US Airways Group Inc (LCC), Southwest Airlines Co. (LUV) – Washington: The Key Battleground of the American-US Airways Merger

Page 1 of 2

The proposed merger between AMR Corporation (OTCBB:AAMRQ) and US Airways Group Inc (NYSE:LCC) is reaching the final stages of the antitrust review process. The Department of Justice has been taking depositions recently, in an effort to gather testimony that will inform its decision of whether or not to approve the merger.

US Airways Group Inc (NYSE:LCC)

The biggest antitrust concern by far relates to the combined carrier’s dominance of Washington’s Reagan National Airport. The airport operates under capacity controls, and US Airways Group Inc (NYSE:LCC) already controls more than half of the slots there following a slot swap with Delta Air Lines, Inc. (NYSE:DAL) that was completed last year. Following the merger, the new American Airlines would control 68% of the airport’s slots.

US Airways Group Inc (NYSE:LCC) CEO Doug Parker — who will lead the combined carrier — has argued strongly that the government should not require the carriers to sell off slots at Reagan Airport as a condition of the merger. However, on balance it is very clear that the merger will decrease competition at the airport, which is not very competitive to begin with. As a result, the DOJ is ultimately likely to require some slot sales to other airlines, allowing low-cost carriers like Southwest Airlines Co. (NYSE:LUV) and JetBlue Airways Corporation (NASDAQ:JBLU) to increase service at Reagan Airport.

Washington’s preferred airport
The crux of Doug Parker’s argument against slot sales is that American and US Airways Group Inc (NYSE:LCC) would have only 25% of the seats in the Washington market. He includes all three Washington-area airports — Reagan Airport, Dulles Airport, and Baltimore-Washington Airport — to arrive at that figure. United Continental Holdings Inc (NYSE:UAL) operates a hub at Dulles, and Southwest Airlines Co. (NYSE:LUV) has one of its largest focus cities in Baltimore, offsetting the dominance of US Airways Group Inc (NYSE:LCC) at Reagan Airport.

However, anyone who has lived in Washington, D.C., knows that Reagan Airport is vastly more convenient than the area’s other two airports. Whereas BWI and Dulles are both more than 25 miles from downtown, Reagan Airport is just 5 miles away and is directly connected to the Washington Metro system.

As a result, high-paying business travelers prefer to travel from Reagan Airport when possible. US Airways Group Inc (NYSE:LCC)’ dominant position at this desirable airport has made Reagan Airport the second-most profitable airline hub in the country, according to US Airways President Scott Kirby. (It trails only United Continental Holdings Inc (NYSE:UAL)’s hub at Newark Airport, which is also slot constrained. Not surprisingly, United and Continental had to agree to lease 18 Newark slot pairs to Southwest Airlines Co. (NYSE:LUV) as a condition of their merger in 2010.)

The “loss of service” threat
Executives at US Airways and American have tried to bolster their case to keep all of their slots at Reagan Airport by arguing that if they lost slots, they would have to cut service to some small East Coast and Midwest cities. As a result, more than 100 lawmakers representing such “at-risk” cities have petitioned the DOJ to allow the merged carrier to keep all of its slots at Reagan Airport.

However, despite their pleas to the contrary, the two carriers probably could shed some flights at Reagan Airport without cutting service to any cities. Two of the 12 nonstop routes on which US Airways and American overlap involve Reagan Airport. In fact, the two airlines are the only carriers flying from Reagan Airport to Raleigh-Durham and Nashville.

In the case of Raleigh-Durham, US Airways and American offer seven peak-day round-trip flights each, the vast majority of which are on inefficient small regional jets (offering 50 seats or less). The combined carrier could use larger regional jets or mainline aircraft to offer the same amount of capacity (or more) with half as many flights. This would free up seven slot pairs that could be sold without impacting service. The two carriers’ combined eight round-trips per day to Nashville also primarily use 50-seat regional jets, and could also be trimmed by deploying larger airplanes.

Page 1 of 2

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!