Will Air Mergers Lead to Higher Airfares?

If American Airlines does buy TWA, it will mean higher prices and possibly poorer customer service for airline passengers, say industry observers.

But industry executives say it could also help create more choice and convenience.

“This would clearly reduce competition and increase concentration in the airline industry,” said Paul Hudson, executive director of the Washington-based Aviation Consumer Action Project. “There’s already not enough competition on price.”

Hudson said many routes served by three or four airlines could soon see only two carriers after the wave of consolidation.

Sources Monday confirmed that Fort Worth, Texas-based American planned to buy money-losing Trans World Airlines Inc. after the St. Louis, Mo.-based carrier files for bankruptcy for the third time, perhaps as soon as Wednesday.

The Upside of Consolidation

The airlines have repeatedly said consolidation will allow them to offer more routes and more flights through an expanded national and international network, making one-stop travel more convenient for passengers on major and minor routes.

A source familiar with the negotiations who would only speak on condition of anonymity said American would pay United "slightly less" than $1.4 billion in exchange for 86 jets, joint ownership of the Washington-New York-Boston shuttle now operated by US Airways, and 49 percent of a new airline, DC Air, that would be spun off from US Airways.

Aviation Daily editor Michael Miller says the merger is “a direct response” to the proposed merger between United and US Airways, which is still being reviewed by the Department of Justice over antitrust concerns.

“The TWA merger is not happening in a vacuum,” said Miller. “The merger would help United pass antitrust muster because it includes the nation’s biggest airline [United] divesting some of its assets.” In addition, American would take over TWA’s St. Louis hub, which should help passengers by easing congestion and delays at American’s hubs in Dallas and Chicago.

“The American-TWA deal is too small in terms of its national impact to create a lot of national hysteria,” said Darryl Jenkins, director of George Washington University’s aviation institute and an expert on airline economics. “It’s [United-US Airways] more likely to go through, where before there was a small chance of it going through.”

TWA, the only airline to lose money in 1999, is short of cash, with big debt payments due this week. The merger would no doubt be a boon to the long-struggling airline.

If federal regulators approve, American and United would control more than half the commercial flights in the country.

Lawmakers, Consumer Reports Show Concern

Consumers Union, the nonprofit publisher of Consumer Reports magazine, and the Consumer Federation of America, the nation’s largest consumer organization, urged the Justice Department to conduct a “painstaking review” of the plan to buy TWA.

“This proposed merger clearly violates the merger guidelines and is inconsistent with the intent of the antitrust laws to promote competition in the marketplace,” the groups said in a letter to Douglas Melamed, acting assistant attorney general for the Justice Department’s antitrust division.

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