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What The Blocked American Airlines Merger Means For Consumers, Workers, And The Industry

By Alan Pyke on August 15, 2013 at 10:43 am

"What The Blocked American Airlines Merger Means For Consumers, Workers, And The Industry"

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Credit: AP

Credit: AP

When the Department of Justice (DOJ) sued to block the merger of American Airlines and US Airways on Tuesday, it didn’t just nix what would have been the world’s largest air carrier. It decided after six months of reviewing the deal that it would do more harm than good to the market for air travel. Here’s what you need to know about why the government came to that conclusion and what the decision will mean for airlines, their workers, and their customers.

Why is the DOJ blocking the merger of US Airways and American Airlines? The merger “would substantially lessen competition for air travel,” increasing fares and reducing the range of flights available to travelers, the DOJ wrote in the press release announcing its decision. Airlines have already consolidated rapidly: There are just five major air carriers today compared to nine in 2005. Yet another merger would have left 80 percent of U.S. air travel in the hands of four companies. Furthermore, the DOJ’s suit notes, three of those four companies have previously been caught colluding rather than competing over prices, including in the 1992 antitrust case against eight major carriers that existed at the time.

How do the airlines justify their merger? The counter-argument from the airlines is that the current landscape of the industry means that further consolidation will actually mean more competition. The government previously allowed Delta to swallow Northwest and United to swallow Continental, leaving US Airways and American unable to compete on their own with the two resulting behemoths. American is bankrupt and the merger was its path out of bankruptcy. But American just reported a quarterly profit of $220 million on $6.45 billion in revenue, suggesting it’s healthier on its own than it claims to be. American cut its way to those profits on the backs of workers, reducing its payroll costs by 18 percent and its staff by 7 percent compared to 2012.

Another problem with the airlines’ argument, as the Government Accountability Office (GAO) explained in June, is that the merged company would become the only carrier along seven nonstop routes and the dominant carrier at several major airports, including Dallas-Fort Worth, Miami, Charlotte, and Washington, D.C.’s National Airport. Such monopoly or near-monopoly roles would almost certainly raise prices and could also lead the merged company to reduce service from some “hub” cities.

What does the lawsuit blocking the merger mean for customers? The merger would have increased the level of competition for 210 different flight routes, potentially lowering prices. But it would have reduced competition along 1,665 routes, potentially increasing prices. Given the levels of traffic on those routes, a net of 35.5 million passengers would have likely been negatively impacted by the fare increases and service cuts as a result. Even the passengers who might stand to benefit on ticket prices would likely have been hurt by the merger because its overall concentrating effect would make it easier to coordinate, rather than compete, on fees such as those airlines charge for checked luggage.

What does the lawsuit mean for workers? It will impact two groups in two very different ways. The flight attendants’ union supports the merger and released a statement blasting the DOJ’s suit. American’s bankruptcy sparked layoffs and pay cuts for Association of Professional Flight Attendants members. The recent return to profitability comes from those worker concessions and “the consumer confidence the merger plan created,” according to the APFA, so blocking the merger is likely to hurt members.

But it’s a different story for airline industry workers whose jobs are on the ground. The airlines contract with ground-based companies for things like wheelchair service in airports, and those companies pay poverty wages. The Service Employees International Union (SEIU) affiliate that’s helping organize thousands of airport workers has noted that while their members are paid around $8 per hour, the CEO of US Airways makes $2,640 an hour. The merger proposal included $86 million in executive compensation but no reforms to subcontracting practices related to airport staff, the union said in July.

Update

A spokesman for SEIU 32BJ, the affiliate that has worked with the non-union contract staff on the ground at various airports, sent ThinkProgress a statement on the merger, saying, “With or without a merger, there is a shadow economy that keeps workers at our airports in poverty. For quite some time now, airlines favored a “race-to-the-bottom” contracting system to fill passenger service jobs–once middle class jobs with good pay and benefits held by people working directly for airlines–in efforts to gain more profits by drastically reducing wages and benefits. As this merger is further examined, the concerns of the general public as well as workers struggling for family-sustaining wages and benefits need to be taken into consideration.”

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