offered by American Eagle. Almost all of the 64 
cities currently served by US Airways and not served by American are to 
small-and medium-sized communities. Many of these communities, over 
time, will be candidates for service to American's hubs. The new 
American Airlines will therefore give passengers in small-and medium-
sized communities better connecting options, and service to more places 
than ever before at more convenient times.
    Some of the new connecting opportunities involve cities familiar to 
this Committee such as Melbourne, Florida to Lubbock, Texas and 
Springfield, Missouri to Roanoke, Virginia.
    The best example of our commitment to smaller communities is our 
service to and from the Nation's Capital. Because we have been able to 
build a robust slot portfolio, US Airways currently serves 40 small-and 
medium-sized communities from Reagan National Airport. No other airline 
at Reagan provides any significant service to smaller communities, such 
as Charleston, West Virginia and Des Moines, Iowa. At DCA our customers 
benefit from access to and from a wide number of small cities and we 
are committed to small city service for the long term.
    We have our work cut out for us, but I believe that great things 
are ahead for the new American Airlines, our dedicated employees, our 
customers, and the communities we serve. This merger has received an 
unprecedented level of labor support, reflecting the confidence that we 
and our employees have in our ability to deliver on the promise that 
this combination offers. Our customers and the communities we serve 
will be the primary beneficiaries of this merger, a fact acknowledged 
by civic and business leaders across our two systems. We will only 
benefit if we can bring improved service to our customers. And we can. 
The new American will be a stronger and better competitor. We will 
bring more and better service to more destinations than ever before. We 
will offer competitive prices and convenient travel times. We will 
remain committed to all communities--large and small. We are excited 
about the opportunities that the merger brings and are looking forward 
to what lies ahead.
    Thank you. I would be happy to take any questions.

    Senator Cantwell. Thank you.
    Mr. Kennedy, welcome.

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

    Mr. Kennedy. Thank you. Chairman Cantwell, Ranking Member 
Ayotte, and members of the Committee, thank you for the 
opportunity to testify today.
    As General Counsel of American Airlines, I have been 
intimately involved in both the Chapter 11 restructuring of 
American and the proposed merger between our two companies. I 
am pleased to announce that we are quickly approaching the end 
to the most successful restructuring in the history of the 
airline industry. Our plan of reorganization, which is based on 
the announced merger with US Airways, promises to be a 
tremendous success for all constituencies.
    Our unsecured creditors will receive equity in the new 
American with the potential to receive a full recovery of their 
claims. Our current shareholders will also receive valuable 
equity stake in the new company, a result that is highly 
unusual in any restructuring, but one that reflects the 
enormous value of the proposed merger that we have created.
    Our union employees will also receive a significant 
percentage of the equity in the new company, and they have 
negotiated post-merger pay benefits and work rules that are far 
superior to those imposed by other airlines exiting bankruptcy. 
The enthusiasm among our work groups for this merger will be a 
powerful driving force behind the new American for years to 
come.
    And finally, but certainly not least, our customers stand 
to benefit greatly. The new American Airlines expects to win 
more business from passengers here at home and across the 
globe, and winning that business will allow the company to 
invest in its people and its products all with the goal of 
restoring America's position as one of the world's great 
airlines.
    The path over the last decade and a half that brought 
America to this point has not been easy. The airline industry 
as a whole has seemingly lurched from crisis to crisis, 
beginning with the horrific events of September 11. Those 
events were followed by the SARS epidemic, along with an 
unprecedented run up in the cost of fuel, and the worst 
financial crisis since the Great Depression. The toll taken on 
the airline industry was amply reflected in a string of 
bankruptcy filings by our competitors.
    For most of the past decade, American charted a different 
path. In 2003, we came close to filing for bankruptcy 
protection, but we were able to negotiate new agreements with 
our labor unions. They gave us more time to find a path 
forward. However, the competitive landscape and the 
macroeconomic environment continued to change around us in ways 
that further eroded our competitive position and our financial 
strength. Despite those efforts, our losses continued to mount, 
reaching $12 billion over the last 10 years.
    In November 2011, our Board came to the painful conclusion 
that we needed to restructure our business under Chapter 11 of 
the Bankruptcy Code. Through this process, we streamlined our 
management structure, renegotiated our financial obligations, 
and reached new agreements with our labor unions. One of the 
most important objectives we achieved was to freeze, rather 
than terminate, our employee pension plans. As a result, 
American expects to fulfill those obligations rather than 
unload them on the PCGB as other airlines have done.
    Of course, the exit door from Chapter 11 is a plan of 
reorganization, and our plan, which is nothing short of 
historic in what it accomplishes, is built around a merger with 
US Airways. The combination puts together two highly 
complementary networks with minimal loss of competition, and 
creates a network that consumers will find substantially more 
attractive than American standing alone can produce.
    American and US Airways are under no illusions that mergers 
are easy or seamless. Both companies are keenly focused on 
using the lessons from prior mergers to maximize value and 
minimize disruptions. This merger is good news for everyone 
except our competitors. The new American will lift the 
competitive bar in a highly competitive U.S. airline industry, 
and this merger will position the company to accomplish great 
things for its employees, its customers, and its shareholders.
    Thank you for the opportunity to testify. I will be happy 
to take questions.
    [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 Cantwell, Ranking Member Ayotte and members of the 
Subcommittee, thank you for the opportunity to testify today about the 
proposed merger of American Airlines and US Airways.
    As General Counsel of American Airlines, I have been intimately 
involved in both the Chapter 11 restructuring of American and the 
proposed merger between our company and US Airways. I am pleased to 
announce that we are quickly approaching the end to the most successful 
restructuring in the history of the airline industry. Our plan of 
reorganization, which is based on the announced merger with US Airways, 
promises to be a tremendous victory for all constituencies. Our 
unsecured creditors will receive equity in the new American with the 
potential to receive a full recovery on their claims. Our current 
shareholders will also receive a valuable equity stake in the new 
company, a result that is highly unusual in any restructuring, but one 
that reflects the enormous value the proposed merger has created.
    Our unionized employees will also receive a significant percentage 
of the equity in the new company, and they have negotiated post-merger 
pay, benefits, and work rules that are far superior to those imposed by 
other airlines exiting bankruptcy. The enthusiasm among our work groups 
for this merger will be a powerful driving force behind the new 
American for years to come. Finally, but certainly not least, our 
customers stand to benefit greatly. The new American expects to win 
more business from passengers here at home and across the globe, and 
winning that business will allow the company to invest in its people 
and its products, all with the goal of restoring American's position as 
one of the world's great airlines.
    The path over the last decade and a half that brought American to 
this point has not been easy. The airline industry as a whole has 
seemingly lurched from crisis to crisis, beginning with the horrific 
events of September 11. Those events were followed the SARs epidemic, 
along with an unprecedented run up in the cost of fuel, and the worst 
financial crisis since the Great Depression. The toll taken on the 
airline industry was amply reflected in a string of bankruptcy filings 
by our competitors.
    For most of the past decade, American charted a different path. In 
2003, we came close to filing for bankruptcy protection, but we were 
able to negotiate new agreements with our labor unions which reduced 
our costs and bought us more time to find a path to financial 
stability. However, the competitive landscape and the macro-economic 
environment continued to change around us in ways that further eroded 
our competitive position and our financial strength. In 2001, American 
was the largest airline in the world. However, the mergers of Delta and 
Northwest, United and Continental, and Southwest and AirTran, moved 
American from the largest to the fourth largest airline in terms of 
U.S. domestic passengers. And, 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, but inevitable, 
conclusion that we needed to restructure our business under Chapter 11 
of the Bankruptcy Code. Through this process, we streamlined our 
management structure, renegotiated our financial obligations, leases, 
and contracts, and reached new agreements with our unions, including 
long-term agreements that will become effective once American has 
successfully merged. One of the most important objectives we achieved 
was to freeze, rather than terminate, our employee pension plans. As a 
result, American expects to fulfill those obligations, rather than 
unload them on the PBGC, as other airlines have done.
    Of course, the exit door from Chapter 11 is a Plan of 
Reorganization, and our plan--which is nothing short of historic in 
what it accomplishes--is built around a merger with US Airways. We have 
conservatively estimated that by 2015 revenue and cost synergies will 
outweigh cost dis-synergies by over $1 billion. The combination puts 
together two highly complementary networks, with minimal loss of 
competition, and creates a network that consumers, of all types, will 
find substantially more attractive than the network American, standing 
alone, could produce. The combined network will be comparable in size 
to the networks of United and Delta, which have both used bankruptcies 
and mergers of their own to leapfrog American.
    American and US Airways are under no illusions that mergers are 
easy or seamless. Both companies are keenly focused on using the 
lessons from prior mergers to maximize value and minimize disruptions. 
This merger is good news for everyone except our competitors. The new 
American will lift the competitive bar in an already highly competitive 
U.S. airline industry, and this merger will position the company to 
accomplish great things for its employees, customers and shareholders.
    Thank you again for the opportunity to testify today.

    Senator Cantwell. Thank you very much.
    Mr. Leocha?

           STATEMENT OF CHARLES A. LEOCHA, DIRECTOR, 
                    CONSUMER TRAVEL ALLIANCE

    Mr. Leocha. Chairwoman Cantwell, Ranking Member Ayotte, and 
other members of the Subcommittee, my name is Charlie Leocha. I 
am the Director of the Consumer Travel Alliance. We, the 
passengers, thank you for a place at this hearing.
    About 3 years ago I sat here before the full Commerce 
Committee to discuss the merger of United and Continental. I 
reread that transcript and noticed the same rationale for 
merger then as now, almost word for word. But this time, there 
are enormous differences.
    During the previous mergers, the airline industry was under 
severe financial stress. Today the airline industry is 
thriving. The two airlines sitting before you are in their best 
positions in years, even without any merger. Both can fly on 
their own wings. Their CEOs have both confirmed that.
    We, the passengers, need your careful examination of this 
merger from a consumer's point of view. Number one, competition 
will be clobbered. A study done by the Consumer Travel Alliance 
showed that we, the passengers, in 38 out of 50 states will 
lose significant airline competition. The recent GAO report 
released today is even more dramatic. On 1,665 connecting 
markets, effective competition will be reduced.
    Two, prices will go up. In past mergers, we the people have 
faced price increases three times more than the norm where 
airlines have any semblance of market control. Now with fees, 
airlines have already acted. Only last month, the big four 
airlines raised the change in fees from $150 to a whopping 
$200, even when these two airlines sitting before you were 
faced with antitrust hearings, and one of them was raking in 
record profits. We, the passengers, have no power to even vote 
with our wallets when the legacy carriers raise their fees in 
concert like that. These are the kinds of avaricious fees that 
require competition, not more power for the airlines.
    Three, airports will suffer. Overlapping routes mean 
airports are in danger. Airports like Boston, Bradley, Seattle, 
San Francisco, Fresno, Minneapolis, San Antonio, Orlando, and 
others are all in danger of right sizing. That is airline speak 
for layoffs and service cuts. Every Senator here will see her 
or his state lose competitive airline service, and many 
airports in their states will face layoffs as the airlines 
consolidate. Some hub airports will be downsized. If I was from 
Arizona, North Carolina, Pennsylvania, or Florida, I would 
never vote to approve this merger.
    Number four, there are no significant benefits for 
consumers. Most airline mergers claim big financial synergies 
or big benefits for we, the passengers. This merger does 
neither.
    Five, passengers will suffer. With every merger, massive 
computer glitches delay thousands and thousands of airline 
passengers. This merger will be the same if history is to bear. 
And on planes, American Airlines has already announced that 
they are moving their seats closer together. That is what we 
can expect.
    Combining American Airlines and US Airways brings together 
two of the worst airlines for customer service according to the 
American Customer Satisfaction study. Bad plus bad equals 
worse, not better.
    Finally, on labor issues, they will bog down the merger. 
Any promises about labor peace are pie in the sky, and bad 
labor relations translates to bad customer service. This merger 
will see coming labor unrest. After eight years, as we sit at 
this hearing, US Air pilots are still not integrated, and their 
flight attendants were only united a couple of months ago. For 
them to promise anything different today cannot be believed.
    And within American Airlines, TWA flight attendants have 
been battling to reclaim their shamefully stolen seniority. Mr. 
Parker and the American Airlines flight attendant unions should 
sort out this date of hire disgrace.
    In conclusion, there are no benefits overall. Consumers 
will dramatically lose competition. Air fares will go up, 
airport service may be reduced, consumers will suffer during 
the merger integration, and there is no magic union peace. How 
many times does Congress, the government, and the airlines have 
to do the same thing over and over, again expecting different 
outcomes? It is time to stop this merger madness and do what is 
best for consumers and the free market. We, the passengers, are 
depending on you, our representatives.
    I am ready for any questions.
    [The prepared statement of Mr. Leocha follows:]

          Prepared Statement of Charles A. Leocha, Director, 
                        Consumer Travel Alliance
    The Consumer Travel Alliance objects to this proposed merger of 
American Airlines with US Airways for the following reasons--

   There is no need for this merger.

   There are no overall benefits to consumers from this merger.

   The aviation system will dramatically lose competition and 
        see fares and fees rise.

   Airline service may be reduced.

   Consumers will suffer during the merger process.

   Labor issues will continue to be a factor affecting customer 
        service.

    Members of this subcommittee need to ask whether this merger will 
benefit their constituents. The simple answer is: no.
    When this merger is examined, no matter how you dress it up, 
competition will be reduced, consumers will ultimately have fewer 
choices, they will have to bear the burden of merging operations and 
labor unions, and will enjoy no net gains in destinations.
Antitrust is designed to protect consumers
    Let's start with the basics. Antitrust protections are designed to 
protect consumers from the effects of oligopolies and monopolies. These 
laws were passed in order to ensure competition in the marketplace. The 
leaders from US Airways and American Airlines are asking you to ignore 
their prima facie assault on competition. They're hoping you overlook 
the results of two previous mergers, which created enormous problems 
for consumers.
    When this merger was proposed, statements from both US Airways and 
American Airlines would have you believe that there was virtually no 
competition, the routes were ``complementary,'' and that the only 
semblance of competition was on 12 overlapping non-stop routes. Later 
in the testimony, we will point to studies that show dramatic route 
overlap--as much as 40 percent of the current American Airlines 
connecting routes and 30 percent of US Airways routes compete head-to-
head with each other. Consumers will lose that competition.
There are no net benefits for consumers
    Overall, consumers will see no new routes or improved service that 
couldn't be achieved without a merger. In addition, frequent flier 
programs will be upended and businesses near current airline hubs may 
face cutbacks in airline service. Whatever ``benefits'' claimed by 
better US Airways/American Airlines connectivity and frequent flier 
choice will come at the expense of the current US Airways/United 
airline alliance service and frequent flier programs. What this merger 
purports to give with one hand, it takes from consumers with the other.
1. No compelling economic reason for this merger
    This merger is unique in the airline industry among recent mergers. 
In the past, one of the major airlines being merged has always been in 
financial distress. Delta merged with cash-strapped Northwest. 
Continental merged with struggling United. American West merged with 
bankrupt US Airways. Plus, the airline industry was losing money hand-
over-fist.
    In this case, neither airline is in danger of collapse--US Airways 
just reported a record profit and American Airlines, having just made 
aviation's largest aircraft order, will emerge from bankruptcy with 
billions of dollars in the bank with its labor costs slashed through 
the bankruptcy process. Its CEO, Tom Horton, has repeatedly claimed 
that American Airlines would be able to stand alone after emerging from 
Chapter 11.
    It is only because of the intensely poor labor relations, where 
American Airlines' unions united in their mantra (``Anything but the 
current management would be an improvement'') that Mr. Parker, CEO of 
US Airways, managed to turn the American Airlines board of directors in 
favor of the merger. Otherwise, American Airlines was predicting that 
bondholders and most stakeholders other than stockholders would be made 
almost whole.
    Remember, these bonds and the commercial paper are held by seasoned 
investment professionals. American Airlines' woes were well-publicized. 
There is no reason for this committee, whose purpose is to protect 
consumers against the loss of competition, to be concerned with 
financial stakeholders. That is the job of the bankruptcy court, not 
the U.S. Senate or the Department of Justice.
    With past mergers, the aviation system was at a tipping point. 
Today, that is not true. The antitrust laws and review need to be used 
to benefit consumers, not to make creditors whole. That is a basic 
difference between antitrust and bankruptcy issues.
Consumer score: No consumer benefit
2. No discernible consumer benefits from this merger
    This merger brings no new routes, no new competition, no savings 
that can be passed on to consumers. Even if there were significant 
savings created by synergies in this merger, they would be overwhelmed 
by the negative consequences of higher airfares and reduced 
competition.
    Past testimony from Mr. Parker and Mr. Horton alludes to new 
destinations and better connections between American Airlines 
destinations and US Airways destinations. However, their testimony and 
statements conveniently exclude the current connections that are 
offered between United destinations and US Airways destinations by 
virtue of their airline alliance arrangements. When Mr. Parker claims 
new connections between US Airways and American Airlines destinations, 
there is no evidence to suggest that there will be any improvement in 
route connections over those already provided by these carriers' 
current alliance arrangements.
    When looking at the international routes, airline alliances and 
destinations, the changes for current US Airways customers are bleak. 
They will be exiting the Star Alliance that has 1,329 destinations 
served by 28 member airlines and will be affiliating with the Oneworld 
Alliance that serves 850 destinations by 13 member airlines.\1\ This 
will be a dramatic cut of 479 destinations that are today available to 
current US Airways passengers.
---------------------------------------------------------------------------
    \1\ http://en.wikipedia.org/wiki/Airline_alliances
---------------------------------------------------------------------------
    When this committee looks at whether customers will enjoy 
additional destinations or not, take into account the dismantling of 
Star Alliance frequent flier and code-share partnerships that will harm 
millions of passenger because of reduced destinations.
    American Airline passengers may see some benefits of additional 
destinations; however, overall, 46 million members \2\ of the Star 
Alliance will see a reduction in their available destinations and 
frequent flier mileage options.
---------------------------------------------------------------------------
    \2\ Ibid.
---------------------------------------------------------------------------
Consumer score: Consumers receive no net benefit and possibly lose 
        destinations
3. Lost route competition across airlines will harm consumers
    The total number of national, domestic carriers will be reduced 
from five to four--a 20 percent reduction. Consumers will be faced with 
less choice, less service, fewer non-stop flights and higher airfares.
    A study commissioned by the CTA found that competition will be 
clobbered in 38 out of 50 states by this merger. The CTA study \3\ 
showed that 761 routes between domestic airports overlap between these 
two airlines. Forty percent of American Airlines' routes face daily 
competition from US Airways and 30 percent of US Airways' routes face 
competition from American Airlines. A recently completed GAO study 
echoes these findings and shows the loss of competition and dramatic 
number of overlapping routes.
---------------------------------------------------------------------------
    \3\ See Appendix B



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    
    Though the new American Airlines message is that there are only 12 
non-stop overlapping routes, the real competition between hub-and-spoke 
airlines comes via connecting routes. Hub-and-spoke systems live and 
die through connecting routes.
    For example, take a passenger deciding between airlines flying from 
Seattle, Washington, to Austin, Texas. Currently, American Airlines and 
US Airways compete vigorously on this route--US Airways connects via 
Phoenix, Arizona, and American Airlines connects via Dallas, Texas.
    Another example might be passengers flying between Hartford, Conn., 
and Phoenix, Arizona. They would fly via Dallas on American Airlines 
and connect in Philadelphia if flying on US Airways.
    Even where one airline may have non-stop service and the other 
features connecting service, many passengers choose to fly on a 
connecting flight because the prices are normally lower in most 
markets.
    Furthermore, consumers will lose from the perspective of price 
competition. The system of ``signaling'' airfare increases only 
requires one airline belonging to the ``Big 5'' (American, Continental, 
Delta, Southwest and US Airways) to decline to participate in an 
airfare increase. When all the majors do not agree, tested airfare 
increases are rolled back. Several years ago, there were seven airlines 
in this fare-setting universe. If the American Airlines/US Airways 
merger is approved, we will only have four domestic airlines 
participating and, effectively, only three international airline 
alliances (protected by antitrust immunity and operation joint 
ventures). Airline passengers will, on balance, lose 20 percent of 
their competition dynamic with this merger.
    According to the Wall Street Journal,\4\ ``When two competitors 
combine to dominate prime routes, those markets tend to bear the brunt 
of higher prices.'' The effect on airfares has been brutal.
---------------------------------------------------------------------------
    \4\ Wall Street Journal, April 10, 2013 http://online.wsj.com/
article/SB100014241278873240
10704578414813368268482.html

        Consider United Airlines and Continental Airlines, which used 
        to compete for customers flying between Chicago and Houston, 
        for example. After the two airlines merged in 2010, the 
        combined company, which took the United name, now carries 79 
        percent of the traffic traveling between Houston's Bush 
        Intercontinental Airport and Chicago's O'Hare Airport, not 
        counting connecting passengers. United's average fare on that 
        route soared 57 percent in the three months ended September 
        2012 compared with the same period three years earlier, 
        according to Department of Transportation data compiled by 
        PlaneStats.com. By comparison, United's total average domestic 
        price per mile over the same three-year period went up only 16 
---------------------------------------------------------------------------
        percent.

        . . .

        Travel will change significantly for consumers on a few routes 
        served by both American and US Airways. Between Miami and 
        Philadelphia, for example, US Airways carries 54 percent of 
        travelers, according to DOT data for the third quarter of last 
        year. American has 44 percent, and a combined American-US 
        Airways will have 98 percent unless other airlines decide to do 
        battle against the behemoth.

    In testimony before the Senate Judiciary Committee's Subcommittee 
on Antitrust, Competition Policy and Consumer Rights, Diana Moss, VP, 
American Antitrust Institute, said that post-mergers, ``Fare increases 
are above average at the origin airport on 70 percent of routes 
affected by Delta-Northwest and on over 90 percent of routes affected 
by United-Continental.''
    Airlines are already effectively colluding with one another when it 
comes to capacity controls. US Airways executives have publicly stated 
that when airline industry capacity is restrained, it allows the 
industry to pass on the added costs of increased fuel prices. There are 
many ways to compete. Capacity control and price are two of them. This 
merger will make it easier to raise prices on consumers via either 
route.
    Now that airlines have created a bifurcated pricing model that 
combines airfares with ancillary fees, they can squeeze consumers with 
airfare increases or with arbitrary fee increases. A perfect case in 
point is the recent ratcheting up of the change fees on domestic 
airline tickets from $150 to $200. Even when preparing to face 
congressional and DOJ scrutiny, legacy carriers followed each other 
with this 33 percent increase. Consumers have no viable way to counter 
this heavy-handed airline fee increase, since every legacy airline 
increased these fees in concert. This raw pricing power over ancillary 
fees will only become worse with consolidation.
Consumer core: Negative--competition will be reduced and airlines will 
        find it easier to raise prices
4. Popular, mid-sized, non-hub airports like St. Louis, Fresno, Seattle 
        and Las Vegas that are at the end of ``spokes'' in US Airways 
        and American Airlines hub and spoke systems are in danger of 
        losing service as the airlines ``right-size.''



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        
    The Consumer Travel Alliance (CTA) study shows many non-hub 
airports where American Airlines and US Airways vigorously compete, 
such as Austin, Bradley, Pittsburgh, Raleigh Durham, Kansas City, San 
Diego and Las Vegas. That competition will disappear. Flights to those 
cities will be cut back should they be considered ``unprofitable 
redundancies.''
    Las Vegas and St. Louis have already taken hits from other mergers. 
They certainly do not need compounded damages. Other vibrant airports 
will face difficulties as one support company is laid off for another 
as the new American consolidates its support services. In each of these 
airports, the ancillary airport service industry will take a 
significant hit and result in unemployment and regional displacements. 
Remember, the airlines are not the only part of the economy that may or 
may not suffer layoffs; there are strong ripple effects.
    When no longer forced to compete for leisure and business travelers 
attending conventions and sales meetings, both airlines will be able to 
eliminate individual ``spoke'' flights to these airport in order to 
gain efficiencies. This will result in less service to these outlying 
airports.
Consumer score: Negative--Consumers will have less choice
5. Consumers will lose one of the most competitive national legacy 
        carriers
    US Airways has prided itself on low labor costs that have allowed 
it to compete successfully with larger rivals even while its service 
was via hubs that did not have high numbers of originating traffic. 
That labor advantage will evaporate when the merger is complete and 
prices will be forced to rise.
Consumer Score: Negative consumers get less choice and less competition
6. Consumer harm in addition to increased airfares are the norm with 
        recent mergers
    Post-merger system integration problems plagued the Delta/Northwest 
and the Continental/United mergers. While the airline management rakes 
in merger bonuses, consumers are the ones who bear the brunt of post-
merger integration service problems. With prior mergers, these issues 
have created major problems for passengers. DOJ should analyze the 
performance of previous mergers, their post-merger problems and the 
erosion of consumer choice and competition.
    The problems with integration of United Airlines and Continental 
has resulted in what Jim Compton, COO of United Continental Holdings, 
called a ``dis-synergy.'' \5\
---------------------------------------------------------------------------
    \5\ CNBC Stock Blog, The Street, Friday, 25 Jan 2013

        United executives reiterated Thursday that not only did the 
        merger bring higher cost and lower revenue in 2012, but also 
        labor costs will rise in 2013 as a result of new contracts that 
---------------------------------------------------------------------------
        resulted at least partially from the merger.

        On the United call on Thursday, CEO Jeff Smisek called 2012 
        ``the toughest year of our merger integration'' and said, ``We 
        are absolutely not satisfied with the financial results we 
        produced last year.''

        In its summer schedule, United sought for the first time to 
        fully merge operations of the two airlines. Operational 
        performance plummeted, reaching a low in July when the 
        carrier's 64 percent on-time arrivals rate was the worst in the 
        industry. Problems included the introduction of new fleet types 
        in various stations, unaccompanied by the introduction of 
        appropriate jet bridges; a series of computer glitches; and a 
        reduction of the number of spare aircraft in the fleet. One 
        result of the latter miscalculation: in the second week of 
        July, 300 passengers were stranded in Shanghai for three days.

    The Delta/Northwest merger also resulted in a similar ``dis-
synergy.'' \6\
---------------------------------------------------------------------------
    \6\ Ibid.

        Delta, for instance, had the worst on-time record among major 
        carriers in 2010. Delta shares, which traded near $11 when the 
        merger was announced in April 2008, spent almost all of 2009 
        trading in the single-digits and fell as low as $3.51 in March 
---------------------------------------------------------------------------
        2009. Analysts kept saying, ``They need more time.''

    Should this merger be approved, the exact same events will probably 
occur.
    While the pain in past mergers may have been necessary to save the 
airline industry from devastating financial losses, there is no such 
condition now. In the case of this merger, there is no compelling 
national reason to merge--no airline is in danger of failing--but, 
there is a compelling case, according to both the CTA and GAO studies, 
to be made that competition will be lost.
Consumer score: Negative--Coming reservation hassles are the norm. 
        Every merger has had to deal with these problems. This merger 
        will be no different. Airline consumers will suffer
7. Some hub cities may suffer as a result of mergers
    Past mergers have seen once-vibrant hubs disappear. St. Louis 
airport is a ghost town compared to when it was a hub for TWA. After 
American acquired TWA's assets in 2001, the merged airline's daily 
departures out of TWA's former hub in St. Louis plunged from nearly 500 
down to just 36.
    Reno, Nevada, was abandoned by American Airlines. Cincinnati has 
shut down several of its terminals because of cutbacks from Delta. 
Cleveland was forced to negotiate a separate agreement with 
Continental/United to keep its hub operating temporarily. And, only a 
few weeks ago Delta abandoned Memphis as a hub after vowing to maintain 
their post-merger-with-Northwest service.\7\
---------------------------------------------------------------------------
    \7\ Fox News http://www.foxnews.com/travel/2013/06/05/delta-air-
lines-dropping-memphis-as-hub-airport-this-fall-will-cut-230-jobs/
---------------------------------------------------------------------------
    With this merger, Charlotte may lose much of its international 
service--Latin American service may shift to Miami and European service 
to JFK and Philadelphia.
    On the other hand, Mr. Parker, the incoming CEO, is committed to 
cost savings that have, in part, resulted in Charlotte, NC, being the 
lowest-cost major airport in the Nation.\8\ With Miami Airport rating 
as one of the more expensive airports in the country and one of the 
airports with the worst customs and border protection service, 
Charlotte may end up the winner. There are no promises either way.
---------------------------------------------------------------------------
    \8\ CharlotteObserver.com http://www.charlotteobserver.com/2013/04/
05/3962857/study-costs-primary-driver-behind.html
---------------------------------------------------------------------------
    Phoenix as a hub may disappear as Los Angeles and Dallas would 
absorb much of its traffic. It will still be an important airport for 
US Airways, but its service levels may dip below those of its main 
local competitor, Southwest Airlines, in the not-too-distant future.
    This shift away from once-important hubs harms both small and large 
communities and citizen-funded airports, adds to unemployment woes and 
drains government funding. These are all possibilities of this merger 
with no compelling counter argument for the public good.
Consumer score: Negative--This is what mergers are all about, squeezing 
        synergies from the operating systems. In this case no public 
        good is proffered to mitigate possible economic damages
8. The airline industry will enter the too-big-to-fail world
    With the airline industry consolidated to four domestic airlines 
and three international airlines, the specter of massive airlines that 
affect too much of our Nation's economy will come into focus.
    This is a two-edged sword. The too-big-to-fail reality will also 
provide the unions negotiating with these big airlines more power with 
their ability to disrupt the national economy.
Consumer score: Negative--Both big airlines and big unions can hold the 
        economy hostage. With this development, all taxpayers will have 
        to pay for a possible government bailout
9. A multiplication of labor issues and higher labor costs
    For more than half-a-decade, US Airways has operated with its labor 
force of pilots and flight attendants divided into the America West 
group and the US Airways side. Over the past few years, American 
Airlines has faced some of the most contentious labor strife of any 
airline. Putting these three competitive groups of workers together--
former America West, former US Airways and American Airlines--will be a 
challenge to say the least.
    Mr. Parker has already announced that new contracts with a unified 
workforce would increase the US Airways' costs and erode much of the 
airline's current cost advantage that has allowed the carrier to grow 
and profit. These additional costs can only be paid for with an 
increase in airfares and/or fees.
    Though US Airways and American Airlines have announced that the 
merger has the support of their unions, that support is only skin deep 
and union peace only has been declared until the merger is consummated. 
(The inter-union ceasefire is fraying.)

   Pilots: The CTA has heard from USAPA pilots who have not 
        agreed to the current Memorandum of Understanding signed by 
        American Airlines pilots. Disagreements between pilots' unions 
        are baked into the merger cake. As these hearings are being 
        held, Mr. Parker has not been able to bring the pilots' union 
        from American West under a common contract with pilots from the 
        old US Airways. That American West/US Airways merger took place 
        back in 2005, about 8 years ago. For Mr. Parker to declare 
        union peace and agreement with the merger is only a partial 
        truth as far as pilots are concerned.

   Flight Attendants: Only in the last few months have flight 
        attendants from America West and US Airways agreed how to merge 
        their seniority lists. The two, once-separate groups are only 
        now getting comfortable (or uncomfortable) with the new 
        contract. During a visit to Phoenix for US Airways Media Day, I 
        had the opportunity to speak with many former America West 
        flight attendants who are not happy with the new contract and 
        doubtful about the merger. According to sources, there will be 
        a battle between the much larger overall Association of Flight 
        Attendants (AFA--representing US Airways) and the Association 
        of Professional Flight Attendants (APFA--representing American 
        Airlines).

    Ex-TWA flight attendants who were ``stapled to the bottom of the 
        American Airlines flight attendant seniority list'' are 
        fighting for their proper positions in the new American 
        Airlines. Their original TWA dates of hire are still preserved 
        by American Airlines. The computer can combine the names in 7 
        seconds.\9\
---------------------------------------------------------------------------
    \9\ See Appendix C

   Machinists: his union is in the midst of an open battle for 
        representation between the Teamster Union and the Transport 
        Workers Union.\10\
---------------------------------------------------------------------------
    \10\ Tompson Reuters May 5, 2013 http://
newsandinsight.thomsonreuters.com/Legal/News/2013/05_-_May/
Teamsters_union_seeks_to_displace_union_at_American_Airlines/

    Bottom line: Union peace is far from certain. When there are poor 
management/union relations or union vs. union disruptions, consumers 
suffer. This latest survey of the American Customer Satisfaction ranked 
US Airways and American Airlines dead last among major airlines.\11\ 
Notably, both of these airlines have the most union unrest among major 
airlines.
---------------------------------------------------------------------------
    \11\ American Customer Satisfaction IndexTM http://
www.theacsi.org/?option=com_content&
view=article&id=147&catid=14&Itemid=212&i=Airlines
---------------------------------------------------------------------------
Consumer score: Negative--Reducing the number of remaining carriers can 
        only further aggravate the consequences to be felt by the 
        public. Higher labor costs translate to more expensive 
        airfares. Poor labor relations result in low customer service 
        rankings
Conclusions
   There is no need for this merger.

   There are no net benefits to consumers from this merger.

   The aviation system will dramatically lose competition.

   Airline service may be reduced at both hub and non-hub 
        airports.

   Consumers will suffer during the merger process.

   Labor issues will continue to be a factor affecting customer 
        service.

    It is the role of Congress and DOJ to protect the American public 
from loss of competition. In the past that loss was mitigated by 
financial benefits to the airline systems and, thus, the economy and 
the public. This merger comes with no such apocalyptic backdrop and 
with no clear benefits to consumers.
    The only clear and present result will be a loss of competition 
among the major airlines. That will not be good for the American 
public, American business and the American economic system.
Consumer Travel Alliance
    The Consumer Travel Alliance (CTA) is a nonprofit, nonpartisan 
organization that works to provide consumers an articulate and reasoned 
voice in decisions that affect travel consumers across all of travel's 
spectrum. CTA's staff gathers facts, analyzes issues, and disseminates 
that information to the public, the travel industry, regulators and 
policy makers.
                               Appendix A
             Possible Competition and Free-Market Remedies
    With some substantive aviation policy changes such as these, 
consumers may receive something positive out of this transaction.

   Slot divestiture at DCA and LGA

   Airline ancillary fee transparency

   Cabotage, with Essential Air Service carve-outs

   Customer service improvements

    1. Divestiture of slots at slot-controlled airports. Most of these 
divested slots should go to low-cost carriers and new entrants. Gates 
and counter space should be made available to airlines that choose to 
compete with the entrenched carriers at these slot-controlled airports. 
This will provide some semblance of new competition, especially at 
Washington, DC.
    While US Airways and American Airlines argue that competition in 
the nation's capital region is strong with three airports--Dulles, 
Baltimore-Washington and Reagan-National--the new American Airlines 
will control 67 percent of the slots at DCA.
    Representatives of the new American Airlines have been lobbying 
furiously on The Hill, warning many members that small communities may 
lose service to Ronald Reagan Washington National Airport (DCA) if slot 
controls are changed. However, that small-airport service can just as 
well feed into one of the other Washington-region airports. New rail 
connections and the bus/metro connections (as well as the coming 
extension of the DC Metro to Dulles) make reaching Baltimore Washington 
Marshall Airport (BWI) and Dulles International Airport (IAD) easier 
than ever.



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Plus, their use of those slots shows a preponderance of smaller 
regional jets used in order to maintain their slot supremacy. A study 
prepared by Southwest Airlines notes that US Airways' aircraft size at 
DCA is smaller than any airline at any other U.S. hub.
    Take-off and landing slots are a national resource that should be 
used efficiently. CTA has been arguing for better use of these slots 
since the deliberations over the slot swap between Delta and US 
Airways. A redistribution of these slots, resulting in a reduction of 
merged carrier's domination of DCA (to less than 50 percent of the 
operations), would serve the greater consumer good and instill 
competition into the DCA airport market.
    Redistributing some of the smaller airport markets to either BWI or 
IAD will not be a major inconvenience to passengers and will allow more 
citizens to travel in and out of DCA.
    At New York LaGuardia airport, this merger will result in 77 
percent control of that airport by new American Airlines and Delta. No 
low-cost carriers will have more than five percent of the slots. An 
example of changes that come into effect when efficient low-costs 
carriers are allowed to compete with legacy carriers at airports 
formerly closed to them because of slot controls can be easily seen at 
Newark. When Southwest acquired divested slots at Newark Liberty 
Airport, Southwest airfares were reduced by 13 percent and passenger 
loads out of the airport increased by 36 percent, while other Newark 
fares rose 10 percent.
    2. Airlines must disclose all ancillary fees through all channels 
where they choose to sell airline tickets. If competition is wrung out 
of the airline system through this merger, Congress can put competition 
back into the system by mandating that airlines disclose ancillary fees 
to travel agents so that passengers can easily comparison shop across 
airlines. Consumers should also be allowed to purchase any ancillary 
services and pay any ancillary fees at the time of booking either 
through airlines or travel agents.
    It is about time that a family traveling can note that they are a 
four-member family that will be carrying on four bags, checking two 
bags and want to sit together in one row. Technology has already been 
demonstrated to the Advisory Committee for Aviation Consumer 
Protections last year that shows that the airfares plus ancillary fees 
can be compared easily. The only barrier to this kind of pricing 
transparency is the airlines' refusal to disclose their ancillary fee 
data in a dynamic way that can be used by travel agents.
    The market system only thrives when prices are transparent and 
comparable across airlines. This is the only way that effective full 
price competition can flourish. Price competition becomes more 
important as the number of competing airlines is reduced.
    Without full and dynamic extra fee disclosure, consumers have no 
hope of comparing all-in prices across airlines--prices that include 
airfare plus baggage and seat reservation fees. If all ancillary fees 
are fully disclosed in a dynamic fashion, software from third parties 
will eventually allow comparison of the full cost of travel across 
airlines. Such a change would allow passengers to bundle their own 
airfare and compare prices before they purchase airfares.
    Plus, passengers should be able to purchase airfares and any extra 
fees at any place that the airlines choose to sell airline tickets. 
This stops the present airline practice that forces passengers who buy 
airline tickets from travel agents to later purchase extra services 
directly from the airlines.
    3. Congress should review the ban on allowing foreign carriers to 
serve domestic routes. As the domestic line-up of carriers shrinks and 
as domestic carriers abandon smaller airports, foreign carriers could 
offer service to smaller airports as a way to guarantee essential air 
services.
    When a consolidated airline industry does not provide competition, 
new competition may need to be injected into the model. Plus, foreign 
competition can be used to create service to essential air service 
(EAS) airports in return for access to more lucrative routes. More than 
likely, U.S.-based regional airlines will serve the EAS airports, which 
will add revenues for the domestic airline industry.
    This could be a win-win-win-win proposition. Such a system would 
allow small regional airports to benefit; taxpayers would save some EAS 
subsidies; regional airlines will most likely provide the service and 
will benefit; and competition will be put back into our domestic market 
that will help the traveling public.
    4. Customer service improvements
       Implement minimum seat width and legroom standards. Even 
dogs are protected by humane minimum-space rules. It is time that 
airlines declare some sort of minimum pitch and width for airline 
seats.
     Add customer commitments to the airline contract of 
carriage. Passengers today have no contract with airlines that control 
how they are treated as customers. Airline-created customer service 
obligations dealing with airfares, flight delays, cancellations, lost 
baggage, bumping, etc., should be legally enforceable. Airlines already 
enjoy Federal preemption. Consumers should be provided an enforceable 
contract of carriage.
     Adopt a ``plain English'' and standard contract of 
carriage. Consumers have a right to have contract terms clearly stated 
and understandable.
     Provide passengers clear customer service contact phone 
numbers. Passengers deserve the ability to call, in real time, a 
customer-service number or reach an airline representative using their 
electronic device should they be faced with problems during their 
travels. This need for real-time customer service becomes more 
important when airline itineraries cross domestic and international 
airlines due to code-share and airline-alliance arrangements. This 
phone number should be staffed with personnel who can solve problems 
and assist consumers with issues while traveling with airlines and 
their partners.
       Clearly and conspicuously display consumer service rules 
at all airline gates and baggage claim areas. Airlines should be 
required to inform passengers of their rights and the airline customer 
service commitments prominently at airport check-in areas, boarding 
gates and baggage carousels.
    The E.U. has created posters that can be seen displayed at airports 
across the union. These humorous posters have a basic message: ``You 
have rights.'' They have been produced for the past five years and 
their display is voluntary. Here in the USA, airports have been 
reluctant to display such public information posters for fear of 
upsetting the airlines. There should be some kind of mandated display 
of customer service information other than forcing consumers to request 
a Contract of Carriage should they want to learn their rights.
                               Appendix B
   Consumer Travel Alliance Analysis of Competitive Market Overlap, 
                    American Airlines and US Airways
Methodology and Findings
   Bureau of Transportation Statistics' Airline Origin and 
        Destination Survey (DB1B) ``Market'' and ``Coupon'' data were 
        imported using SAS and loaded to a SQL database without 
        modification

   Records for carriers `US' and `AA' were selected into a 
        working dataset (the ``analysis'' dataset) based on the 
        following operational definitions:

   Only records meeting the following criteria were 
        included:

  Sec.  BulkFare = 0

  Sec.  No unreported or surface carriers in OpCarrierGroup

  Sec.  Maximum of two stops (equivalent to three point-to-point 
        segments)

   Where Carrier defined as `US':

  Sec.  Where no change in carrier occurs for the route 
        (OPCarrierChange = 0):

   Operating Carrier = `US' or (Ticketing Carrier = `US' and 
        Operating Carrier in (`YX', `ZW', `YV', `OO', `EV', `RP', `16', 
        `17'))

  Sec.  Where two or more operating carriers were involved 
        (OPCarrierChange = 1):

   Ticketing Carrier = `US'

   All coupons in the itinerary had Operating Carrier in (`US', 
        `YX', `ZW', 'YV', `OO', `EV', `RP', `16', `17')

   Where Carrier defined as `AA':

  Sec.  Where no change in carrier occurs for the route 
        (OPCarrierChange = 0):

   Operating Carrier = `US' or (Ticketing Carrier = `US' and 
        Operating Carrier in (`MQ', `RP', `OW'))

  Sec.  Where two or more operating carriers were involved 
        (OPCarrierChange = 1):

   Ticketing Carrier = `AA'

   All coupons in the itinerary had Operating Carrier in (`AA', 
        `MQ', `RP', `OW')

   Passenger Counts were summed by carrier, origin, 
        destination, and non-stop indicator

   Only records where Passenger Count > = 15 (approximating 
        150 PAX, or 1 regional jet per month)

   Where passenger count exceeded the cutoff in one 
        direction but not in the other (primarily due to Passenger 
        Counts only slightly above 15) then the remaining direction was 
        removed from analysis

   Total market share by TKCarrier-origin-destination was 
        calculated from the base dataset

   Market share limited to itineraries with a maximum of 
        two stops

   Market share calculation limited to market-carriers 
        having Passenger Count >= 15

   Total market share by OPCarrier-origin-destination was 
        calculated from the base dataset

   Market share limited to itineraries with a maximum of 
        two stops

   Market share calculation limited to market-carriers 
        having Passenger Count >= 15

   The Analysis dataset was then limited to contain only 
        markets where either U.S. or AA has 5 percent or greater 
        ticketing or operating market share, based on total passenger 
        counts (non-stop plus connecting.)

   A number of cases exist where one carrier serves a 
        market primarily with non-stop flights, while the other carrier 
        serves a market primarily with connecting flights, but also 
        offers a limited number of direct flights. Based on the above 
        definitions, these are classified as overlapping, non-stop 
        markets, which number greater than the 12 markets where 
        scheduled, direct flights overlap.

   Additional cases exist where BTS market data may not 
        delineate between non-stop and direct flights. For example, 
        U.S. offers a direct flight from BWI to DFW that stops, but 
        does not deplane, in PIT. These may appear as non-stop flights 
        in the BTS dataset, and are also classified as overlapping, 
        non-stop markets based on the above definitions.

   The cleansed ``Analysis'' dataset was then used to produce a 
        cross-tab of overlapping and non-overlapping markets by non-
        stop/connecting indicator, displayed in Table 1.

                        Table 1.--Non-stop and connecting market overlap for U.S. and AA
----------------------------------------------------------------------------------------------------------------
                                                                                Connecting
                     Market Overlap                       Non-stop Markets       Markets         Total Markets
----------------------------------------------------------------------------------------------------------------
1) AA-only                                                             322              1,943              2,265
----------------------------------------------------------------------------------------------------------------
2) US-only                                                             350              2,560              2,910
----------------------------------------------------------------------------------------------------------------
3) Competitive                                                         49*                761                810
----------------------------------------------------------------------------------------------------------------
* Competitive, non-stop markets include those where
 competition is predominantly direct versus connecting,
 but where BTS data report both carriers offering non-
 negligible direct service.
----------------------------------------------------------------------------------------------------------------

                               Appendix C
                   The TWA Flight Attendant Conundrum
    TWA flight attendants should be provided seniority status that 
corresponds with the same standard agreed upon by the two representing 
unions at American Airlines and US Airways. That ``fair and equitable'' 
standard should reflect each flight attendant's actual date of hire 
seniority.
    Current Federal law (McCaskill-Bond) requires that the two unions 
try to resolve the integration of their seniority lists. Whatever 
standard is agreed upon should apply across the board to every member 
of the bargaining unit to avoid compounding previous problems and 
inviting litigation that will delay the merger.
    There are about 950 TWA flight attendants remaining who have never 
received any seniority integration into the system seniority list and 
who will be further permanently damaged unless a single standard is 
required. This can easily be accomplished because the company offered a 
buyout that 2,250 flight attendants accepted and there is no harm in 
slotting in the remaining 950 with their earned date of hire, not their 
acquisition date of the last merger in 2001. Congress should require 
this as a remedy under the spirit of McCaskill-Bond because the former 
TWA flight attendants cannot arbitrate against their own union.
    The President of the Association of Professional Flight Attendants 
publicly admitted in an interview with the Fort Worth Star Telegram 
Editorial Board that the APFA `screwed up big time' and made a 
`mistake' in stapling the former TWA flight attendants to the bottom of 
the list in 2001. Now is the time to correct this admitted 
injustice.\12\
---------------------------------------------------------------------------
    \12\ APFA website http://www.apfa.org/content/view/2301/929/

    Senator Cantwell. Thank you, Mr. Leocha.
    I am going to start with you, Ms. Kurland, on this issue of 
slots. Do you know if--how DOT arrived at their conclusion 
about the previous US Air-Delta merger that they could own 55 
percent--I think it is 55.6 percent--of the slots they raked in 
after their swap with Delta? And did under that--answer that 
question first. Sorry.
    Ms. Kurland. Yes, under the slot swap transaction that was 
proposed to us by Delta and US Airways, we took a careful look 
at what the outcomes would be both at LaGuardia and at DCA. And 
in doing an analysis we came up with the conclusion that it 
would be appropriate for US Airways and Delta to divest of a 
certain amount of slots. We put them up for auction, and they 
were obtained by Jet Blue at the time.
    So at the time, we made the conclusion or we made the 
judgment that 55.6 percent--I believe that was the number--that 
it should not go higher at that time.
    Senator Cantwell. And did the Department of Justice at that 
time consider Dulles or Baltimore as substitutes for consumers, 
or was that separate?
    Ms. Kurland. We took a look at all three markets, and there 
is not perfect substitutability between all three markets. 
Different passengers want different things from particular 
markets. For example, at DCA, you have got passengers who are 
interested in being close in to the Capitol, the ease of 
getting to the Capitol. You also have passengers that live 
close to DCA, so there is not a perfect substitutability 
between all three markets--all three airports.
    Senator Cantwell. And, Mr. Kennedy, prior to the merger 
announcement, what were the American slots used for at Reagan? 
Were they large or medium-sized, you know, airport pairings?
    Mr. Kennedy. We served a number of airports out of--at 
Reagan, and not as many small and medium-sized cities as US Air 
because they have more slots than we do. But we serve a number 
of airports. I do not know the exact number.
    Senator Cantwell. OK. If you could get that information for 
us, I would appreciate it.
    Mr. Kennedy. We can do that, yes.
    Senator Cantwell. And, Mr. Leocha, I certainly understand 
your focus and certainly your frustration with what has 
transpired in the aviation--in the airline industry. And you 
bring up a very, very important point. There is probably nobody 
more frustrated by airlines dumping employee pensions at the 
PCGB only to have employees greatly wiped out for a lifetime of 
earnings. So I understand your frustration and your concern.
    Mr. Kennedy has said that in this case that they are not 
dumping this at the doorstep of the PCGB, which would seem to 
be good news. Am I misunderstanding something here?
    Mr. Leocha. Yes. I mean, I am not talking about dumping 
things on the PCGB. I was talking more about a specific 
situation that is within the American Airlines flight attendant 
union where the TWA flight attendants were stapled to the 
bottom of the list.
    Senator Cantwell. The date of----
    Mr. Leocha. And that is where--the date of hire issue. And 
that is something which I have been--for years I have had 
friends who went through that, and I just think it is something 
which needs to be fixed. And I applaud, by the way, American 
Airlines and US Airways for not choosing to dump everything on 
the government and to find a way to work it out. I was very 
glad to see that happen.
    And that was not their first choice, by the way, but it 
was--eventually their arms were twisted and they ended up doing 
it.
    Senator Cantwell. Well, I, from what I understand today, 
also think that this is good news. I do think the date and 
service issue does need to be fixed, and I do think that we 
need to look at this issue of how does airline consolidation 
impact pensions and pension obligations.
    But I also believe that when we had this discussion as it 
related to US Airways and Delta Airlines, there were a lot of 
pilots in the back of the room, and they were not for the 
merger. And my understanding is there are a lot of pilots here 
today, and they are for the merger. So I just want to 
understand that point, too. And if Mr. Parker, Kennedy, or Mr. 
Leocha want to comment on that.
    Mr. Parker. Yes, I was here for that hearing as well, as 
you recall. So, yes, the distinction, of course, is in that 
case the employees of Delta Airlines very much wanted to remain 
independent. And the distinction here is the employees of 
American and the employees of US Airways understand that the 
best thing for them, for their careers, for their livelihood, 
is to have a carrier that can compete with the other large 
carriers that are out there--United, Delta, Southwest. And they 
fully know, and understand, and have done their work to 
understand that this is in their best interest. And they can 
speak for themselves, and they have, and are very excited about 
this, and we are excited to have their support.
    Senator Cantwell. Thank you.
    Senator Ayotte?
    Senator Ayotte. Thank you, Madam Chairman. I wanted to ask 
Ms. Kurland about if the new American Airlines could 
potentially control approximately 67 percent of the slots at 
DCA. As I understand it, their passengers will account for 
about 50 percent of the total passengers that are using the 
airport. And part of that is that many of the slots are used by 
smaller regional aircraft serving smaller and mid-sized 
communities.
    How does DOT intend to ensure that access to the nation's 
capital remains for these smaller communities? I happen to 
represent one in Manchester that has an airport that US Air 
will fly directly to Reagan, and wanted to get your thoughts on 
how we ensure that the smaller airports are not getting hurt on 
the DCA issue?
    Ms. Kurland. Thank you, Senator Ayotte. Let me start by 
saying that the provision of service to smaller and medium-
sized communities is a priority for the Department of 
Transportation. And we--in terms of whether or not Justice 
decides that there should be a divestiture or there should not 
be a divestiture, we think that if there is one, it should not 
necessarily hurt small communities, that the merged carrier 
would have a slot portfolio that would be sufficient to serve 
the needs of smaller communities as well.
    Senator Ayotte. And if DOJ decides to require the new 
American to divest some of its slots at DCA or in other 
locations as well, is there a spelled out procedure for 
distributing them? If so, what would you anticipate that being? 
And is it a competitive auction process for all carriers that 
operate at DCA, or will certain airlines get a preference, for 
example, carriers with a smaller DCA presence? How would that 
process work?
    Ms. Kurland. Senator, that process is up to DOJ. You know, 
I know it is frustrating not to be able to talk about what the 
process would or would not be. But that is something that would 
be up to DOJ.
    Senator Ayotte. Would you have input in it?
    Ms. Kurland. We talk to DOJ. We advise them. We provide 
input, yes.
    Senator Ayotte. Obviously this is a really important issue, 
when I think about it, for communities like Manchester, New 
Hampshire that I represent. So I hope your attention will be 
paid to those communities because it is obviously important for 
the economy in my state, I can tell you. And I am sure that 
others around this table are in similar situations.
    I wanted to ask you, Mr. Leocha, about--you said there 
would be an impact on places like Boston. Could you explain 
that more?
    Mr. Leocha. Yes. Let me talk about the pilots issue. Thank 
you. Let me talk quickly about the pilot issue. I get phone 
calls about every week from people at USAPA, which is the US 
Airways Pilots Association. Everybody is not happy. There are 
still a lot of questions, and obviously we--there may be 
support for the merger because they are getting rid of someone 
they do not like or because they are getting paid a lot more 
money, but that does not mean necessarily that we are going to 
have--we are not going to have labor unrest.
    Now, back to the smaller airports. I think that what we did 
is when we did our overlap study, we found out that airports 
like Boston and Bradley have some of the highest numbers of 
these--of overlapping connecting routes. And so what happens 
is, it means that perhaps American Airlines has three or four 
routes back and forth between Bradley and, let us say, Seattle, 
or Bradley--and they might go Bradley, Chicago, Seattle, and 
someone else might go--and US Air would go Bradley, 
Philadelphia, Chicago. And so, as you take this and we right 
size it, it means that we could end up with fewer routes in and 
out of those airports because they find a way to combine some 
of the routes.
    The other thing that could end up happening is if they have 
got two separate handling agents at those airports, those 
airports are going to end up with displacement. In other words, 
somebody is going to lose their job, and that is the way 
mergers work. The whole reason for a merger is to combine 
operations and throw somebody out of work. We may not see the 
airline lose jobs, but you will see people who are ground 
handlers, people who are caterers and so on who may end up 
losing their jobs. That is where that will work out.
    And there is a series of these towns--Seattle is one of 
them, Minneapolis-St. Paul is one of them, Bradley, Boston. 
These are significant non-hub airports that will end up being 
losers or could be losers in this operation.
    Senator Ayotte. I know my time is expiring. Could Mr. 
Parker and/or Mr. Kennedy comment briefly on that? And I know 
that we have got other people here, so I do not want to take up 
their time.
    Mr. Parker. Sure. I disagree, and the reality is, first 
off, as it relates to labor issues, I would defer to our labor 
leaders who represent those people as opposed to Mr. Leocha's 
personal view who are supportive. And we appreciate their 
support and indeed have contracts that will go in place as the 
merger closes.
    As it relates to airports, and changes in flying to 
airports, and reduction in work force, it is just not the case 
in this merger. He is just wrong. We are going to put together 
two airlines that are highly complementary. Nine hundred routes 
that we fly. Combined only 12 of them overlap.
    We have said and believe that we will continue to fly and 
we need to fly to all the routes and to all the markets we 
currently serve, and we will continue service to those markets 
because that is how this merger is built, putting together two 
complementary networks. And more than just saying that, we have 
made commitments that are consistent with that. We have, 
through the American bankruptcy, confirmed large orders for 
additional aircraft because we know we are going to need all 
their airplanes.
    We have committed to our employees to no furlough clause 
protection because we know we need all of our employees. So we 
have done these things because we are certain this merger is 
one about putting two airlines together and keeping--and having 
a stronger airline by having it the same size, not because of 
reductions like Mr. Leocha has indicated.
    Senator Cantwell. Thank you.
    Senator Blunt?

                 STATEMENT OF HON. ROY BLUNT, 
                   U.S. SENATOR FROM MISSOURI

    Senator Blunt. Thank you, Chairman. Dr. Dillingham, do you 
have anything to say about this slot allocation? Are you going 
to be involved in that in any way?
    Dr. Dillingham. Senator, we will not be involved in the 
slot allocation. We have done some work on slot management 
before, like last year, and we made some recommendations to FAA 
and DOT, to better enforce some of the slot rules, particularly 
whether requiring airlines to only use the 82-month rule, the 
80 percent of their slots over two months of frequency just to 
sort of hold on to the slot where, in fact, it could have been 
better used elsewhere. And, you know, there are oversight rules 
that we have asked FAA and DOT to look into further.
    The other thing about the slots is that as we said in our 
statement, where slot restrictions exist, the fares tend to be 
higher because it is difficult for new competitors to come into 
those airports. But I think it is important to realize that 
even if slots are divested or if they are maintained by the new 
American, it is not clear that those same routes will be 
served.
    If a new competitor is able to obtain a slot, for example, 
they may decide to fly to a more profitable route, or, although 
US Airways and the new American have made commitments to 
maintain the services to small and medium communities, that may 
be difficult when reality takes place if you are asking an 
airline to maintain a route that it is not profitable. As we 
have seen in mergers in the past, sometimes it happens and 
sometimes it does not. So there are two sides to the slot coin 
we have to see. We have to find out what the new American is 
going to do. There are a lot of conjectures, but we will not 
know until it is consummated as a new airline.
    Senator Blunt. Right. And, Ms. Kurland, you mentioned that 
there would still be plenty of--I think your word, the ``slot 
portfolio'' would be sufficient to meet the needs of smaller 
communities. But you really do not negotiate that when you 
negotiate the slots, do you?
    Ms. Kurland. No, and what I was referring to, Senator, is 
the fact that, as you know, there are two types of slots. There 
are air carrier slots and then there are also the commuter 
slots. And the commuter slots cannot be aircraft that are 
larger than 76 seats. And those types of aircraft are 
particularly suitable for smaller communities. But again, it is 
a business decision, a commercial decision made by the airline.
    Senator Blunt. Well, I thought Senator Ayotte's point was 
really well taken that over 70 percent of the flights might be 
between these two airlines, which is barely 50 percent of the 
passengers, and that is a pretty significant difference in 
looking at how they compete and where they compete.
    Before I run out of time here, I do want to mention this 
topic that has been around a long time of just if there is any 
way to possibly eliminate some of these employee equity issues 
that have developed over the years. You know, in my state we 
have TWA that was bought by American. We have Ozark in my 
hometown that was bought by TWA. And I think it has already 
been mentioned maybe some issues in the America West and US Air 
merger.
    Everybody is pretty familiar with these issues. Everybody, 
I think, realizes--you know, Senator Bond and Senator McCaskill 
worked really hard to get some legislation so a similar thing 
could not happen again. But everything has been slightly 
different or, at least, it never goes back and corrects the old 
problem.
    I actually think if everybody involved here decided, OK, we 
are going to treat other people like we would want to be 
treated, this would work out pretty easily. But, you know, I am 
in the Senate, and that seldom happens here.
    [Laughter.]
    Senator Blunt. It probably seldom happens anywhere else. 
But it would----
    Senator Cantwell. Well, on this committee----
    Senator Blunt. On this committee with Senator Cantwell's 
leadership, it always happens that we are always treated fairly 
and equitably and like she would like to be treated, and that 
is generally pretty true.
    But this may have been answered while I was gone. I felt 
like I came in in the middle of this answer. But anybody want 
to talk about these problems and how they can be dealt with? 
And, Mr. Parker, maybe Mr. Leocha, anybody else that wants to--
--
    Mr. Parker. Certainly. Yes, Senator, you are right, there 
have been issues in the past. As airlines have merged on 
seniority integration, indeed those issues are--I was not 
around for the American-TWA integration, and I have heard a lot 
about it from the employees there. But indeed those are 
generally determined not by the company, but by the union 
leadership themselves as they work through to determine how the 
work group is going to be integrated. And it has historically 
been a problem.
    Thankfully, it has been addressed through the McCaskill-
Bond legislation, which now requires that if the unions cannot 
come to an agreement, then it goes to binding arbitration. And 
that is what will happen here. Again, that is a prospective 
solution. That is what is going to happen here I am happy to 
report.
    As to what has happened in the past, it is difficult, if 
not impossible, to correct--to go back and correct things that 
have happened in the past. My definition--by enhancing some 
group of employees' seniority, you are reducing others, and it 
makes it very difficult to change things that have occurred in 
the past.
    But again, that is more of a union to union issue, and 
going forward if indeed the union cannot resolve it themselves, 
it goes to binding arbitration, which I think is a great 
solution.
    Senator Cantwell. Thank you.
    Senator Klobuchar? I am sorry, the time--I want to make 
sure we get these members in before we do have a vote, so thank 
you.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Madam Chairman, and 
thank you to all of you. Mr. Parker was at the hearing that 
Senator Lee and I had, and we want to make clear we sent a 
letter actually yesterday, Senator Lee and I did, together to 
the Department of Justice highlighting some of the concerns 
again that had been raised during our hearing. And some of them 
have been mentioned here about the result of this merger and 
other mergers would be that the nation's top four airlines 
would control nearly 90 percent of the market.
    Recent concern that within a few days and weeks of each 
other, the four legacy carriers all raised their ticket change 
fees from $150 to $200, that elimination of head-to-head 
competition on 17 city and 12 airport pairs and on seven routes 
where American and US Airways are the only two carriers 
providing service. And then, of course, the concentration of 
the combined companies with 70 percent of the slots that have 
been discussed by many of my colleagues at Reagan Airport. So 
those are a few of the concerns we mentioned.
    I did want to first mention, Mr. Leocha, that, in fact, 
Minneapolis-St. Paul is still a major hub for Delta--you were 
saying we were a non-hub airline--airport, and, in fact, we 
welcome you there because last year Travel and Leisure voted us 
the most cheerful airport in the country.
    [Laughter.]
    Senator Klobuchar. And the most welcoming airport in the 
country, and so we are very proud of our airport. That being 
said, at the hearing, I discussed several issues relating to 
those non-hub airports, what has been happening in Pittsburgh, 
and St. Louis, Cincinnati, and some of the other cities where 
the results of the consolidations is that they have so many 
fewer flights, and we are very concerned about that.
    I thought that Senator Ayotte did a good job in asking the 
question, as Senator Blunt mentioned, about making sure that if 
there is divestiture--Assistant Secretary Kurland, that, in 
fact, that if there is divestiture, that it would be able to be 
competitively bid. But concerns have also been raised about 
potential divestiture and if it would lead to the merged 
company having to reduce service to small and mid-sized 
markets. What is your view of that?
    Ms. Kurland. Thank you, Senator. As I mentioned, if there 
were to be a divestiture, the merged airline would still have a 
substantial portfolio, which would be made up of both air 
carrier and commuter slots, and it would not necessarily have 
to hurt small communities. It would be a business decision of 
the carrier as to which communities they desired to serve.
    Again, the air carrier slots are for use by aircraft with 
76 seats or less. And the idea is that those are particularly 
suited toward the smaller and medium-sized communities.
    Senator Klobuchar. OK, one other question. Inflation-
adjusted fares remain low relative to recent decades, but they 
have increased 16 percent since 2009, and that is right along 
when the most recent wave of consolidation began. Could you 
comment on the causes for that, and is there a correlation 
between the price increases and the mergers?
    Ms. Kurland. Well, yes, I think that is an important 
question. But I think it is also important to take a look at 
the economic situation as a backdrop for when these mergers 
were taking place. You know, we had the economic downturn in 
2008. We have been in a seemingly high situation of permanently 
high oil prices. The airlines have taken a number of steps in 
order to achieve profitability. They have become much more 
rigorous in their----
    Senator Klobuchar. But how about the fact that a lot of the 
rates between non-hub cities have gone up so much? Does that 
concern you compared to other cities?
    Ms. Kurland. Yes. I mean, one of the points is that after 
deregulation, the government was taken out of the equation of 
setting rates and setting routes. It becomes a market decision, 
a business decision for the carriers. The only areas where we 
have some ability in that area is with the Essential Air 
Service [EAS] and the Small Community Air Service Development 
[SCASDP] program.
    Senator Klobuchar. Mr. Leocha, do you want to comment on 
that?
    Mr. Leocha. First of all, I want to tell you that I do know 
Minneapolis-St. Paul's hub after spending many wonderful hours 
there.
    [Laughter.]
    Senator Klobuchar. Oh, excellent. That is just so 
excellent. Thank you.
    Mr. Leocha. They have great restaurants.
    Senator Klobuchar. OK. Quickly, though.
    Mr. Leocha. However, it is not a hub for US Airways or for 
American Airlines.
    Senator Klobuchar. Yes.
    Mr. Leocha. And that is what I am talking about. You as a 
spoke are in danger of that kind of right-sizing from these 
airlines. Plus, when they are face to face with another big hub 
person like Delta, it might be in their interest to back away a 
little bit.
    Senator Klobuchar. OK. And so, you are saying--because I 
probably have time for one more question here. You are saying 
you think that the mergers could be contributing to these fare 
increases. That was my question.
    Mr. Leocha. Absolutely.
    Senator Klobuchar. OK. And then last, this issue of the 
change fees on most discount fares going up from $150 to $200, 
that was a result that United raised theirs. American, Delta, 
US Air quickly followed their move and also increased their 
fees. I guess I would ask you this, Mr. Parker: what, if 
anything, changed that that would necessitate--what changed in 
the market that suddenly necessitated this fee increase?
    Mr. Parker. Well, all sorts of things can affect pricing. 
But the reality is these change fees, you know, are on non-
refundable tickets. We and other airlines provide non-
refundable fares that are much lower than our refundable fares. 
In order to give us certainty, the customer agrees to, in that 
case, give us certainty that they are going to fly on a certain 
flight at a certain time, which is a different product than the 
people who buy a ticket that says, I want to go tomorrow, you 
know, when I am ready to go. We need to hold seats open for 
them.
    But to provide lower--but to be able to provide lower 
fares, we also provide a product that says if you are willing 
to lock in your time to fly, this is--you know, we will sell 
you a non-refundable ticket. Changing that--making a change to 
that is expensive for airlines.
    Senator Klobuchar. OK.
    Mr. Parker. The fees and----
    Senator Klobuchar. I am just again concerned when we go 
down to four, we are going to see more lockstep behavior.
    Mr. Parker. And the fees and the----
    Senator Klobuchar. When we go down to three, we will see 
more.
    Mr. Parker. The fees are meant to discourage changes.
    Senator Klobuchar. OK, thank you.
    Senator Cantwell. Senator Warner?

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Madam Chair. Let me also thank 
you for this hearing and acknowledge the fact that in my 4 
years here, this issue of slots probably had as much 
controversy as any single item that I have been involved in. 
And, I guess, one of the things I would like to point out that 
Mr. Kurland's comment, but also Mr. Parker since you are going 
to be, if the merger goes through, the beneficiary of this 
enhanced presence.
    You know, as we were having the FAA reauthorization, there 
were lots of discussions about the age-old perimeter rule and 
what we are going to do with the slots. And there were lots of 
conversation that said, well, a few more here, a few more 
there, it really will not make that much difference. The point 
I say from the Commonwealth of Virginia's standpoint is that 
when we think about Washington air traffic, and I also think I 
can speak somewhat for my colleagues from Maryland who 
concurred with me on this, is that, you know, there were 
agreements made long time ago that we were going to have three 
airports in the region: BWI, National, and Dulles. Financial 
commitments were made based upon those promises, and that is 
slowly being nicked away.
    And I guess, Ms. Kurland, the question I have is, you know, 
we were all assured that the additional slots, particularly for 
more of the West Coast flights, would not have any effect on 
Dulles. And the challenge is, and I say this as somebody who 
actually benefits from some of those West Coast flights because 
I live near National, but, you know, the numbers just say 
otherwise. We have seen numbers from 2011, 16.7 million 
passengers coming through Dulles down to 15.9 in 2012, 800,000 
passenger loss, particularly as you are thinking about flow-
through flights to Europe--from the West Coast to Europe. That 
has enormous ramifications.
    And it has been challenging as well as we try to think 
about the ability for these combined airport authorities to be 
able to jointly bond, which we were not fully able to do. And I 
just would like to make sure as we are going through this 
analysis in your role at DOT--I know DOJ has got an ability to 
weigh in, but my hope is from DOT that you will continue to 
weigh in, that we will not see further erosion of the perimeter 
rule, and that there has to be some recognition that the 
commitments that were made to Dulles and the financial 
projections that were based upon a now changing set of rules 
are going to be taken into consideration.
    Ms. Kurland. Thank you, Senator. The heart of what we look 
at, what DOJ looks at, is this issue of competition. With 
respect to the slots at DCA, Congress has always taken a very 
special interest in the number of slots and, you know, the 
perimeter rule, and makes the decision on where----
    Senator Warner. People are not aware of that.
    Ms. Kurland. But in terms of the competition and the routes 
and if there is competition on the routes, this is something 
clearly that DOJ and we at DOT take a very careful look at, and 
it is part of the analysis.
    Senator Warner. But I do not think you answered my----
    Ms. Kurland. Sorry.
    Senator Warner. That did not answer my question at all. 
There is a unique relationship of an airport's authority, of a 
compact between the Federal Government, the local 
jurisdictions, and commitments that were made that said 
National is going to have short haul. We are going to have a 
perimeter. And significant major investments from the United 
States' Government, the Commonwealth of Virginia, and the 
region were going to be made into Dulles because there were 
promises made about how perimeters and other items we 
protected. Those are being, you know, basically nicked away.
    My fear, of course, being that this merger may result in an 
effort at the next reauthorization to completely do away with 
the perimeter rule, and I guess I am very, very concerned if 
you are simply saying on the competition standpoint that this 
from the DOT role--this obligation to, you know, that the 
Federal Government made in setting up this rather unique 
Airport Authority and commitment to Dulles is not factored in 
at all? Are you saying that?
    Ms. Kurland. What I am saying, Senator, is that we will 
look very carefully at the competition among the different 
airports and the like. But in terms of slots beyond the 
perimeter, that is beyond our jurisdiction because that has 
been determined by Congress. But in terms of competition, in 
terms of the routes that are being served, we will take a 
careful look and we will go back and take a look at the 
various----
    Senator Warner. You will look at the numbers in terms of 
traffic in and out of Dulles.
    Ms. Kurland. We will go----
    Senator Warner. Let me get to Mr. Parker. The Chairman--
Chairman Rockefeller was not here. He basically wanted to ask a 
similar question that everybody else has been asking. 
Commitments and promises were made the last time around that 
there would not be these decreased smaller markets, that some 
of these might be moved into Pittsburgh or elsewhere to service 
West Virginia. He feels that that is not happening. I want to 
put that on for the record.
    But I would also like to ask, Mr. Parker, with the idea of 
moving DCA into a hub, how was that--how are those costs going 
to be absorbed? How are those costs--are they going to be 
passed onto DCA customers? Is that going to be absorbed in 
terms of the combined airline? Where does that kind of shake 
out as you think about--be thinking of DCA?
    Mr. Parker. Thank you, Senator. First off, to address 
Senator Rockefeller's question, I guess. You know, we have 
indeed heard that others have been here and made promises that 
people feel as though were not kept, and we are highly 
cognizant of that fact. All I can tell you is what I know at 
this point I cannot speak for where they were at that time, 
what they believed at that time.
    But because of that--what has happened in the past and 
because of skepticism, therefore, about what we are saying, we 
are being extremely careful not to make any promises, but 
rather to tell people what we know at this point in time about 
what we believe is going to happen. And what we know is these 
two networks are completely complementary. And of 900 routes, 
only 12 where we compete against each other, and that our 
intention to put them together and maintain service to all the 
communities we currently serve. And indeed, have supported that 
commitment with----
    Senator Warner. My time--can you just hit the hub issue as 
well?
    Mr. Parker. Sure. And then as it relates to the hub, look, 
the D.C. hub is extremely important to us, and one that is 
important, I think, to the community as well, one where we have 
done, US Airways, I think, a very nice job of getting service 
to communities that would not have been served otherwise by not 
having a hub. The fact is we are able to serve all these small 
communities because we do have connecting service. There would 
not be service like that without it.
    As to the cost, the cost to an airport as is the case for 
all airports, to the extent we have improvements at Reagan 
National Airport, which we would like to see. By the way, we 
are working with the Authority to get in place things such as, 
you know, getting rid of the busing service, which I think 
would be a great service to the flying public.
    To the extent those are costs that are incurred by the 
Airport Authority, they would be passed on to us through rates 
and charges, as is always the case. And we would gladly pay 
those charges in exchange for having better customer service.
    Senator Cantwell. Senator Pryor?

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Thank you, Madam Chairman. Thank you for all 
the panelists who are here today, and, Madam Chairman, thank 
you for your leadership on this.
    Let me start, if I may, with Mr. Kurland, and that is, and 
a little bit of a follow up on what Senator Warner was asking. 
And I know others have talked about this.
    But when you go through something like this, will the 
Department of Transportation provide the Department of Justice, 
say, a list of recommendations on, you know, either 
destinations or criteria that should be used in determining 
what slots are available for what cities?
    Ms. Kurland. Thank you, Senator. You know, our discussions 
with Justice are an iterative process. We will--you know, we 
will talk to them about the competition issues, about the 
service issues, about the service at DCA in particular. And, as 
I say, it will be an interactive process where the discussions 
will be comprehensive on all issues.
    Senator Pryor. But do you make recommendations, you know, 
what cities an airport should serve, or do you leave that to 
the discretion of DOJ, or do you leave that to the airlines?
    Ms. Kurland. Since deregulation, it is in the purview of 
the airlines to decide what cities that they are going to 
serve. At DCA, as I had mentioned, there are air carrier slots, 
and there are commuter slots. And the commuter slots, as you 
know, are for aircraft of 76 seats or less, and they are 
particularly suited toward the service of small communities. 
But determining where a carrier is going to serve is up to the 
carrier.
    Senator Pryor. Mr. Parker, I think that leads me to ask you 
a question.
    Mr. Parker. Yes.
    Senator Pryor. Which is, you have a situation at National 
Airport, for example, that, you know, you have the state 
capital, the national capital flights, which to me make sense. 
We have one of those flights currently through US Air, as you 
know. And I am just curious about your criteria. I know 
obviously you have to look at profitability. I get that.
    Mr. Parker. Sure.
    Senator Pryor. But a few years ago, there were some slots 
that changed hands, some gates that changed hands out there at 
National. And, you know, lo and behold, I look up and whoever 
the new carrier was, that meant they offered more flights to 
Atlanta. Well, people can catch a flight every hour to Atlanta.
    And, you know, I am just curious about the factors you 
consider when you make those decisions.
    Mr. Parker. Yes, thank you. Thank you, Senator. And first 
off, thank you for your letter in support of asking Attorney 
General Holder and Secretary LaHood to consider small community 
service as we look at this.
    Let me start by just saying--explaining since--as Ms. 
Kurland said a couple of times, this is a business decision, 
explain first how the business decision we made, which is your 
question, and then point out that we have some recent history 
that, I think, supports what will happen going forward.
    First off, as has been stated, US Airways and American 
combined would have about two-thirds of the slots, but it also 
has been stated that about only 50 percent of the seats, 
because we do fly small aircraft to small communities versus 
other airlines who have one-third of the slots but are flying 
half the seats with only a third of the slots.
    And then furthermore, if you look at the entire market, if 
you include Dulles, if you include Baltimore-Washington, we 
have less than 25 percent of the seats, fewer than United, 
about exactly the same as Southwest. So it is a very 
competitive market in terms of seats.
    So all we would encourage is that the Department of Justice 
follow the criteria that was in Senator Klobuchar's letter, go 
do their work, give us enormous scrutiny, and follow the law. 
And what we know, if that is the case, there is so much 
consumer benefit in this merger, it will be approved. There is 
no law that would come close to suggesting there should be 
divestiture of slots at DCA. But if that is done, if despite 
the fact that it is not law, but rather a choice of policy to 
ask us to divest slots and give them to another carrier, what 
will happen is we, as the business decision that Ms. Kurland 
keeps referring to, will, by definition, with a scarce 
resource, use--continue to use the ones that are most lucrative 
and reduce service to those that are the least lucrative, as we 
should do as business people.
    What that means is when we do service to small and medium-
sized communities, the carriers that get those slots will not 
fly to those communities. They will fly to large communities. 
And again, you do not need to just trust me on this. This 
happened a year and a half ago when, through the Delta-US 
divestiture that was forced upon us, Jet Blue acquired 16 
slots, eight round trips. We were forced to reduce service to 
small communities. Jet Blue took those eight round trips and 
flew three times to Boston, increasing Boston service from 22 
times a day to 25, 10 of which are Jet Blue, two to Fort 
Lauderdale, two to Orlando, and one to Tampa, of all of which 
had at least six flights a day already.
    We, the combined Delta-US Airways, had to divest those, 
ended up reducing service to small and medium-sized 
communities. The result is Madison, Wisconsin lost service 
completely. Grand Rapids, Michigan lost service completely.
    If we are asked to do the same thing again, Madison and 
Grand Rapids are now gone. We would like to still be flying 
there by the way, but we cannot because we do not have enough 
slots, so we will move up the list, and it will affect markets 
that we want to fly to. So that is the policy decision that 
would be being made, and it is a policy decision? It is not a 
legal question. This is a policy decision.
    And I was encouraged to hear Ms. Kurland say that service 
to small and medium communities is a priority for the DOT. 
Well, if it is, then this is not a policy issue that should be 
affected. This is not meant to sound threatening. I want to 
make sure everybody understands what is going to happen because 
what I do want to do is have to come to each of you and tell 
you we are going to have to reduce service to Manchester, or to 
Little Rock, or any place like that. We want to fly to those 
communities. We do well there.
    The short answer to your question, what is the criteria? Is 
it profitable? And those communities that we are flying to 
today are profitable. They are profitable for US Airways 
because we connect service over the hub. They will not be 
profitable for any other airline because there are people 
trying to get from Little Rock to Manchester, and they are 
doing it over D.C. And if either of those flights has to go 
away, then it puts both of them at risk. And when you have a 
hub and you start taking away spokes, it makes it much more 
difficult to maintain all the spokes.
    Senator Pryor. Thank you. I am out of time. Just one super 
quick follow-up.
    Mr. Parker. Yes, sir.
    Senator Pryor. Really it just a one-word answer. Does the 
airport have any input in this, or is it totally up to the 
airlines?
    Mr. Parker. It is an airline decision. The airport can 
influence the regulator.
    Senator Pryor. Thank you.
    Senator Cantwell. Thank you. Our 3 o'clock vote has not 
materialized, so I intend to have a second round of questions, 
and so any of my colleagues who want to ask follow-up 
questions, you know, please stay and do so.
    And I guess the good news from the first round of 
questioning is, in all the discussion of merger issues, the one 
thing that keeps popping up is slots. I think that is somewhat 
good news about the overall issue of the merger, but it might 
also not be so good news as it relates to slots, or the 
stickiness of that issue.
    And this is a very, very important issue to many of my 
colleagues, as you can see. Airports are tools for economic 
development. And if a community does not have air access, it is 
pretty hard to continue to grow the economic base.
    But, Mr. Parker, when we were looking at the Modernization 
Act, the FAA bill, there were--US Airways sought to convert 100 
existing slots that you had inside the perimeter and switch 
them to outside the perimeter. So you basically wanted to take 
DCA slots and say, OK, let us now service, you know, these 
farther destinations in the west.
    And at the time, a lot of my colleagues raised questions to 
say, oh, my gosh, you are going to do now what you are 
suggesting might happen. Basically people said, well, wait a 
minute, you will start servicing, you know, San Diego or 
someplace else, and you will get rid of the Madison, Wisconsin 
flight or what have you. And at the time, US Airways said, no, 
no, no, we have the flexibility to use these flights for large 
hub service and small cities will not be impacted. That is what 
you told many people on this committee.
    So now it seems like you are advocating just the opposite. 
You are saying, oh, no, no, no, yes, if we have to divest, you 
know, we will impact those hubs. And so, I just want to make 
sure I am understanding you from what was previously said----
    Mr. Parker. Sure.
    Senator Cantwell.--what the difference is, because I think 
that there are other economic issues here about competition 
that DOJ has to look at, larger than just, you know, the 
individual hub airport issues, but how much service should DCA 
be allowed to be concentrated under one carrier, and what does 
that do to impacting price and availability? That is what I 
think the Department of Justice should be looking at.
    So I guess, are you saying that you do not support the 
issue of a divestiture?
    Mr. Parker. As it relates to this merger?
    Senator Cantwell. Yes.
    Mr. Parker. Yes, we do not believe there is any reason we 
should be--there is no legal reason we should divest. It is a 
policy issue and one that we think is bad policy. That is 
correct. You raised the perimeter rule issue and our----
    Senator Cantwell. Yes. You had a different--it seems like 
it is an issue that was looking for a cause. It seems like you 
were--you know, you wanted before to basically switch out 100 
slots and use them for long distance. And when somebody said, 
hey, you are going to get rid of these small cities, you said, 
oh, no, no, no, we have enough flexibility. Now that somebody 
is saying, hey, give up some of these slots, you are saying, 
oh, no, no, I cannot. I cannot because I will end up cutting 
the service to these essential areas.
    Mr. Parker. Thank you. And the answer to the question in 
short is what is the alternative? The reality is, in relation 
to the perimeter rule, what we argue----
    Senator Cantwell. So you were wrong before?
    Mr. Parker. No, let me explain, please.
    Senator Cantwell. OK.
    Mr. Parker. What our position was, that we believe--D.C. 
would be better served with more flights outside the perimeter 
to provide more service to even more communities than exist 
today. Understand, of course, two things: one, the desire not 
to increase capacity at Reagan, which is, again, fine by us. If 
that is what the law is going to be, that is fine. But needing 
to stay within that constraint, and also wanting to make sure 
we adapt--we were responsive to concerns from small and medium-
sized communities said and agreed that what we would like to do 
is in exchange for the ability to fly outside the perimeter to 
some larger communities, we would indeed divest from some 
larger markets. That is a different question when that is the 
alternative. To be able to add a flight outside the perimeter, 
would you give up one inside to a larger community? The answer 
to that when asked was yes.
    Now, a different question. If you ask us do we have to take 
slots away from you, we are going to, because of some policy 
decision, decide to take away slots from the combined airline. 
So your alternative now is you have to cancel something, not 
swap it for something. The decision will be, as it should be, 
to cancel the routes that produce the lowest amount of revenue 
for the airline, and those are small and medium-sized 
communities. So it is completely consistent to me.
    Senator Cantwell. I think your conclusion is the right 
conclusion that anybody would do something that is in the 
interest of the business in getting rid of the less profitable 
route. But the reason why someone would look at divestiture is 
it is not some policy. It is about competition, and it is about 
too much concentration at DCA, and what issues for the consumer 
are being left unprotected.
    So I do not know, Mr. Leocha, did you want to comment on 
that?
    Mr. Leocha. Yes. I have spent a lot of time on this slot 
issue, and I have met with DOT----
    Senator Cantwell. I am not sure if you spent more time than 
Senator Warner and I, but if you have----
    Mr. Leocha. Maybe not.
    Senator Cantwell.--we are glad to let you join our club, 
OK?
    [Laughter.]
    Mr. Leocha. I will be glad to join you.
    Senator Cantwell. OK.
    Mr. Leocha. We had--I have met with Susan Kurland's staff. 
I have talked with DOJ. And we know that the Department of 
Justice was not happy with the--at least as I interpret it, not 
happy with DOT's solution the last time.
    We have a situation where we just cannot have competition 
when almost 70 percent of the market is controlled by one 
airline. And basically what US Air is doing is even though they 
are altruistically covering and reaching out to all these small 
communities, they are doing it with very small aircraft. The 
smallest aircraft of any hub in America comes in and out of 
D.C.
    Also, I look at the D.C. slots as a national treasure. They 
are to bring people here to the nation's capital so that we 
can--they can interact with--here in the capital of the United 
States. And almost 40 percent of the people who fly in and out 
of DCA do not even stop here. They just change planes.
    And I am sure that Mr. Parker does not mean that he is 
going to eliminate all of the service because they still make 
money doing that. The service might move to Baltimore. It might 
move out to Dulles. Let's say 5 years ago, that would have been 
a real problem, but today, we have got great connections 
between Baltimore and downtown. We have MARC trains, we have 
Amtrak trains, we have got buses to the Metro, and I am someone 
who actually gets to take them all, or taking good old bus 5A 
out to Dulles from Rosslyn, and soon we are going to have the 
Silver Line. So a lot of the problems that we used to have in 
terms of you had to be going in and out of DCA, otherwise it 
was too inconvenient, are leaving.
    What we need to do now is increase the number of people 
being able to come into our nation's capital and come here and 
visit here, spend their money here, and learn about our 
government. And that is where, I think, that moving the slots 
around will really be important. And if the merger has to go 
through, this is a remedy, and there should be other remedies 
because this only covers one little tiny pocket of it.
    Senator Cantwell. Thank you. Senator Warner?
    Senator Warner. Thank you, Madam Chair, and let me again, 
since 98 percent of this last struggle, we were in arm-in-arm 
on this. And I guess the one comment I would want to make 
before I get to Mr. Parker is, you know, I agree that the 
Silver Line and some of the transportation in between our 
various airports are going to get better. But it has a dramatic 
effect on particularly flow-through traffic international if 
you do not go through Dulles, if you can make that 
international connection instead through Philly, Newark, or 
wherever else.
    And what I am--and we have seen that decline all the 
promises that were made, oh, this is not going to affect 
Dulles, do not worry, do not worry, do not worry. Well, the 
numbers refute that. And now, and particularly, Mr. Parker, I 
know there has been lots of changes and stuff, and you want to 
come forward with not looking back, but commitments going 
forward.
    If we are going to go forward, and I understand the notion 
of building out the hub at DCA, which would seem to mean that 
it would be a further investment in having that routing to 
those smaller communities so that somebody moving from Little 
Rock to Manchester via DCA, good for all concerned, good for 
the markets that are concerned, still get traffic here to DCA.
    My concern, though, and I hope you will assuage that, is 
that, you know, with this concentration as your company did 
last time, will be leading the charge next round on FAA 
reauthorization to get rid of the perimeter rule, because I 
could see your business case for that. And I just feel that 
goes against the grain of what the commitments that were made 
from the Federal Government with the very unique nature of the 
Airports Authority. And I hope that you can assuage me of those 
concerns.
    Mr. Parker. Certainly. Again, where we ended up last time 
on our views on the perimeter rule were fully cognizant of the 
perspective of you and your constituents that indeed a desire 
to have no more increase in flights in and out of Reagan, and, 
furthermore, a desire to not see reduction in service to small 
and medium-sized communities.
    So our proposal, which came in much smaller than we had 
requested, but was implemented in a very small way, was that so 
long as the carrier already has a slot, already owns a slot, 
and is willing to divest one of the ones to a large market 
inside the perimeter, you can use that to fly outside the 
perimeter.
    The result is now that, you know, US Airways now flies to 
San Diego. American now flies to Los Angeles. And we each have 
reduced slots--we have reduced one slot each to places like 
Dallas or Chicago. I think that was good legislation. I believe 
that helps D.C. It did not increase any fly to D.C. I do not 
think exemptions, by the way, just adding more flights, as you 
said, is a good idea. And we have not----
    Senator Warner. Again, sir--one minute, sir, what I am 
saying, though, is that that did have a negative effect on 
traffic through Dulles in terms of its ability, particularly in 
terms of international long haul, substituting that flight. 
And, you know, I thought it was not what I was keen on, but 
there was the logic of substituting major market inside the 
perimeter for outside the perimeter. I get that logic.
    My fear is that with this further concentration, the next 
step will be, you know, the basic economic premise that helped 
build Dulles as one of the international gateway airports is 
going to be dramatically undermined if the deal that was made 
long before I served as senator is basically reneged on on a 
going-forward basis. And my hope would be that the position--
the combined carriers, particularly if it was not forced to 
divest some of these spots because of this advocacy you have 
made for continuing the smaller markets, that we will not have 
the rug pulled out from under us.
    Mr. Parker. OK, fair enough.
    Senator Warner. I would like to have your comments.
    Mr. Parker. Well, anyway, thank you very much. And, again, 
as we move to whenever that may be, the next FAA 
reauthorization or whenever this comes up again, we would be 
happy to work with you to figure out ways, if they are 
possible, to allow more flights outside the perimeter without 
reducing service to small communities, and without increasing 
flights to D.C. And if that has an impact on Dulles, we would 
be happy to talk about what we might do, and maybe there is no 
solution to it. But those are our objectives: not to see 
flights from D.C. increased and not to see service from small 
communities decreased, but rather to have the ability, if 
possible, to serve more cities outside the----
    Senator Warner. I do not know if Mr. Leocha would be able 
to comment as well before my time runs out. I just have to say 
in as strong terms as I can, you have a very--you know, you 
will have a strong anti-force against this if a major calculus 
of this is not also the effects these changes would have on the 
economic viability of the literally hundreds of millions of 
dollars that both the Federal Government and the Commonwealth 
of Virginia have made in the viability of Dulles.
    Mr. Parker. Understood.
    Mr. Leocha. Senator Warner, your question is very--is 
prescient in that if this merger goes through, Dulles Airport 
is going to take another hit, because right now I am--I am only 
an elite flyer on one airline. It happens to be Mr. Parker's, 
and that is because I always like flying him because he is the 
low-cost leader. But also I can fly on his affiliates, on his 
alliances, going with United out of Dulles to go to Europe. And 
that will be eliminated. So that whole connection----
    All of US Air's connecting flights to Europe are now going 
to no longer go through Dulles. They are going to go up to 
Philadelphia, to New York, to Charlotte, or down to Miami. So 
that is where we are going to find even more things happening. 
And what--that leads me to another point where the new 
destinations that he claims they have by uniting with American 
are only replacing old destinations where they already have an 
affiliation, which are already co-shared with United right now. 
So what they are giving with one hand, they are taking away 
with the other.
    So from a consumer's point of view, we end up with no net 
new routes. We just end up with new players and they are 
shuffling the deck. And that is where I look at not having good 
consumer benefits from this whole merger. And it will not help 
Dulles one bit if it goes through.
    Senator Cantwell. Thank you. Mr. Leocha, I want to continue 
because your analysis of--that there are US Airways and 
American overlaps on 12 non-stop routes, and for seven of these 
cities, there are no other non-stop competitors. So Department 
of Justice will have to look at these competitive overlaps and, 
you know, understand this horizontal merger guideline.
    But you refer in your study to 761 routes between domestic 
airports overlapped between U.S. and American, and additionally 
40 percent of routes face daily competition from US Airways, 
and 30 percent from US Airways and American. OK. So can you 
explain your study, and you are saying that there is a better 
way to look at this issue on, you know, potential merger 
impacts market by market or some other things.
    Mr. Leocha. Well, the way you have to----
    Senator Cantwell. And, Dr. Dillingham, I want you to 
comment on that as well.
    Mr. Leocha. Right. The way we need to look at it is the 
whole concept of a hub airline or a hub system is a system that 
connects. You fly into the hub, you fly out of the hub. That is 
the whole creation of it. And so, if you look at a merger only 
looking at the number of non-stop direct--you know, straight 
flights and there are only 12 of them, that is not the good way 
to look at it. You have to look at how connecting flights 
compete. And that is what really works.
    If you are flying from Seattle to Austin, Texas, you will 
go Seattle to Dallas to Austin, or you will go Seattle to 
Phoenix to Austin. But if you go into Kayak and you look it up 
on Expedia, or you go to your travel agency, you are going to 
get a price, and those airlines compete like mad with other 
right now. That competition is going to disappear.
    So what we did is we took all of the US Air markets and we 
overlaid them with the American Airlines Market, and we came up 
with 761 one-stop flights which overlapped. At that time, the 
GAO also did a similar study, and their study was released 
today, and it shows even a more dramatic overlapping. They come 
up with 1,600 and something. And their study then is based upon 
more than one stop, maybe a two-stop connection and so on. That 
is how they ended up with more.
    So the way you look at how network airlines compete with 
each other is from destination to destination, not hub to hub, 
not non-stop routes. And so, when you look at that, in our 
study, we came up with 40 percent of the current American 
Airline routes are covered by US Air routes, and 30 percent of 
the current American Airline--US Air routes are covered by 
American Airline routes, because US Air has a bigger domestic 
market. And that is the best way to look at it, and that shows 
real competition in the market, not necessarily only looking at 
the non-stop routes. Is that clear?
    Senator Cantwell. Yes. Yes, yes, yes. Dr. Dillingham, what 
do you think about this approach that the Consumer Travel 
Alliance did?
    Dr. Dillingham. We have not analyzed how the Consumer 
Travel Alliance did their work. But I would say just to be 
clear on what the GAO did say, yes, we said there were 1,600 
overlapping routes, but we also said that there was a 
competitor--another competitor on most of those routes as well.
    So I think--and I think the other point that we would make 
is that it is our understanding as DOJ and the FAA look through 
the merger, that they will have a comprehensive analysis more 
along the lines of not just non-stop, but also where there are 
overlapping routes.
    So I think, again, as we said before, a lot has yet to be 
determined, but clearly those kinds of issues will be 
addressed, we believe, through DOJ and DOT.
    Senator Cantwell. OK. I have another question, Mr. Leocha, 
about just ticket price transparency. I mean, there is nothing 
the consumer cares about more than this ticket price. And over 
the last few years, the, you know, fees and ancillary charges 
have grown dramatically from about $1.7 billion in 2002 to $9.1 
billion in 2012.
    So should these ancillary fees not be a little more in lock 
step, and what do you think DOJ should look at that as far as 
the merger?
    Mr. Leocha. Well, I would like DOJ to look at that as part 
of the merger. However, I do not think that falls under their 
jurisdiction. I have talked with the Department of 
Transportation. The Department of Transportation currently has 
a rulemaking, which is at OMB right now. And what we have been 
trying to do, and I have spent even more time doing this than I 
have been looking at slots, is we are trying to get the 
airlines to disclose their ancillary fees at the time that we 
buy our airline tickets.
    Right now, if we buy our airline tickets from a travel 
agency, and that will be from an Expedia, an Orbitz, or from a 
corporate travel agency, we do not know what the--how much the 
baggage is going to cost us. We do not know how much seat 
reservations are going to cost. And then there are a lot of 
other fees that go in there.
    But what I am concerned with are the fees--baggage fees and 
seat reservation fees so that consumers can compare prices, and 
especially if we end up with a merger coming through which is 
wringing competition out of the system. There has to be a way 
that consumers can bring--can at least have an ability to 
comparison shop for tickets with everything together and look 
at oranges and oranges. And so that is what we have been trying 
to do.
    I think we are getting close to it. However, it is a long 
process to bring this thing through to fruition, and that is 
what consumers really need. Otherwise, we have no way to really 
compare the prices.
    Senator Cantwell. Ms. Kurland, is this under your 
jurisdiction, or is that someone else at DOT?
    Ms. Kurland. It is part of DOT. It is part of the General 
Counsel's office, but I can get that to you anyway.
    Senator Cantwell. OK. I know this is of great interest to 
lots of people and a long time in coming, so.
    Well, I think we have had an airing of the issues here. I 
think we have raised some important questions. We will keep the 
record open for 2 weeks for the rest of our colleagues to ask 
questions, and if you will respond to them.
    This is a very important issue, and I hope that the 
appropriate agencies take due notice of the issues that were 
raised here today, and try to address them before this moves 
forward.
    Thank you all very much for being here. We are adjourned.
    Mr. Leocha. Thank you.
    [Whereupon, at 3:38 p.m., the hearing was adjourned.]
                            A P P E N D I X

   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                         Hon. Susan L. Kurland
    Question 1. Ms. Kurland, do you believe that American Airlines 
could succeed as an independent airline after emerging from Chapter 11?
    Answer. Prior to the merger transaction, the management of American 
Airlines stated that its proposed ``Standalone Plan'' would enable 
American Airlines to compete and grow, without a merger, following its 
emergence from Chapter 11 reorganization. American Airlines is 
currently a profitable airline.

    Question 2. Ms. Kurland, do you believe that US Airways could 
succeed as an independent airline if it doesn't merge with American 
Airlines?
    Answer. Prior to proposing the merger transaction, the management 
of US Airways stated that US Airways could succeed on its own without a 
merger, but would be stronger and more competitive if it merged with 
another airline. US Airways is currently a profitable airline.

    Question 3. Ms. Kurland, we have seen four legacy carriers merge in 
the past five years. To what extent have the projected synergies or 
benefits been realized with the Delta-Northwest and United-Continental 
mergers? In general, how have these mergers affected airfares and 
service levels?
    Answer. Airline mergers are typically very complex. It usually 
takes over two years to realize projected synergies and benefits. We 
are only now beginning to see the some of these effects.
    The industry overall has decreased capacity. It is therefore 
difficult to determine, at this point in time, the extent to which 
consolidation has contributed to this capacity reduction. Other 
factors, such as persistently high fuel prices and the economic 
recession, also played a role in the reduction of capacity over the 
last several years.

    Question 4. Ms. Kurland, a few years ago, Delta Air Lines proposed 
swapping slots it controlled at Reagan National Airport with US Airways 
for slots it controlled at New York LaGuardia Airport. Under their 
original proposal, US Airways would have controlled approximately 60 
percent of the slots at Reagan-National Airport. When USDOT approved 
the swap, it required US Airways to divest approximately five percent 
of the airport's total slots, so that the airline now controls almost 
56 percent of the slots at Reagan-National Airport. If USDOT considered 
the control of 60 percent of the slots at Reagan-National to be too 
much in 2011, has anything changed in the competitive landscape at the 
airport since then to believe that one airline controlling 68 percent 
of the slots would be any less anti-competitive?
    Answer. In the Delta/US Airways slot swap proceeding, DOT did 
express concerns about the high concentration of slots held by US 
Airways at Reagan-National Airport. For that reason, the Department 
required the carriers to divest a percentage of their slots for use by 
competitors. A transaction which leads to one airline controlling 68 
percent of the slots requires careful analysis by DOJ and DOT, and that 
is ongoing. That analysis will include any competitive factors that may 
have changed.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                      Gerald L. Dillingham, Ph.D.
    Question 1. Mr. Dillingham, do you believe that American Airlines 
could succeed as an independent airline after emerging from Chapter 11?
    Answer. It is possible that American Airlines, which independently 
made approximately $42 million in operating profits in 2012, could 
succeed as an independent airline. However, that 2012 profit was only 
after incurring billions in losses over the last decade and entering 
bankruptcy protection in 2011. Whether the airline would continue to be 
profitable as an independent airline would depend on many factors, 
including the demand for air travel, fuel costs, competition, and 
American's own management.

    Question 2. Mr. Dillingham, do you believe that US Airways could 
succeed as an independent airline if it doesn't merge with American 
Airlines?
    Answer. It is possible that US Airways, which made approximately 
$822 million in operating profits in 2012, could succeed as an 
independent airline. However, during the last decade, the airline 
incurred more than a billion dollars in losses, entered bankruptcy 
protection, and merged with America West. Whether the airline would 
continue to be profitable as an independent airline would depend on 
many factors, including demand for air travel, fuel costs, competition, 
and US Airways' own management.

    Question 3. We have had four legacy carriers merge in the past five 
years. To what extent have the projected synergies or benefits been 
realized with the Delta-Northwest and United-Continental mergers? In 
general, how have these mergers affected airfares and service levels?
    Answer. That is a very difficult question to answer because there 
were many other events, notably a spike in fuel prices and a recession 
that occurred in the midst of these mergers. Separating the effects of 
the mergers from the broader economic effects is not easily done. 
Further complicating any assessment is that we do not have access to 
internal financial data that would allow us to assess whether projected 
revenue and cost synergies are realized. That said, some of the 
projections made as part of the earlier mergers, for example retaining 
the Memphis airports as a hub in the case of the Northwest-Delta 
merger, have not been realized. In other cases the mergers may be too 
recent to know the full effects. GAO recently initiated a review of the 
state of airline competition and will be reporting its findings next 
year.

    Question 4. Mr. Dillingham, do you believe that if the new American 
Airlines has to divest slots at Reagan National airport, it will have 
no other choice but to reduce service to smaller communities within the 
perimeter, or is that more of an airline business decision?
    Answer. If American were required to divest slots, the airline 
would not necessarily have to reduce service to small communities. If 
the merger is consummated, the merged American would control two-thirds 
of slots at Washington Reagan--a dominant position especially without 
the potential for competitive entry at that airport. As GAO reported 
last year in our review of slot controlled airports, airlines at slot-
controlled airports, including Washington Reagan, operate more 
inefficiently than at non-slot controlled airports of similar size.\1\ 
These inefficiencies result from airlines operating smaller planes, 
with greater frequency, and fewer passengers on average at slot 
controlled airports than at other airports. Scheduling flights in this 
way may be an effort to hoard slots to keep them from being reallocated 
to competitors that could potentially drive down fares, but airlines 
argue it is a response to passenger demand. Both airlines currently 
serve Nashville and Raleigh from Washington Reagan with multiple 
frequencies per day on smaller than average aircraft. Further, US 
Airways serves large and medium hub airport markets (Minneapolis, 
Cincinnati, Detroit, Memphis, Pittsburgh, Indianapolis, New Orleans, 
and Philadelphia) from Washington Reagan with smaller than average 
aircraft that in several cases also have lower than average load 
factors. A merged American could choose to consolidate flights on 
larger aircraft before eliminating service to smaller communities, but 
that may not be the profit maximizing course of action.
---------------------------------------------------------------------------
    \1\ GAO, Slot-Controlled Airports: FAA's Rules Could Be Improved to 
Enhance Competition and Use of Available Capacity, GAO-12-902 
(Washington, D.C.: Sep 13, 2012).

    Question 5. Mr. Dillingham, based on your experience and the data 
the GAO has collected over the years, does the ``Southwest effect'' 
still exist at airports the carrier serves, or does it effectively 
require more than one low cost carrier to provide service at the 
airport for consumers to benefit?
    Answer. As reported in GAO's June 19 testimony, the Departments of 
Justice and Transportation have relied on entry by low cost airlines, 
especially Southwest, to check airline fare increases following a 
merger. However, whether entry by low cost airlines can still provide 
the same market discipline is not clear. Southwest expansion has 
slowed, and it recently merged with a key low cost rival, reducing the 
number of low cost airlines that might challenge post merger fare 
increases.

    Question 6. US Airways and American Airlines overlap on 12 non-stop 
routes. For seven of these routes, there are no other non-stop 
competitors. DOJ will look at these competitive overlaps carefully 
under its horizontal merger guidelines.
    In Mr. Leocha's written testimony, he references a Consumer Travel 
Alliance study that shows 761 routes between domestic airports that 
overlap between US Airways and American Airlines. Additionally, he says 
that 40 percent of American Airlines' routes face daily competition 
from US Airways and 30 percent of US Airways' routes face competition 
from American Airlines.
    In your written testimony, you state ``Our analysis of 2011 and 
2012 ticket data also showed that combining these airlines would result 
in a loss of one effective competitor (defined as having at least 5 
percent of total airport-pair traffic) in 1,665 airport-pair markets 
affecting more than 53 million passengers while creating a new 
effective competitor in 210 airport-pairs affecting 17.5 million 
passengers. However, the great majority of these markets also have 
other effective competitors.''
    Do you believe the approach of looking at airport pairs through 
connecting routes is a more meaningful way to measure the potential 
impacts the merger may have on overall and market-by-market 
competition?
    Answer. Assessing competitive effects of a merger requires looking 
at both nonstop and connecting traffic, as well as service to alternate 
airports and the potential for new entry following a merger. We 
reported on both nonstop and connecting route overlap because much of 
the focus has been on the nonstop overlap without recognizing that 
airlines compete on a network basis.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                              Doug Parker
    Question 1. Mr. Parker, could US Airways succeed as an independent 
airline if it doesn't merge with American Airlines?
    Answer. US Airways is currently a strong and profitable airline. 
The motivation for the merger of US Airways and American Airlines is to 
bring together two complementary networks to make them better and to 
enhance competition in what is already a highly competitive 
marketplace. The expanded network of the merged airline will be able to 
compete more successfully with Delta and United for national/
international network traffic, with Southwest and fast-growing low cost 
carriers, and in the international realm with a host of other airlines 
competing globally, some with the support of governments.

    Question 2. Mr. Parker, if the merger is approved, will the new 
American Airlines offer more, less, or roughly the same number of daily 
flights to the same destinations and with the same frequency?
    Answer. This merger is about growth, not cutbacks. The New American 
will remain committed to extensive service to small and medium-sized 
communities throughout our merged network and, where appropriate, we 
expect to increase service and add destinations. The broader network 
created by the merger will give us the ability to bring heightened 
levels of service to those communities that neither airline could 
afford to provide on its own, and the number of passengers benefitting 
from the existing combination of service will grow as communities 
receive new online connecting service.
    The combination of American Airlines and US Airways is also 
expected to offer service to 21 destinations in Europe and the Middle 
East; deepen its coverage throughout Latin America, providing extensive 
access between the US Airways network and Central and South America; 
and create a foundation for expanded transpacific service.

    Question 3. Mr. Parker, in the past, you were a leading industry 
voice for reducing airline capacity. There has been some concern 
expressed that over time US Airways intends to use the merger as a 
means to further reduce domestic airline capacity. Is this a valid 
concern?
    Answer. Our plan, as reflected in the AMR Plan of Reorganization 
and in the proxy/prospectus that we filed with the SEC and sent to 
shareholders, is to increase rather than decrease capacity. The value 
created by the merger of US Airways and American Airlines is the 
ability to put together the two networks that exist today to connect 
more people to more places. Because these two networks are so 
complementary, our intent is to keep all the airplanes, keep all the 
people, and maintain service to all the markets we serve today 
independently.
    Over the past several years, US Airways has consistently increased 
capacity--in fact, it has grown capacity faster than the rest of the 
industry. We have planned for this growth to continue post-merger. In 
addition to accepting aircraft orders that could have been rejected in 
bankruptcy, had it been our intention to reduce capacity, our 
integration planning efforts include adding seats to certain American 
Airlines aircraft, a further increase in capacity.

    Question 4. Mr. Parker, US Airways and American Airlines estimate 
$1.4 billion in annual net benefits from the proposed merger. Breaking 
that down, the labor costs are estimated to increase $360 million a 
year, other costs are estimated to drop by $640 million a year, and 
revenue from network benefits is estimated to increase by $1.12 billion 
a year. Assuming the number of routes and their frequency are going to 
be fairly stable in the near term, where will the $1.12 billion in 
additional annual network benefits come from? Does this mean consumers 
should expect increased fares?
    Answer. All of the expected network revenue synergies come from 
additional passengers who will fly on the New American who would not 
have flown on US Airways or American Airlines absent the merger. The 
reason they will come to the New American post-merger is that the 
combination of our complementary networks will enable us to offer them 
a better quality product. Not even a single dollar of the network 
revenue synergies will come from a fare increase.
    The merger will result in more frequencies on nonstop routes where 
US Airways and American overlap, better schedules for connecting 
service, additional online destinations served from each carrier's 
airports, and new online itineraries between cities that only one party 
serves premerger. As a result of the more attractive combined network, 
the American and US Airways models predict that the merged airline 
would carry more than 2.6 and 3.7 million additional passengers, 
respectively. The broader network's improved schedule and connectivity, 
along with the redeployment of the combined fleet to better match 
capacity to customer demand, will attract those additional passengers 
as take advantage of the improved service offering of the New American 
Airlines. The combination will also generate approximately $550 million 
in annual cost synergies from scale improvements and the elimination of 
duplicative systems and management.

    Question 5. Mr. Parker, one argument I have heard about the merger 
is that the combined US Airways and American Airlines networks can be 
large enough to compete with other carriers both domestically and 
internationally. On the domestic side, regional carriers fly over half 
of all domestic flights. I believe US Airways Express has code share 
contracts with several regional carriers.
    What percentage of US Airways domestic flights are currently flown 
under contract with regional carriers? If the merger is approved, what 
percentage of new American Airline flights would be flown either by 
contract or regional subsidiaries?
    What domestic markets will the new American Airlines network add 
that can't be achieved through existing code share arrangement, with 
United Airlines under the Star Alliance, or by contracting with a 
regional carrier?
    Answer. Roughly 39 percent of the current US Airways domestic 
flights are operated by another carrier not owned by US Airways under a 
contract with US Airways. Assuming no change in operations, 
approximately 24 percent of the New American's domestic flights will be 
operated under contract by another carrier not owned by New American.
    Many communities will benefit from the expanded network of the New 
American. The way that mid-sized and smaller communities receive air 
service is by having hub and spoke airlines like US Airways and 
American that fly into those cities and then connect people to other 
markets. The merger of US Airways and American takes two strong hub and 
spoke carriers and builds one network that is stronger and provides 
even more connections. For example, it allows the people of Rochester, 
Minnesota to connect on the New American Airlines to Hilton Head, South 
Carolina. Currently, US Airways does not fly to Rochester; American 
does not fly to Hilton Head. But together, we will. There are 1,300 
such examples like that, where people who do not have the ability to 
connect between two cities will be able to connect after the merger.

    Question 6. Mr. Parker, my understanding is that US Airways added 
nonstop service to 18 airports to/from Reagan National airport after 
the slot swap and each one of those airports were served by US Airways 
in some capacity prior to the slot swap. During the hearing, you 
asserted that the USDOT-imposed divestiture related to the 2011 slot 
swap resulted in the discontinuation of nonstop Reagan National flights 
to Madison, Wisconsin, and Grand Rapids, Michigan. My understanding is 
that both cities were traditional Delta Airlines markets and neither 
city had any US Airways flights of any kind prior to the slot swap 
itself.
    Were the Reagan National to Madison and Reagan National to Grand 
Rapids nonstop flights discontinued as the result of the slot swap 
itself, the USDOT required divestiture, or did US Airways never have 
any intention of serving Madison, Wisconsin or Grand Rapids from Reagan 
National?
    Answer. After the DOT imposed divestiture, it is my understanding 
the Delta discontinued service to Madison, WI and Grand Rapids, MI. US 
Airways was not serving either city from DCA. US Airways did not then, 
nor does it now, operate a station at either airport.

    Question 7. Mr. Parker, US Airways controls approximately 56 
percent of the slots at Reagan National Airport. Using these network 
and commuter slots, US Airways provides direct service to a number of 
smaller communities within 1,250 miles of the airport. According to Mr. 
Dillingham's written testimony, American Airlines currently uses its 
slots at Reagan National for flights to large and medium-sized hubs 
within the 1,250 mile perimeter. I have heard you say that if DOJ 
requires the new American Airlines to divest slots, the airline will 
reduce service from Reagan National to smaller markets.
    When you speak about DOJ divestitures possibly causing US Airways 
to reduce service to smaller cities, do you mean if DOJ requires 
divestitures of all American Airlines current slots or do you mean if 
DOJ requires divestitures of all American Airlines slots plus some of 
those US Airways currently controls?
    If US Airways gains additional slots at Reagan National beyond the 
approximately 56 percent of slots it currently controls, do you intend 
to use these slots to fly directly to more small cities within the 
perimeter?
    The next time the Committee takes up FAA authorization legislation 
will US Airways propose converting a significant number of within-
perimeter slots at Reagan National into slots for beyond the perimeter?
    Answer. US Airways serves many small and mid-sized communities out 
of Reagan National, both in absolute terms and relative to our 
competitors. The slots that will be utilized by the New American will 
be used to continue to provide service to smaller communities.
    A divestiture of any slots at Reagan National would not be good for 
competition or consumers. We need slots to fly in and out of D.C. If US 
Airways or the New American were asked to divest slots, it would result 
in a reduction of service somewhere, and we would likely have to reduce 
service to those communities that make the least contribution to the 
network. Those would tend to be service to smaller and mid-sized 
communities. If other airlines acquired those slots, they likely would 
use them to fly to large communities.
    With respect to the perimeter rule at Reagan National, our 
objective is to have the ability, if possible, to service more cities 
outside the perimeter. We would be happy to work with the Committee to 
allow more flights outside the perimeter without reducing service to 
small and mid-sized communities and without increasing flights to 
Reagan National.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Brian Schatz to 
                              Doug Parker
    Question. As you know, the Pension Benefit Guaranty Corporation 
(PBGC) assumes responsibility for pension plans that are terminated 
because a company is unable to pay all benefits. The PBGC's insurance 
program pays monthly benefits to the retirees that the pension plan 
would have provided. PBGC requires individuals to retire at age 65 to 
receive the maximum retirement benefit. For years, this law was in 
conflict with the Federal Aviation Administration's (FAA) requirement 
that pilots retire by age 60. These conflicting policies continue to 
significantly reduce the retirement benefits of affected commercial 
airline pilots from Aloha, Northwest/Delta, United and US Airways. 
Approximately 12,000 to 14,000 pilots are currently losing up to 
$16,000 a year in pension benefits.
    Last Congress, bipartisan legislation was introduced by Senator 
Daniel Akaka (S. 998) and Representative George Miller (H.R. 1867) to 
address this problem and assure that all pilots are provided fair 
benefits. The legislation would direct the PBGC to calculate pension 
benefits based on retirement eligibility beginning at age 60 instead of 
age 65 for retired pilots whose pensions are affected by the 
discrepancy between the FAA and PBGC retirement requirements. US 
Airways did not take a position on the legislation last Congress.
    Will US Airways and American Airlines endorse the bill when it is 
reintroduced this Congress? If no, please provide an explanation.
    Answer. US Airways will support the legislation. Further, I have 
every expectation that new American Airlines will likewise support the 
legislation once the proposed merger is closed.
    Many pilots employed by the former US Airways were hurt by 
application of the Age 60 rule after their pension plan was terminated 
in bankruptcy. As you know, the union representing our pilots, USAPA, 
is strongly behind the effort. I'm told that American's pilots union, 
APA, also supports the legislation even though American's pilots are 
not affected.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Roger F. Wicker to 
                         Hon. Susan L. Kurland
    Question. What benefits do you believe should consumers expect to 
derive from this merger? After all, every commercial airline merger 
leaves the flying public with fewer airline choices. Will there be new 
routes to areas not currently being served? Will there be more 
affordable flight options? Better customer service? Fewer delayed 
flights? Will the merged company invest in better baggage-handling 
technology for an improved consumer experience? What are your 
expectations?
    Answer. The merger of American Airlines and US Airways, under the 
American Airlines brand, closed on December 9, 2013. By combining their 
fleet and operations, the carriers have stated that they plan to:

   Improve the efficiency of their services and thus drive 
        greater value for customers by creating more new flights, more 
        service options, and better quality service;

   Improve financial performance by increasing revenue and 
        profitability;

   Improve compensation for their employees and provide more 
        career opportunities;

   Offer more comprehensive contracts to corporate customers 
        and thereby enhance competition for corporate customers.

    In the Department's experience, it typically takes a period of 
years for the new management team to integrate the operations of the 
two carriers, achieve unified labor contracts and work rules, and to 
take all the necessary steps to deliver benefits of the merger. This 
integration period will likely occur in the case of American/US Airways 
as well, as the carriers have indicated that the full benefits of the 
merger will not be available for 24 months at the earliest. The 
Department will be monitoring the integration of the two carriers--and 
the amount of benefits delivered to the public--as we go forward. It is 
also incumbent upon the airlines to keep their customers and the public 
apprised of their progress and plans for the future.
                                 ______
                                 
   Response to Written Question Submitted by Hon. Roger F. Wicker to 
                      Gerald L. Dillingham, Ph.D.
    Question. What benefits do you believe should consumers expect to 
derive from this merger? After all, every commercial airline merger 
leaves the flying public with fewer airline choices. Will there be new 
routes to areas not currently being served? Will there be more 
affordable flight options? Better customer service? Fewer delayed 
flights? Will the merged company invest in better baggage-handling 
technology for an improved consumer experience? What are your 
expectations?
    Answer. As GAO reported as part of its testimony on June 19, 
airline mergers combine, and therefore expand the merged airline's 
network, allowing for increased travel options for the merged airline's 
passengers. The airline claims its network will rival its chief 
competitors in Delta and United but whether the merged airline will 
serve new markets is not known. GAO testified that combining American 
Airlines and US Airways existing route structure would reduce the 
number of effective competitors (defined as controlling at least 5 
percent market share) in over 1,600 airport pair markets, it would add 
a new effective competitor in over 200 airport pair markets. The 
general trend in recent years, however, has been for small and medium 
communities to lose service as a result of airline capacity reductions 
brought on by higher fuel costs and other factors. We also reported 
that post merger integration issues have created customer service 
problems for airlines, but that over time these are reduced. If the 
merger creates a financially stronger airline, it would be better 
positioned to invest in customer service and baggage systems. It is 
unclear if the merger will affect operational performance, including 
cancellations and delays. We have previously reported that the 
principal cause of airline delay and cancellation is airport and 
national airspace congestion.\1\
---------------------------------------------------------------------------
    \1\ GAO, National Airspace System: Setting On-Time Performance 
Targets at Congested Airports Could Help Focus FAA's Actions, GAO-10-
542 (Washington, D.C.: May 26, 2010); Commercial Aviation: Impact of 
Airline Crew Scheduling on Delays and Cancellations of Commercial 
Flights, GAO-08-1041R (Washington, D.C.: Sep 17, 2008); Airline 
Passenger Protections: More Data and Analysis Needed to Understand 
Effects of Flight Delays, GAO-11-733 (Washington, D.C.: Sep 7, 2011); 
and Slot-Controlled Airports: FAA's Rules Could Be Improved to Enhance 
Competition and Use of Available Capacity, GAO-12-902 (Washington, 
D.C.: Sep 13, 2012).
---------------------------------------------------------------------------
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Roger F. Wicker to 
                              Doug Parker
    Question 1. Mr. Parker, when reviewing airline merger proposals in 
the past, we heard from company executives that the newly merged 
carrier would strengthen access for rural areas and small communities. 
In my experience, those commitments were less than enduring.
    What assurances can you provide that, should this merger be 
approved, small communities will continue to have reliable and 
affordable airline access that is no less than that which they enjoy 
today?
    Answer. We understand the concerns about ``broken promises,'' 
arising from other airlines' failure to live up to certain assurances 
made while their own merger deals were under consideration. These 
concerns--while understandable--are not warranted here. Our merger 
combines complementary networks with complementary hub locations, each 
of which is crucial to the combined network. Our synergy analysis is 
based upon our expectation of increasing revenues primarily from new 
passengers taking advantage of the broader network and improved service 
that our combined network will allow. All nine of our hubs will be 
crucial to realizing these synergies and expanding the New American 
network. Each hub will serve a unique function within the overall 
network and a substantial portion of the incremental traffic we expect 
to win will flow over those hubs. We therefore have no plans to close 
any hubs or cut down service in any cities that we currently serve. 
Rather, we expect to expand service to additional cities. Growth 
opportunities already exist today, and they will be greater with this 
merger.
    Our commitment to small community service is not some new discovery 
for US Airways. US Airways historically has provided extensive service 
to smaller communities and the merger will allow us to continue to 
extend that focus, building on complementary service offered by 
American Eagle. The broader network created by the merger will give us 
the ability to bring heightened levels of service to those communities 
that neither airline could afford to provide on its own, and the number 
of passengers benefitting from the existing combination of service will 
grow as communities receive new online connecting service.

    Question 2. What benefits do you believe should consumers expect to 
derive from this merger? After all, every commercial airline merger 
leaves the flying public with fewer airline choices. Will there be new 
routes to areas not currently being served? Will there be more 
affordable flight options? Better customer service? Fewer delayed 
flights? Will the merged company invest in better baggage-handling 
technology for an improved consumer experience? What are your 
expectations?
    Answer. Consumers are clear winners in this merger. The New 
American Airlines joins two highly complementary networks to create a 
better and more competitive alternative for consumers. The broader 
network that will result from the merger is better for passengers 
because it gives them more choices, a wider variety of services, and 
more competition on more routes. The network is able to provide these 
choices and services because it aggregates demand that independently 
cannot support profitable service, but collectively can do so. Adding 
more origins and destinations to hubs has an exponential effect on the 
number of possible routings served by a network, the number of 
passengers that can be served, and the ways that they can be served. 
For example, the merger will create over 1,300 new connecting routes 
benefitting millions of passengers, many in small and medium-sized 
communities. Our frequent flyer programs will be combined into 
AAdvantage, the best mileage rewards program in the world. At the same 
time, we will achieve significant cost reductions from scale and 
elimination of duplicative systems further benefitting consumers.
    It is these benefits which we seek to provide to passengers by 
combining the complementary networks and nine hubs of American and US 
Airways. And by providing those benefits, the New American will enhance 
competition.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Roger F. Wicker to 
                           Charles A. Leocha
    Question 1. What benefits do you believe should consumers expect to 
derive from this merger?
    Answer. The Consumer Travel Alliance (CTA) sees no benefits for 
consumers to this merger--this is a merger of convenience for US 
Airways and American Airlines. Neither airline is in an economic 
crisis--both just reported record profits last quarter.

    Question 2. Will there be new routes to areas not currently being 
served? Will there be more affordable flight options?
    Answer. Prima facie, competition will be reduced on 1,665 
connecting routes according the GAO report released at the hearing and 
761 one-stop connecting routes will see reduced competition according 
to the CTA study released several months ago. These connecting route 
overlaps provide 1,665 opportunities for the airlines to cut service 
rather than introduce new routes. Neither American Airlines nor US 
Airways has suggested new routes as a result of this merger.
    The reduction of competition has never resulted in ``more 
affordable flight options.''

    Question 3. Better customer service?
    Answer. Customer service, if we look back at the last merger or 
United and Continental will be degraded. That merged airline ranks at 
the bottom of the customer service heap. AA/US will face similar 
challenges.

    Question 4. Fewer delayed flights?
    Answer. There is no way to tell. Experience from the past two 
mergers is that there will be significant IT issues and reservation 
systems will break down during the airline integration. That will 
result in problems for consumers for about a two to three year period. 
Afterward, who knows?

    Question 5. Will the merged company invest in better baggage-
handling technology for an improved consumer experience?
    Answer. Neither airline is making that promise, nor have they made 
it a priority in the past.

    Question 6. What are your expectations?
    Answer. Flights will be reduced. Airfares will increase. Consumers 
will find even more ancillary fees with less transparency. Reducing 
network carriers in the U.S. to only three is fraught with competitive 
dangers.

                                  [all]
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