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The U.S. Justice Department took most everyone by surprise yesterday. Along with six states and the District of Columbia, it sued to block the merger of American Airlines and US Airways. The two airlines were just days away from a bankruptcy court hearing which they hoped would confirm their exit plan. The carriers claim their consolidation would benefit consumers by creating a new airline that could compete with rivals that have already merged. But critics and Justice officials say the transaction would result in higher fares, higher fees and fewer choices. Diane and her guests discuss the economic impact of airline mergers.
- Charles Leocha Director of Consumer Travel Alliance.
- George Hamlin President of Hamlin Transportation Consulting.
- Holly Hegeman Founder and CEO of PlaneBusiness.com.
- Ben Mutzabaugh Editor of USA Today's "Today in the Sky" blog.
MS. DIANE REHMThanks for joining us. I'm Diane Rehm. In a statement yesterday, U.S. Atty. Gen. Eric Holder defended his agency's surprise decision to challenge a merger between US Airways and American Airlines. He said the merger would have resulted in consumers paying the price in higher airfares, higher fees and fewer choices. But not everyone agrees.
MS. DIANE REHMHere to talk about the impact of recent airline consolidation on travelers and local economies: Charles Leocha of the Consumer Travel Alliance, George Hamlin of Hamlin Transportation Consulting, and Ben Mutzabaugh of USA Today, joining us from KERA in Dallas, Holly Hegeman of PlaneBusiness.com. I know you'll want to join our conversation. Give us a call at 800-433-8850, send us an email to firstname.lastname@example.org, follow us on Facebook, or send us a tweet. Welcome to all of you.
MR. CHARLES LEOCHAHello. Glad to be here.
MS. HOLLY HEGEMANThank you.
MR. BEN MUTZABAUGHGood morning.
REHMGood to have you. Ben Mutzabaugh, let me start with you. How big a surprise was the Justice Department's announcement?
MUTZABAUGHI was very surprised, and I think most, if not all, industry observers probably expected this merger to go through, maybe with a few conditions, but I think most people probably were pretty surprised by the move.
REHMYou know, it's interesting that Bill Bayer of the Department of Justice rather than Eric Holder himself made the announcement. What do you read into that? We invited Mr. Bayer on the program this morning, but he's not doing any broadcasts. Why do you make of that?
MUTZABAUGHYou know, I think it's a curious development, and for such a big piece of action, you would think you will hear from the top guy. So I don't really know what's going -- what to make of that necessarily. And I think a lot of us are still trying to digest what seems to be a shift from how Justice has evaluated these items in the past. So I just I think we're still trying to figure it out.
REHMAll right. So what would have happened had this gone through with no objection?
MUTZABAUGHSome time, probably in the third quarter of this year, we would have seen the airlines officially closed on the merger, which would have started the clock ticketing on the actual integration of the two sides and the two frequent flyer programs so that, say, in a year, give or take, you would have seen a single airline under the American brand operating all of the flights from the combined carrier and headquarters would have shifted from Phoenix to Dallas.
REHMGeorge Hamlin, what's your reading of why the Department of Justice took action here but not in the past on these other mergers?
MR. GEORGE HAMLINI'm still trying to figure that out. This is something that I think Ben chose the right words. I was tempted to say I was shocked, but then that might have evoked Casablanca where shock doesn't mean exactly what people think. But, no, I don't know what caused them to do this. I mean, it was the same Department of Justice that in 2010 had not -- did not have a problem with United Continental.
REHMCharles Leocha, do you think that Justice acted in consumers' best interest?
LEOCHAAbsolutely. We have probably the best possible legal team we could have hoped for at the Department of Justice. I worked with them over the last six months. I've met with them several times. And frankly, I was having discussions just this last weekend, saying that this was a slam-dunk, and that it would be a very close call. And I was hoping that it would come down on our side. What I was surprised about was I said to myself I was expecting it to happen at the middle of the month, and then I said, wow, we are in the middle of the month.
REHMSo what do you see behind the motivation to do this?
LEOCHAWell, behind the motivation is the fact that we as consumers will lose an amazing amount of competition across the country, nationwide.
REHMShould this merger go through?
LEOCHAShould the merger go through. And what happened is we in the Consumer Travel Alliance had a study done back in April of this year. We released it in May. And that study showed that there were hundreds and hundreds of overlapping connecting routes. In other words, if someone wanted to fly from Seattle to Austin, Texas, they could go online and look for a way to get there. And US Air would route them via Phoenix where American Airlines would route them via Dallas.
LEOCHABut it was still a competition. It was still competing routes. It just happened that they connected in different places. And so we came up with that analysis, and then the Government Accountability Office followed up with a similar analysis. They extended it. And when they released their report at the end of June, they showed 1,665 overlapping connecting routes, and that's a whopping number of routes.
LEOCHAIt just made everything nationwide and just by tinkering around the edges by trying to change the vestitures at D.C. airport or something at La Guardia wouldn't solve the problem across the nation. And so I don't think that Justice had any choice once they saw what was going on and the loss of competition they had to act.
REHMAll right. And turning to you, Holly Hegeman, I gather you disagree with the Justice Department's stepping in.
HEGEMANThat would be correct. I also disagree very strongly with what Charley just put out. I think Charley would be happy if there was a small fleet of regional aircraft available to every consumer 24/7 every hour of the day to take them anywhere they wanted. I think, first of all, I'm not going to get into picking apart this study or that study because we can easily bore your readers, and I don't -- or your listeners -- excuse me. I don't want to do that.
HEGEMANBut, first of all, this particular merger had very little what we call overlapping route issues. It's interesting that for the first time the DOJ began or decided to look at the issue of connecting opportunities. Now, this is important because this type of analysis has never been done in previous merger analysis. It has just never even been a part of the process. The other thing that concerns me greatly is that the DOJ went on a tear in its complaint towards a statement yesterday about the subject of fees.
HEGEMANAnd as though this also had something to do with the fact that this is why they should not allow the merger to go through. I don't think either one of these holdup. I don't think that they will hold up. The other thing that concerned me in the comments that the DOJ made yesterday were comments that I felt were pretty close to character assassinations of the principals involved, especially Doug Parker, who was chairman, CEO of US Airways, and Scott Kirby, who's president of US Airways. For those...
REHMHolly Hegeman, she's founder and CEO of PlaneBusiness.com. That's a weekly financial publication covering the airline industry. She's a past consultant to Robert Crandall, former chairman and CEO of American Airlines. Do join us, 800-433-8850. Ben, what has been the reaction from the airlines?
MUTZABAUGHWell, as you might expect, the airlines I think were probably a surprise as I think a lot of industry experts were. And they both have pledged that they plan to vigorously contest Justice's suit. That's not a surprise. I think there's not any clear path that I see. They can put anything -- they can't put a whole lot on the table to -- as far as concessions go. There are some things, but I just think they're going to contest the suit on its merits. And I really don't know what other choice they have at this point.
REHMIt's really interesting to take a look back, Charles Leocha, and try to understand how past mergers had affected flying public and the airline industry.
LEOCHAWell, we can go back and look at that, and, you know, let's just look at the Continental-United merger. It was supposed to make everything good for consumers, and we're going to get all these benefits from it. You know, we've got...
LEOCHASuch as lots of money saving, better service and so on. And I sat right next to the CEOs in a hearing, and I was -- when I was testifying before the commerce -- Senate Commerce Committee. And everything that they promised did not come through. They claimed $1.7 billion in synergies. And only a couple of months ago, the chief operating officer of United International said I'm sorry, we had dis-synergies.
LEOCHAThey didn't get that. They had a negative. They claimed that they weren't able to merge their airline together nicely. And anyone who flies with United and especially old Continental people are not happy at all with that merger and with the problems that they've had with their central reservation systems. It has been a giant mess, and consumers are the ones paying the price, not the airlines.
REHMGeorge Hamlin, how do you see it?
HAMLINI really question the motivation behind this. You know, the study of the connecting routes, this is something that was there before that. Now, I'm coming at this from what may seem to be a strange position. I'm not a fan of industry consolidation at all. I would prefer to see the economic doctrine of what's called creative destruction apply to where things that are viable keep on going, and those that are not disappear.
HAMLINNow, that can be painful as well. But in the case of American and US Airways, they're trying to do the same thing that Delta, Northwest and United Continental are, and now, they're being asked in effect to run a race with one hand behind their back tied to their ankle.
REHMGeorge Hamlin, he's president of Hamlin Consulting, Ben Mutzabaugh is editor of USA Today -- that "Today in the Sky" blog, and Charles Leocha, he's director of the Consumer Travel Alliance, Holly Hegeman is on the line with us, CEO of PlaneBusiness.com. Short break. We'll be right back.
REHMAnd we're talking in this hour about the Department of Justice surprise announcement yesterday that it would not allow the merger of American Airlines and US Airways. They see it as an antitrust situation. I've got four people with me, and we'll be happy to take your calls. Ben Mutzabaugh, what would have happened if US Airways had simply -- or American had simply gone into bankruptcy?
MUTZABAUGHWell, American is currently organizing in bankruptcy now, and, in fact, the merger with US Airways is part of their proposal to exit bankruptcy. It will happen probably for American either way, but the creditors decided that the merger with US Airways was their best path forward and their best chance to recoup their investment in the airline, which would be lost if it liquidated.
REHMSo liquidation would have meant one last airline.
MUTZABAUGHThat's correct. And I don't know how close we were to that concern at American. They were definitely in deep trouble. I think liquidation was probably an unlikely scenario. But they were in deep financial trouble, and they did need to re-organize. And they were going to come out of bankruptcy either way. I think it's questionable, if they come out alone, exactly what their future will look like. They will be stronger with US Airways as part of their company, but I guess that's what Justice is arguing. It's too strong perhaps.
REHMHolly Hegeman, how do you see that?
HEGEMANWell, I, you know, it's very interesting as to what's going to happen with the bankruptcy because the hearing is scheduled for tomorrow. And some folks have contacted me over the last day and said, you know, could the bankruptcy judge potentially revert back to what was originally called the standalone plan that American had originally put out?
HEGEMANThat's not possible because American never filed a restructuring plan of their own with the bankruptcy court. The only plan that was filed was, in fact, the plan, as Ben mentioned, that involves the merger with US Airways. And that is why the creditor -- the creditors -- again, security creditors agreed to go along with the deal. So there is no plan B for the bankruptcy judge tomorrow to pick from.
REHMGeorge Hamlin, how many cities, how many airports would be affected if the merger were to go forward?
HAMLINWell, this will affect basically the US route map and much of the international. Now, one nuance of this merger is Delta and United, through historical circumstances, are stronger in Asia than American and US Airways is not in Asia at all. The merger is not going to fix that in any -- to any significant degree. It will enable US Airways current passengers to utilize a single carrier, the new American if it goes through, to get to a number of points in Asia, particularly in Japan and China.
HAMLINNow, almost all of the domestic market, each carrier has got some cities and the reasons it's strong in where it's a de facto monopolist or at best a duopolist. But those are relatively small cities and not terribly large in number at this point. You know, the system has basically matured to the point of where small cities have truly come off the map.
HAMLINIf you look back in history, the local service carriers, Lake Central, which was the smallest of these, I think at one point, served 14 points in Ohio. I don't think many people could name 14 points in Ohio. So we've seen almost constantly since the local service carriers were formed small cities falling off the map. Now, is that going to be cataclysmic in this case? No. I think we're beyond that. But the trend is not going to stop either.
LEOCHAIn terms of what happens to the airlines? Well, when we're looking at this, we just have to look at the numbers. We have to look at the studies that have been done. The government accountability study was very, very clear: 1,665 airport payers were going to be whacked with a loss of competition. And I don’t care if the competition drops from five airlines to four airlines, four airlines to three or three to two. We are losing competition. Competition is what makes the free market work.
LEOCHAAll of these other claims we hear is -- are talking about how good this merger is for the airlines, not for consumers. And I have just been focused like a laser on what the effects are going to be on consumers and that's by -- what the Department of Justice was focused on as well. They could care less about what's going to happen to the airlines. How does this help or hurt consumers? And they came down on the side of consumers, and they came down on the side and said loss of competition is not a good deal.
REHMAll right. Here's an email from Michael, who says, "I live in Dallas. American controls 85 percent of the flights out of DFW. Fares are not competitive." Holly, how do you see that?
HEGEMANWell, I would remind him that there is -- the largest domestic carrier in the United States flies out of Love Field, and that would be Southwest Airlines.
REHMAnd how does Southwest Airlines figure in here, Charles?
LEOCHACall it competition. And they're not flying -- I mean, Southwest is still hamstrung by the right amendment. They can't fly beyond the adjacent states of Texas. But that's going to end soon. And so they will be able to offer some more competition. However, that's the bottom line. Competition works.
REHMAll right. And here's another from Tim in Eaton Rapids, Mich. He says, "Anyone who has flown recently has experienced the results of recent airline consolidations as they pay exorbitant fares to fly from smaller airports to the airline hub airports while they pay for smaller seating space, the privilege of checking a bag and being able to eat a small, poor meal on board." Ben.
MUTZABAUGHWell, I think that's just a fact that the industry has evolved. You know, we all remember this, you know, white glove, golden era of flying that everyone associates with the '50s and '60s. But the reality is flying was a province of the rich those days. So, you know, people like us probably weren't flying and probably not many of us until beyond, you know, 1980 and beyond. So as the process become democratized, there's no question that there are some parts of the process that have become less pleasurable.
MUTZABAUGHThat said, you know, I think the fees are a separate issue. I was a little surprised to see that lumped in to the merger conversation. I don't know if Justice wants a pound of flesh for the fees that doesn't like at the airlines. And whether you like or dislike the fees, it's hard for me to see how this is a reason to block a merger. And I will say -- there was one point I wanted to make. The United-Continental merger has not gone extraordinarily well.
MUTZABAUGHBut I think if you look to the other example, the Delta-Northwest merger, by all accounts, has made the travel -- traveling experience better for all passengers of that airline. And the fact that those airlines have become more profitable, Delta's -- they've built a new terminal in New York. They're doing so Los Angeles. They've got -- they're upgrading Atlanta. So the airlines are doing better, but they're also, finally, for the first time since the '90s, significantly reinvesting on the product that the passengers use. So it's a double-edged sword
REHMAnd here's an email from Howard in Washington. He says, "Airline mergers have devastated former hub cities like my hometown of St. Louis, cities like Pittsburgh, Cincinnati. The Justice Department action is way overdue." George Hamlin.
HAMLINWhat we had in the case of many of the hubs -- I grew up in Cincinnati, which has experienced the same thing. In the consulting world, I've had Memphis as a client, which also has been in this mix. But in effect, we had a bubble of hubs. Everybody ran with what seemed like a good idea at the time. Regional jets was another example of a bubble in the industry. There became too many. The marketplace has now dealt with that, and not every city is going to get to be a major hub, going forward.
REHMSo how many airports or cities would be affected if the merger goes forward?
HAMLINWell, for an example, and I've expressed this publicly before, I think there are some concern about Phoenix and DFW working in tandem. Similarly, American-US Airways…
REHMBut what does that mean to the consumer? Explain that.
HAMLINWhat it could mean if that the DFW hub is not going away. It's huge.
HAMLINCorrect. And Phoenix, which is smaller, competes for many of the same traffic flows.
HAMLINPlus, Southwest is there…
HAMLIN...competing vigorously. And if you had to choose one or the other, it's likely going to be DFW.
REHMSo what is that going to mean for the consumer?
HAMLINIt could mean less choice at Phoenix, and I think it could mean either the transatlantic system of US Airways at Philadelphia or American at JFK, one of those maybe downsized considerably in favor of the other.
REHMWhat do you think it's going to mean?
HEGEMANI would disagree with George's take on what's going to happen in terms of Philadelphia, JFK and Phoenix-DFW. In fact, we did our own analysis not too long ago, and I actually think that what we see US Airways doing with Philadelphia -- and they have been very upfront about this as well -- is Philadelphia serves a very different market than that of JFK. I think JetBlue has found out the hard way that JFK is not a place where you want to have a connecting hub.
HEGEMANSo that's why they have moved the base of their operation to Boston. What we see US Airways probably doing with the merger is that they would continue to keep Philadelphia as their connecting hub, their main hub on the East Coast in addition to Charlotte, but continue to use JFK as American uses JFK now. The advantage to Phoenix that it will give the merger, we feel, is it will allow the new merged carrier to set up more short haul service out of Phoenix up and down the West Coast not having to go through Los Angeles.
REHMYou're shaking your head, George Hamlin.
HAMLINHolly, I think with US Airways' system cost increasing to the American level in the event of the merger, that's going to be difficult, if not impossible.
HAMLINExpanding Phoenix in the face of competition with Southwest which, when you correctly stage-length adjust, has a clear cost advantage over all the legacies.
HEGEMANNo. They would go -- no, I'm talking about smaller markets up and down the West Coast that Southwest cannot economically serve using 737s.
REHMAll right. Charlie, you want to weigh in?
LEOCHAWell, I really wanted to weigh in on the question of fees because this has been something near and dear to my heart for the last three years, and I know that Holly and Ben know that. And in this case, what the airlines did is right at the beginning of this entire merger operation, they raised their change fee from $150 to $200.
REHMSo if you wanted to change your flight...
LEOCHAIt will cost you $200 plus the change in the airfare.
REHMAll right. OK.
LEOCHASo a lot of airline tickets -- I go back and forth to New Hampshire a lot. My tickets cost me about $180 roundtrip. And I might as well just throw the ticket away once they brought it up to $200 change fee because that's more than what I paid for the ticket. But where this fits into this merger is that they did it with -- it's like putting their thumb in the eye of the regulators. They said, we're going to raise our prices for no reason only because we can, and they got called on it.
REHMCharlie Leocha. He is director of Consumer Travel Alliance. That's an advocacy group focused on airline travel. And you're listening to "The Diane Rehm Show." I'm going to open the phones now. We'll go first to Atlanta, Ga. Hi there, Jerry. You're on the air.
JERRYOh, hi. How are you today, Diane?
REHMGood. Thank you.
JERRYI just -- I had a comment on this whole topic because I travel on business all the time, several times a month. And basically what I've seen is I would guesstimate an increase in the last few years of approximately 25 percent travel cost. I think, for me, what the Justice Department has done is step in and said, enough.
JERRYWe are going to stand on the side of the consumer for a change, and we're going to basically take a look at the impact that the mergers have had on the consumer over the course of time, and it's like stop. We don't need another one. We don't need to damage consumer confidence anymore.
REHMI guess one of the questions would be how much of that 25 percent increase is due to the cost of fuel? Ben.
MUTZABAUGHWell, I think that's a great point. It's hard to isolate any one of these factors and saying, where are fares 25 percent higher? We'll just assume that that's an accurate number or close enough. Have the mergers played a role? Yeah, they have. Has the increase in fuel prices played a role? Yes, they have. Has the normal cost of inflation played a role? Of course. So, I mean, all of these things work in tandem.
MUTZABAUGHIt's difficult to say it's only because of the mergers. But the mergers do play a role. And I do think, frankly, if Justice was that concerned about fares and cost is their paramount concern, then they were fools to let the Southwest-AirTran merger go through and maybe should have been more concerned about that one than the one that we're talking about now.
HAMLINI'd have to disagree with you, Ben, on that. Southwest faced a build or buy decision in the Southeastern U.S. market.
REHMBuild or buy.
HAMLINYes. In other words, you can either, over a long period of time, build up an enterprise from scratch or you can acquire something. And Atlanta was simply not a place you were going to be able to build a significant operation. It is de facto the regional capital of the South. And by enabling Southwest to become more of a full-scale domestic carrier from a root structure standpoint, I think that was beneficial to competition.
LEOCHAI agree, and I supported that merger.
REHMAll right. So it's interesting. So you feel and have expressed your concerns about consumers, putting consumers first. And yet you felt that that prior merger made sense for the consumer as well.
LEOCHAYes, because what had just happened is that merger came up right after the Continental-United merger was approved. So they had wrung competition out of the system. And what this merger did, the Southwest merger with AirTran did, is it put some competition back into the system. It gave us one more national airline, national domestic airline to compete with the big guys, and we didn't have that before. So that was good from a consumer's point of view. From that point of view, it actually added competition rather than taking away.
MUTZABAUGHWell, yes and no. And I actually did support that merger as well for the record, but I think it's faulty logic to prove that one and not this one. That said, it did help Southwest become a bigger national player. It already was a national player, although it was lacking a presence in some big cities. But, you know, Charlie, you've mentioned that we're concerned about small cities losing service.
MUTZABAUGHThe Southwest-AirTran city was probably the biggest damager to service of small cities of any of these mergers. I think we're, what, two dozen cities or 18 cities that lost service on one or both of the carrier -- or AirTran service? So they lost probably their only low-cost carrier they had as a result of this merger. We're talking cities like Harrisburg, Allentown, Ashville, just the type of cities that we're arguing need protecting in this current merger.
LEOCHAWell, I'm -- when we go back and we look at what happened with Southwest and AirTran, if we lost competition, if we lost some small city coverage, that is something which we -- leads -- that we need to look at this merger even more carefully.
REHMCharles Leocha, George Hamlin, Ben Mutzabaugh and Holly Hegeman -- they're all here. We'll take your calls, questions after a short break.
REHMAnd let's go right back to the phones. To St. Louis, Mo. Hi there, Linda. You're on the air.
LINDAGood morning. Thank you for taking my call.
LINDAHi. I am thrilled that the merger might not go through because when American took over TWA, we were promised by the -- sorry, I was running. I always run to your show. Anyway, we were promised that St. Louis -- in St. Louis, it's going to be great for us. But within a year, they dropped around 200 flights that hadn't been picked up by any other carriers, a few by Southwest but that's been it.
LINDAWe all think that it has made flights more expensive, and we've lost so many nonstop flights. Furthermore, I really believe it's been bad for the St. Louis economy. It's hard for new businesses to move here if it's not easy to get around the country.
HAMLINWell, as a former TWAer, I can certainly sympathize. But it's also necessary to point out that a lot of that cutback took place in the aftermath of Sept. 11, 2001, which produced huge distress in the airline industry. And much as it would be nice to see TWA come back, although that's not going to happen, St. Louis has benefited considerably from a very large increase in Southwest service, both competitively and price-wise, in my opinion.
REHMAll right. Here's an email from Diane in Dallas, who says, "My spouse has worked for American Airlines for many years. You cannot imagine what a blow the Department of Justice decision has been for us. Would your guests please address the financial future of our airline if we are not permitted to go ahead with this merger? This affects the lives of nearly 80,000 people. At this point, I feel government is playing with our lives and our future and the future of our company." Holly.
HEGEMANI agree with her. I think that the decision yesterday not only affected employees, it directly affected the situation involving unsecured creditors involved with the bankruptcy who have already OK'd the deal based on stock prices that were assumed and that were very strong going into yesterday, and particularly for the American Airlines employees. I've been very close to the situation from a number of years and the -- this merger was unprecedented because the employee groups at American actually signed MOUs with the management team that US...
REHMMOUs, what are they?
HEGEMANMemorandum of understanding...
HEGEMAN...with the union groups at American, while American was still in bankruptcy. To put that in a plain perspective, it means that the employees at American were so disenchanted and upset with their management team that they were willing to go with a management team from another airline. And they put their necks on the line to do this. We have never seen that happen in this industry.
LEOCHAI think that it's really interesting to listen to the conversation. We talk about employees at American Airlines. We talk about unsecured creditors. We talk about stockholders. Let's talk about consumers. The Department of Justice is not the one that created American Airlines. They did not create the problems at American Airlines. They did not create the labor strife at American Airlines. Their job is to watch out for consumers, and that's what they've done.
LEOCHASomebody else can worry about American Airlines. And they're going to do fine. They've got billions of dollars in the bank. They've got the biggest airline order in the history of aviation on the record. They've got the lowest interest rates in the history of aviation to support that purchase of aircraft. And they're going to be doing just fine. And their labor costs have been slashed due to bankruptcy.
MUTZABAUGHI think the jury is out on whether American will do fine without the merger. They may. They may find themselves back in bankruptcy court in seven years as well. I don't think that we have a clear vision of how that's going to turn out. And frankly, speaking of the consumers, I want to point out one other example. You know, we talked about -- let's take a worst-case scenario and say a merged American does pull out of Phoenix as a hub.
MUTZABAUGHYou know, this happened in Pittsburgh a few years ago with US Airways, and people there were really distraught about the closure of the Pittsburgh hub. And there's no doubt that it created some negative consequences for the region. But I think if we're looking only at consumers, it's also important to know that once US Airways was left without a dominant presence in the Pittsburgh market, suddenly JetBlue started flying there, suddenly Southwest started flying there.
MUTZABAUGHAnd now fares in Pittsburgh are lower than they've ever been. You might not have a nonstop flight to, you know, Salt Lake City -- well, you do. But you might not have a nonstop flight to Portland anymore, but you're paying less to get there than you did 10 years ago.
LEOCHAExactly my point: competition. That's what does it. That's what Ben is talking about. That's the results. That's what we need.
REHMAnd here's a note: After Delta-Northwest merger, Cincinnati Airport went from about 600 flights to about 190 flights. They lost a major employer, Chiquita, to Charlotte, N.C. George.
HAMLINI'm very familiar with that situation having grown up in Cincinnati and actually just visited last weekend. The airport has done a lot to, you know, spiff itself up to go after new carriers, et cetera, but no, this is a major blow. When you lose a hub, all sorts of services can't be supported. Cincinnati had, I believe, six transatlantic nonstops a year or two ago. Today, they have one. And that's a function of going into its partner's hub, Air France at Paris.
REHMAll right. Let's go to Houston, Texas. Rosemarie, you're on the air.
ROSEMARIEGood morning, Diane. Thank you for taking my call.
ROSEMARIEAs a recent resident of Houston, I was immediately impacted by the United-Continental takeover in -- well, I'm sorry, merger. I saw our transportation costs pretty much double from the time when we first moved here and we were travelling to the northeast. And now, it's three years later. We've been here for three years. And truly, it's -- our prices have gone from about $300 a ticket from Houston to Boston to -- I'm lucky if I can get one for 500 from Houston to Southern California.
ROSEMARIEAgain, I was travelling for, I remember very clearly, $288 a ticket. I'm lucky if I can get one for $464 now. And that's, you know, the United-Continental schedule has also reduced significantly. We have many fewer choices than we had in the past. I haven't been personally affected economically by the takeover, but -- I mean, I'm sorry, the merger.
ROSEMARIEBut I know that many, many, many people in, particularly, the Northern Houston area have been affected by it, too. So in terms of consumer effect, it has damaged our economy here to some degree, both in the amount of money that we can spend to travel and in some of our neighbor's jobs and lives.
REHMBut, you know, at the same time, Charles Leocha, some will say that the airlines simply could not sustain these cheaper flights.
LEOCHAWell, you're right. The airlines couldn't sustain them. And so they had to make changes. However, what we ended up with, when we have the Continental-United merger, we ended up with a situation where enough competition left the system so that prices could be raised, and they came up quickly.
LEOCHAAnd over the past two years, those prices have almost doubled in some places. I've got friends that go from between D.C. and Houston every month, and they are howling at the increase in prices. So, you know, we have to look at the entire system. We have to look at it in terms of how it affects consumers, and if we have competition, it tends to keep the prices down.
REHMDo you believe, George Hamlin, that the industry and the shareholders are making more money because of these mergers?
HAMLINI'm not sure it has benefited the shareholders in the sense of getting huge dividends. What this is keeping the airlines in business where some of them, I think, would have gone to pieces under the economics they had before. Back to Charlie's example of friends here going to Houston, I take it these friends aren't willing to go to BWI where, I think, there is some different pricing. There's another problem, consumers also want everything to be in their backyard and not have to go to any trouble.
HAMLINThere's a small airline that many people are not familiar with, Allegiant, it makes a living going to -- from smaller places to leisure centers like Orlando and Las Vegas at very inexpensive prices. Yes, they offer many extras that you can purchase, but if you are persistent and resist, you can get the flight very cheaply.
REHMAll right, to Green Bay, Wis. Hi, Tom.
TOMHi, Diane. Thanks for taking my call.
TOMI have to go back to the caller from St. Louis who mentioned TWA and how nonstop flights disappeared, service became less and less. I live near Milwaukee, obviously, and so I was directly impacted with the Southwest merger with AirTran. I used to buy AirTran nonstop to DCA, DWI. Those flights have now been replaced with one-stop flights.
TOMMostly, I have to take Southwest if I want to go to the same destination, and the tickets are more. And I remember clearly sitting in an AirTran plane, reading the magazine with the Southwest CEO telling me how it was going to benefit me as the consumer to see the Southwest-AirTran merger take place. And I can tell you I haven't seen anything good about it.
HEGEMANWell, this kind of goes back to something that Charlie said earlier when he said he was in support of that merger, which I find very odd because I believe a couple of things have happened as a result of the AirTran-Southwest merger. One, there has been a reduction in service to a lot of smaller communities. And two, fares -- average fares at Southwest have gone up over the last three years. So I find it kind of interesting that Charlie would support that particular merger but then says that's bad in this particular case.
HEGEMANBut the caller is right.
LEOCHAWell, people are -- service changes. And I'm sorry if he can't get a nonstop flight. He can still get to the places he wants to get to, and I'll bet he can still get there at the same price.
REHMOK. But you're not answering the question. What was different about that merger versus this merger?
LEOCHAThat merger allowed Southwest Airlines to become a national competitor in the aviation industry. Before the merger, they had no service in and out of Atlanta, which is one of the key places that you need when you have a national distribution system. That's where business travelers want to go. And once they had the merger, they changed their operation, and they worked much more effectively to bring in more business travelers.
MUTZABAUGHWell, you know, I understand the point. I don't think it's too much of a stretch though to say that's also kind of what US Airways is trying to do here. I know it's an apples to bananas comparison, but US Airways is national in many regards. But if you want to go somewhere in the middle of the country, you're completely out of luck with US Airways. They're our coastal airline. They've got hubs in the East. They've got a hub in Phoenix. And that's it. So I kind of think, you know, it's -- let US Airways become a national player as well and compete with United and Delta.
REHMAnd you're listening to "The Diane Rehm Show." To Raleigh, N.C. Rayne, (sp?) you're on the air.
RAYNEHello, Ms. Rehm. Thanks for taking my call and to your guests.
RAYNEI live in Raleigh, N.C., now. I grew up in Pittsburgh. And my mother worked for Allegheny Airlines, which later became US Air, which later merged with British Airways, you know, the history. My parents are both living still in Pittsburgh, so I try to fly every two months to Pittsburgh from Raleigh. There's one nonstop, and that's US Airways. It's gotten very expensive to fly that. I can also fly Southwest. And people in Pittsburgh, my mother says, were very grateful when Southwest came there.
RAYNEAnd if I fly Southwest, I have to connect through Baltimore, Philadelphia, New York, somewhere like that. My question becomes, Pittsburgh Airport, the last time I was there, as an indicator of its success at this point in time, has four screens lit out of a possible 12 of arrivals and departures. Most of the gates are empty. And they've been trying to build themselves up, but they counted heavily on US Air when they built this airport, I forget how many years ago. And I am afraid that US Air will just finish and say, goodbye, Pittsburgh.
REHMWell, what do you think, Ben?
MUTZABAUGHWell, they haven't quite said goodbye yet, but they are close. They're never going to leave entirely. They'll probably remain one of the bigger carriers there. But, you know what, that was the airport I grew up flying out of mostly, and it's -- I think the question is there's a public utility component to this. I feel like people want the airlines to be like a public utility, like the bus service where they're outraged if the price goes for $1.50, $2. But these are businesses. There -- they are in this -- their function is to make money.
MUTZABAUGHAnd while I certainly agree that consumer protections are needed to prevent, you know, exploitative practices by the companies, they're also -- their job is to make business. And I think to the point with St. Louis and Pittsburgh, when they say the airlines cut flights and no one came back and filled them in, if there is money to be made on those flights, some of them would have come back in and filled them in.
REHMAll right. And finally, George, what about the numbers of employees at both airlines if a merger were to take place? I saw a quote of 90,000 combined employees, however, she tells me that both American and US Airways combined have a total of 120,000 employees. What's going to happen to the other 30,000?
HAMLINWell, let's start at the top. The first thing is there's going to be one headquarters instead of two. This is one of the most obvious cost savings you get in a merger and...
REHMCost savings, you mean...
HAMLINCost saving, cost saving.
HAMLIN...people savings as well?
HAMLINRight. Yeah. You will save the salaries of many headquarters' employees because they don't need two management to use.
REHMSo you're going to have layoffs?
REHMLots of layoffs?
LEOCHALots of layoffs.
MUTZABAUGHAt least some, substantial.
HEGEMANI would disagree, you know? I would disagree. I don't think we're going to have the number of layoffs with this particular merger that we've seen with other mergers.
REHMDo you agree with that, George?
HAMLINI haven't analyze it, but I have a hunch that Holly is right. Now, again, the management teams -- I know people, you know, who are worried about where they're going to be working in a few months...
HAMLIN...or I guess they were worried. Now, they're simply in limbo.
REHMCharles, last word.
LEOCHAI just think that we have to look at other people beyond just the people working for the airlines. When we look at overlapping, connecting routes, people at both ends of those routes are going to lose their jobs when they downsize.
REHMCharles Leocha, director of Consumer Travel Alliance, George Hamlin, president of Hamlin Consulting, Ben Mutzabaugh -- he's the editor of USA Today's "Today in the Sky" blog -- Holly Hegeman, founder and CEO of PlaneBusiness.com, thank you all.
REHMAnd thanks for listening. I'm Diane Rehm.
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