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Search Terms: United Airlines AND U.S. Airways AND Merger, House or Senate or Joint

Document 72 of 110.

June 14, 2000, Wednesday

SECTION: PREPARED TESTIMONY

LENGTH: 1434 words

HEADLINE: PREPARED TESTIMONY OF SENATOR MIKE DEWINE

BEFORE THE SENATE JUDICIARY COMMITTEE SUBCOMMITTEE ON ANTITRUST, BUSINESS RIGHTS AND COMPETITION

BODY:
The following is the prepared opening statement of U.S. Senator Mike DeWine (R-OH), Chairman of the Senate Antitrust, Business Rights and Competition Subcommittee, on airline competition in the wake of the proposed United Airlines/US Airways merger:

Good morning, and welcome to the Judiciary Subcommittee on Antitrust, Business Rights and Competition for today's hearing examining the proposed United Airlines/US Airways Merger. A little over a month ago this Subcommittee held an oversight hearing on aviation competition, and while we knew it was a timely hearing, I have to admit I didn't expect to be examining this industry again quite so soon. But we are here again today to examine the proposed merger between United and US Airways because this is a merger of enormous importance, not just on its own terms, but because of the impact it may have on the airline industry as a whole.

In its own right, of course, the deal is very significant. United is the world's largest airline, and it has offered to pay more than $11 billion for US Airways, the sixth-largest airline in the country. The merger would add approximately 560 routes to United's already extensive system, practically double the number of United's daily flights, and give the airline approximately 27% of all domestic passenger seats. To put it simply, this largest and strongest of airlines would be an even larger and stronger competitor in the world airline market. This added size would offer certain benefits to some consumers, who will have access to a larger network with greater flight frequency and more convenient travel options. In addition, the combined airline may extend its network to provide greater service in certain locations that are currently underserved.

Of course, as with many mergers, the deal poses a number of competitive problems as well. United and US Airways currently go head- to-head in a number of markets and at a number of airports, mostly in the Northeast and mid-Atlantic area. This merger would decrease competition in those areas. Some have argued that competition would be significantly decreased on hundreds of routes, including some where United and US Airways are currently the only competitors. For example, in Ohio this deal would eliminate non-stop competition on routes from Dayton and Columbus to Dulles Airport here in the Washington area. These are the types of specific issues that must be addressed if this deal is to move forward. more -United and US Airways have attempted to minimize some of the most obvious problems up front, by proposing to spin off a number of routes, slots and gates at Reagan National Airport to a new airline called DC Air. This airline would compete with the newly merged United Airlines, and would - at least in theory- limit the anti-competitive impact of this merger in the Washington DC area.

Many within the aviation industry have criticized the DC Air spinoff. Critics believe the new airline would be too reliant on United and US Air, for both employees and equipment, and thus, could not compete aggressively against United. Some argue that competition would be better served by allocating the DC Air slots to other competitors, or by having DC Air bid for those slots independently. Obviously the competitive vigor of DC Air is of critical importance to the United/US Airways merger plan, and we intend to examine it carefully. We have Robert Johnson of DC Air here with us today, and we look forward to discussing these issues with him.

Although concerns have been raised about the details of the proposed merger, and, as mentioned, many people are critical of the DC Air spin-off, those concerns pale in comparison to the big-picture implications of this merger. The Justice Department can, and will, look at the details of this deal. The Justice Department will examine the route-by-route details of this merger, and should force divestiture whenever and wherever appropriate. The Justice Department should look carefully at DC Air to decide whether it can be a legitimate competitive force in the market, and act accordingly. But the most important element of this deal, and the issue that concerns me the most, is the impact this merger will have on the structure of airline competition in the future.

United Airlines is already the largest airline in the country; despite its size, however, the other domestic airlines are currently large enough to compete with it. American Airlines and Delta Airlines, the second and third biggest U.S. airlines, have been able to stay within shouting distance of United, and provide significant competition. Northwest, Continental, and US Airways are also large enough to provide a competitive alternative for consumers. But, if this deal is approved, the competitive scales will tip dramatically in favor of United. US Airways will be eliminated as a competitor, and United will suddenly become much, much bigger than its closest competitors. In fact, United would be roughly 50% larger than its next largest competitor. The United network would effectively cover almost all of the domestic market, further enhancing its dominance.

In these circumstances, the other major airlines will almost be forced to react; and the most logical reaction will be more mergers. If this deal is approved, we are likely to see rapid consolidation within the industry, and could easily see the domestic aviation market shrink from 6 major players to 3 major players in a very short period of time.

The competitive implications of such dramatic consolidation are very significant, and must be examined as part of our oversight responsibility. We must examine the impact of such a consolidation on consumers, on smaller cities and markets, and smaller airports. We need to consider whether such consolidation might lead to further entrenchment of fortress hubs, and whether the remaining airlines would compete with each other vigorously, or, as some fear, merely carve up the market and allow one airline to dominate in each region. We need to consider whether start-up and smaller airlines would be able to compete in such an economic environment.

Further, we must consider the impact of such consolidation on existing hub airports. In Ohio, for example, we have major hubs in Cleveland and Cincinnati, and I know that my constituents worry about whether both hubs will be maintained if airlines continue to consolidate. This is an important issue everywhere because when hubs close, passengers lose convenient access to flights, and, just as important, lose the hub-to-hub competition that helps to discipline prices on one-stop flights. Accordingly, we must examine the implications of possible hub consolidation, and determine whether or not such consolidation will harm consumers.

Of course, the answers to all of these questions are, to some extent, speculative. We cannot know for sure how other airlines will react to this merger, and we cannot predict with certainty that consolidation will lead to consumer harm. But we can be sure that the proposed merger between United and US Airways will have a lasting and significant impact on the competitive environment of the U.S. aviation industry -- and that we need to examine more than just its specific effect on individual airline routes. It is critical that policy-makers and the enforcement agencies scrutinize this proposal carefully, and extensively, to ensure that competition is preserved within the industry and that consumers are protected from the impact of excessive consolidation.

Before I turn to the ranking member of the Antitrust Subcommittee, Senator Kohl, I would like to state just one more thing. I have been chairing this Subcommittee for more than 3 years, and we have examined mergers in a wide range of industries. And almost every time we examine a proposed merger, I hear the same explanation -- my competitors are getting bigger, so I need to get bigger. I am worded if this deal goes forward that soon we will back in this room, for another merger hearing, listening to a different airline executive tell us the same thing - United is getting bigger, so I need to get bigger. The problem is that bigger airlines means fewer airlines, and that's not necessarily good for consumers. And if this deal is bad for consumers, then I have a problem with it.

Accordingly, today Senator Kohl and I are sending a letter to Joel Klein of the Antitrust Division, asking him to carefully scrutinize this deal and pay special attention to the impact it may have on future consolidation of the airline industry.

END

LOAD-DATE: June 15, 2000

Document 72 of 110.


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