Copyright 2000 Star Tribune
Star Tribune
(Minneapolis, MN)
December 21, 2000, Thursday, Metro Edition
SECTION: NEWS; Pg. 1A
LENGTH: 1021 words
HEADLINE:
GAO critical of airlines' merger plan;
A combined
United Airlines-US Airways would be bad for consumers, a study
says.
BYLINE: Greg Gordon; Staff Writer
DATELINE: Washington, D.C.
BODY:
The proposed merger of United
Airlines and US Airways would create a behemoth that would dominate
1,126 of the 5,000 most heavily traveled domestic routes and likely would force
consolidation by other major carriers, a General Accounting Office analysis
concluded.
Rep. Jim Oberstar, D-Minn., said in
releasing the report Wednesday that the merger would so harm competition that it
would be better for financially struggling US Airways to "disappear" than for
the deal to win approval from federal antitrust regulators.
The GAO said the proposal would increase
dominance in five times as many markets as Northwest Airlines' proposal to
acquire a controlling stake in Continental Airlines _ a deal recently scaled
back under a settlement with the U.S. Department of Justice.
If the United-US Airways marriage is approved, Oberstar
told a news conference, other major carriers would have "no choice" but to
scramble for merger partners, such as a union between Eagan-based Northwest and
American Airlines.
That would likely "reduce the
domestic, as well as international airline industry to three mega,
globe-straddling carriers" with enough market power to control fares and reduce
customer service, said Oberstar, the ranking Democrat on the House
Transportation and Infrastructure Committee.
Elk
Grove Township, Ill-based United already is the nation's largest airline, while
US Airways is the sixth largest. The merger would create a $46
billion giant with $9 billion more in annual revenue than its
closest rival, said the GAO, Congress' investigative arm.
Agency investigators found that the merger would
have some positive benefits, improving competition in 65 markets in which 2.9
million people traveled last year. But in reviewing the potential effects on the
top 5,000 U.S. airline markets, they concluded that competition would be reduced
or eliminated in 290 other markets in which 16 million people traveled in 1999,
including all routes between the "new United's" eight hub cities.
"Customers will have little choice, few options,
higher fares and reduced service," Oberstar said.
The study concluded that the merger could make
"potential entry by new airlines in key markets more difficult."
US Airways executives reacted angrily to
Oberstar's comments, issuing a prepared statement accusing the veteran
congressman of making a "reckless" remark to serve his own agenda. Oberstar's
suggestion that it would be better for the airline to close its doors was "an
insult to US Airways' 45,000 employees and their families, reflects a careless
disregard for the 202 communities US Airways serves and in no way is supported
by the GAO's report," the statement said.
United
spokesman Andrew Plews said the giant carrier disagrees with the GAO's findings.
"We see a lot of consumer benefits with the
merger," he said, including "an injection of new competition in many, many
markets," 89 nonstop routes and new global access for small and medium-size
communities.
Oberstar, however, cited the
report's findings that the new United would own 1,000 aircraft _ representing 20
percent of the domestic airline fleet and more, he said, than the Air Forces of
most western European nations.
The Justice
Department has declined to say whether its antitrust division will complete a
review of United's proposed $4.3 billion acquisition of
Virginia-based US Airways before the Bush administration takes the reins Jan.
20. US Airways said in a recent securities filing that it expects a decision in
January, and industry officials speculate that it will come by Jan. 16.
"I would have much more confidence in this
Justice Department than one headed by the other party," Oberstar said.
Oberstar contended that the Clinton
administration's Justice Department "has shown a willingness to stand up to some
of the toughest questions and issues in antitrust law," including suing
Microsoft Corp., while the Reagan administration did little to protect start-up
airlines from anticompetitive practices by major carriers.
In an effort to win approval, United and US
Airways have proposed spinning off US Airways' assets at Reagan National Airport
to a new airline called DC Air, to be owned by Robert L. Johnson, the chairman
of Black Entertainment Television and a US Airways director.
An approval also could be conditioned on other
possible divestitures, but Oberstar contended that "there is no amendment to
this proposed merger that will make it better."
He said he would forward the report to the
Justice Department with hopes it will consider the "downstream effects" of
further industry consolidation in making its decision.
Oberstar was joined by Rep. Louise Slaughter,
D-N.Y., who has crusaded for lower fares and increased service for upstate New
York.
The GAO noted that the Justice Department
assessment is likely to focus on a number of factors that it did not examine,
including a detailed look at how the proposed merger would alter an airline's
concentration in particular cities, potential impacts on international
competition and on service to smaller communities.
.
Greg Gordon can be contacted at
ggordon@mcclatchydc.com
.
.
Airline merger report
.
Here are the key findings of a General
Accounting Office study of the proposed United Airlines-US Airways
merger:
.
- Public's stake: The merger
likely would be detrimental to far more of America's flying public than it would
benefit.
- Other mergers: The merger could touch
off other airline mergers.
- Markets and
flights: The deal would increase significantly the number of markets in which a
single airline operates more than half the flights.
- Competition: The merger could make "potential
entry by new airlines in key markets more difficult."
- Northwest deal: The merger would have a far
larger impact than Northwest Airlines' proposal to acquire a controlling stake
in Continental Airlines, which was recently scaled back.
LOAD-DATE: December 21, 2000
