US Airways-American settlement: What it means for fares

8:05 AM, Nov 13, 2013   |    comments
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(CNNMONEY) -- According to the Justice Department, the antitrust settlement it reached with the airlines Tuesday will mean that many customers will end up seeing lower fares. That's because the deal included greater access for low-cost carriers such as JetBlue Airways (JBLU, Fortune 500) and Southwest Airlines (LUV, Fortune 500) to the limited number of landing and take-off slots at Reagan National Airport in Washington and New York's LaGuardia.

"Competition is kind of a magic potion here," said Bill Baer, assistant attorney general for antitrust. "When airlines are going head to head on routes, they tend to respond to each other."

Baer said Justice agreed to the deal because it would do more to lower fares than would have been achieved by simply blocking the proposed merger.

But officials with American (AAMRQ, Fortune 500) and US Airways (LCC, Fortune 500) said Tuesday they are not worried about greater competition from bargain airlines. US Air CEO Doug Parker said Tuesday that low-cost carriers were already offering strong competition on prices nationwide, and the slots the combined airlines agreed to give up did not change that dynamic.

The two airlines had been arguing that the combination would help, not hurt, passengers by providing them with a stronger combined network.

Various studies of the impact of recent mergers on airfares suggest the impact has been fairly limited.

A PricewaterhouseCoopers study found that airfares are up less than 2% a year since 2004, a period that includes four major airline mergers. The fares rose at a slower rate than the rise in jet fuel and labor costs during the same period.

Kaplan said the greater access to New York and Washington for Southwest and JetBlue will help fares in those markets, but won't make a significant difference elsewhere in the country.

And while US Airways and American are also giving up gates at Boston's Logan, Chicago's O'Hare, Dallas' Love Field, Los Angeles and Miami airports, those divestitures are far more limited.

"If the merger had gone through the way the airlines originally wanted, rather than how Justice demanded, fares nationally would have gone up a bit but not skyrocketed," said Kaplan. "Now with this deal, if you average it all out, fares will now go up nationally by a couple of dollars less."

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