Staff Writer
Columbus CEO

c.2013 New York Times News Service

WASHINGTON — When the Justice Department announced in August that it had filed suit to block the proposed merger of US Airways and American Airlines, it maintained that airline consolidation had gone too far and the proposed merger would lead to higher fares for consumers.

But Tuesday, in reaching a settlement with the airlines, the Justice Department had a far different view, saying that surrendering of takeoff and landing slots at airports would foster competition and lead to lower prices.

Analysts and consumer advocates, though, questioned Wednesday just how much consumers would benefit.

Paul S. Hudson, the executive director of the Aviation Consumer Action Project, said that the effects of consolidation would overwhelm any concessions won by the Justice Department.

“It doesn’t begin to deal with the fact that the industry is now so concentrated that the big four airlines are going to have unprecedented pricing power,” he said, referring to United, Delta, Southwest and the new combined American.

In striking the deal, the airlines agreed to sell 104 slots at Ronald Reagan National Airport in Washington, and 34 slots at La Guardia Airport in New York. They also agreed to sell the rights to two slots at each of five other airports — Chicago O’Hare International, Los Angeles International, Boston Logan International, Dallas Love Field and Miami International.

William J. Baer, assistant attorney general for the antitrust division, said Tuesday that the settlement “opens up the marketplace as never before.” The arrival of lower-cost carriers, even at that level, would have the ripple effect not only on nonstop flights but also on connecting flights.

But giving up the slots, Hudson said, is “a slight mitigation, certainly a mitigation of concentration, most particularly at Reagan National.”

Kevin P. Mitchell, the chairman of the Business Travel Coalition, said that giving up the slots would “help somewhat, and it’s certainly better than allowing the merger just to go through.” Forcing the two airlines to sell landing slots and give up gates at a variety of airports “will enable the JetBlues and the Virgin Americas of the world to expand service,” he said.

Some Wall Street analysts said the concessions would have little effect on the combined airline. Helane Becker and Conor T. Cunningham at Cowen and Co. wrote in a research note that the settlement was a positive for the merged airline because, despite being required to shed some slots, the divestitures “would have minimal impact on the merged company.”

The merger, which could be completed next month, is supposed to cut the carrier’s costs. The same claim has been made in many previous mergers, including some involving American and US Airways, but merged airlines have had varied levels of success in meshing their operations and achieving the “synergies” they sought.

From the consumer point of view, there is probably no way to preserve the level of competition in place before the latest hookup, advocates say. They note that it comes after the mergers of Delta with Northwest, United with Continental, Southwest with AirTran and even American with TWA.

In an era when carriers seem to be either in bankruptcy or between bankruptcies, many aviation analysts saw the merger as inevitable, and the benefits are not just the “synergies,” they said.

“Much of the whole point of this exercise has been to tighten pricing a little bit, so airlines could stay in business and not go bankrupt frequently,” said Richard L. Aboulafia, an aviation analyst at the Teal Group. The alternative, he said, was two very strong carriers and two weak ones that could ride roughshod over the weak carriers’ markets. That would be bad for consumers too, he said. “You’ll never get to that consumer paradise, where you had multiple weak zombie carriers offering bankruptcy prices,” Aboulafia said

An antitrust lawyer who specializes in airlines, Jonathan L. Lewis, said that it was far too early to predict the effect, and even in hindsight, it would be difficult to say how this would have worked without the concessions, or with American emerging from bankruptcy without a merger, but with a lower cost structure.

The Justice Department, said Lewis, evidently thought that the settlement and divestiture of gates “was an opportunity that did not exist before, to open some of these hubs up and get some of these so called low-cost carriers in there.”