By Keith Laing - 03/19/13 05:20 PM EDT
Lawmakers in the Senate jockeyed to protect flights to midsized cities in their districts as they reviewed a proposed merger between U.S. Airways and American Airlines on Tuesday.
Representatives for the two airlines were testifying before the Senate Judiciary Committee's panel that reviews potential antitrust law violations.
"There will always be ample competition between major cities like New York, Chicago and Los Angeles," said Sen. Amy Klobuchar (D-Minn.), chairwoman of the Senate Judiciary subcommittee on Antitrust, Competition Policy and Consumer Rights. "We all know that. But what about cities like Minneapolis or cities like Cincinnati, Memphis, Milwaukee and Pittsburgh? What about a city like Rochester, Minn., home of the Mayo Clinic that's currently served by American Airlines?"
The $11 billion merger between U.S. Airways and American Airlines, which was announced on Valentine's Day, is expected to win approval from federal regulators.
That did not stop lawmakers from venting about cutbacks after previous airline mergers in recent years, however.
Passengers will still be able to board flights at smaller airports, but lawmakers said they feared their constituents will have to fly to large cities like New York or Washington to make connections for more expensive flights on routes that used to be direct.
American Airlines CEO Thomas Horton told the committee that consolidating was the only way airlines could survive the changing economic climate.
Horton noted that large airlines have been combining for much of the past five years. If the U.S. Air-American deal is approved, the number of major airlines in the United States will have been cut in half from 2008 to 2013.
"Over the past decade, our industry has experienced extraordinary economic headwinds," Horton told the committee. "While almost every other legacy carrier used the bankruptcy process early on to lower their costs, American fought valiantly to avoid doing so. However, our major competitors subsequently went down the restructuring path, surpassing the savings we achieved, which gave them a singular -- a significant advantage."
"We also experienced a new wave of powerful competition from the growth of low-cost carriers," Horton continued. "And importantly, Delta and Northwest, United and Continental, Southwest and AirTran further strengthened their positions through mergers."
American entered its agreement with U.S. Air after a year of trying to emerge from a bankruptcy filed in 2011 as a standalone company.
Klobuchar said she was sympathetic to economic pressures facing airlines, but she said it was also important to protect airline passengers who do not live in the largest U.S. cities.
"Service to all metropolitan areas and mid-size and small cities is more important than ever," Klobuchar said. "Yet we have seen reduced service to certain midsized cities."
Klobuchar also expressed concern on Tuesday about the impact on jobs at smaller airports if flight service is reduced as a result of the merger.
"More important than the convenience issues is the potential impact on jobs," she said, noting that while unions for both airlines' employees have said they support the merger, "[W]hat we've seen with past airline mergers gives us reason for caution."
"I will say in my home state of Minnesota that we retained most, but not all, of the jobs in Minnesota following the Delta-Northwest merger," Klobachur continued. "Delta is a major employer in our state and we're proud of that. But in the wake of similar mergers, not every state has been so lucky."
The airlines found a more sympathetic ear in Sen. Mike Lee (R-Utah), who is the ranking Republican on the Senate antitrust panel.
"Mergers are an essential element of our rapidly changing economy, often creating significant efficiencies and helping to ensure that resources are put to their most productive use," Lee said. "I believe this merger holds the promise of cost savings through combining complementary assets, reducing duplicative operating expenses and integrating computer systems as well as airline fleets."
Lee allowed that "the merger would leave only four airlines with significant national networks, and those carriers would control over 80 percent of the domestic market."
But he said it was not up to the government to decide how many airlines there should be or where they should fly.
"Government may sometimes have a proper role in ensuring that a company does not obtain undue market power," he said. "But it's improper…for federal agencies to pick winners and losers in the marketplace and, absent evidence that a transaction will substantially reduce competition and thereby harm consumers, I believe government intervention is usually unwarranted."
The Senate antitrust committee was the second congressional committee to review the proposed U.S. Air-American Airlines merger. The first, a House panel, saw similar concerns raised by lawmakers who were jittery about flight service to smaller airports after previous mergers.
Before the airlines can operate as one company, the Department of Justice will also have to confirm their deal does not violate antitrust laws, and the airlines will have to be certified to operate as a single entity by the Federal Aviation Administration (FAA).