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The US Airways-American Airlines Merger is a Win for Consumers

October 22, 2013 J

By Casey Given

For years, we’ve watched American Airlines hit turbulence in the news. In 2011, the commercial carrier filed for bankruptcy.  In 2012, the company sent pink slips to 11,000 of its employees warning of potential layoffs, but the airline engineered a miraclous turn-around. The good news continued when American announced its intention to merger with US Airways.The two airlines announced in February that they would be merging, saving thousands of jobs and billions of dollars to keep providing affordable airfare for the American public. Management and labor alike applauded the decision. Just when it looked like American would land on fiscally stable ground, the Obama administration’s keeping its future up in the air.

This August, the U.S. Department of Justice (DOJ) filed an antitrust lawsuit against the merger along with the attorneys general of six states and the District of Columbia, claiming the transaction would “put consumers at risk of higher prices and reduced service.” Since the merged American would be the largest commercial carrier in the United States, surpassing both Delta and United, DOJ worries that the company can abuse its market share to hike fares. The economic facts, however, tell a very different story.

As the U.S. Government Accountability Office explained in their June review of the merger, US and American currently only compete head-to-head on 12 nonstop routes. Consequently, a merger would likely have little effect on the airline industry’s competition and fares. The new American would continue to face stiff competition from Delta and United on most commercial routes, so the market’s invisible hand would incent them to keep prices affordable.

Furthermore, the merger would yield an estimated $1.4 billion of value created from new revenues and cost savings. After the two companies combine as one, the new American would be able to streamline its operation – cutting duplicate routes and redirecting personnel to take its services to new heights. Such savings are all the more reason for the new American to keep prices affordable.

These fiscal facts highlight how markets, when left alone, create mutually beneficial outcomes for all parties involved. It’s hard to find a loser in the US-American merger. The two companies will win by creating a single, stronger carrier that is in a better fiscal position to compete with other airlines and return profits to its shareholders. Consumers will win by continuing to enjoy a competitive marketplace. Employees will win by working for a stronger company with less fiscal uncertainty. In fact, American’s historically hostile labor unions cheered after discovering that their employees would receive a raise as a result of the savings. Sixty-six congressional Democrats even sent a letter to President Obama this week asking his administration to drop the case.

Thankfully, one original challenger, Texas, dropped the case after American assured The Lone Star State that it would not “take off,” maintaining its headquarters in Fort Worth. Free market advocates in the remaining states should pressuring their attorney general to drop the case for the sake of American’s employees and American consumers.

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