On Friday US Airways shareholders approved the proposed merger with American Airlines.
The move is one step closer to creating yet another mega airline, after Northwest merged with Delta, Continental took over United, and AirTran merged with Southwest.
If the deal goes through, American Airlines --which is undergoing bankruptcy proceedings -- will effectively be taken over by the smaller US Airways. The new firm will be owned by a blend of US Airways shareholders and American Airlines creditors.
Critics of the prosed plan say that it could raise fares, degrade service and eliminate consumer choice, especially from smaller airports. But executives from American and US Airways both say they expect a green light on the merger.
Here’s what you need to know about the proposed merger:
1. One major step closer
Friday’s move by US Airways shareholders to approve the merger removes a major stumbling block that could have prevented a deal. Now it is just the antitrust regulators, including those at the U.S. Department of Justice and American's bankruptcy judge to sign off on the deal. A bankruptcy judge is expected to call a hearing on Aug. 15 to confirm the reorganization and merger.
2. Would create pretty much 4 major players
If the merger goes through, it would create a fourth strong competitor to United and Continental, Delta and Northwestern, and Southwest and Air Tran. In total, these airlines will control a total of 80 percent of the domestic air-travel market. Just five years ago, there were 10 major passenger airlines in the U.S.
3. Could mean less competition
One of the goals of the merger is to reduce “excess capacity” –or if you believe what some consumer advocates are saying, in other words, getting rid of services to some cities. For example, according to the GOA, the two carriers overlap on 12 nonstop routes, but if the merger went through, there would be no other nonstop competitors to 7 of those cities. The airlines say it’s a win, win for consumers because the merger “aggregates demand.” But critics say the merger breaks a golden rule of competition: where there are more options, there are more chances of better service and pricing.
4. Possible flight and route changes
Doug Parker, who would become CEO of the new American Airlines Group Inc., said the airline post-merger has no plans to shrink or eliminate any hubs. But some spectate that’s a promise that can’t be kept. For example, American flies from Philadelphia to Dallas six times a day, a route US Airways also services frequently. Also, Charlotte’s Douglas International Airport–which currently accounts for about 90 percent of US Airways’ daily flights –may see a reduction in flights. Regulators may also shuffle the deck, too. The Justice Department may make American and US Airways give up some takeoff and landing slots at Washington D.C.’s Reagan National Airport.
5. Higher ticket prices?
Consumer advocates say the merger will lead the airline to keep the total number of available seats low, which will inevitably lead to higher fares. While it’s important to remember that there are several factors that go into ticket prices, like labor costs and fuel, some say in general, less competition means higher prices.
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