WASHINGTON — The executives of United and Continental airlines yesterday assured members of the Senate Commerce, Science, and Transportation Committee that airline service would not be cut if their companies merge.
Cuts in service are important to issuers of airport bonds because they can result in declines in passenger facilities charges and other travel-related fees that produce revenue needed for debt-service payments.
During the hearing on the financial state of the airline industry and implications of consolidation, both Jeffery Smisek, chairman, president, and chief executive officer of Continental, and Glenn F. Tilton, chairman, president, and CEO of United, said a merger between their companies would not result in communities losing airline service.
Smisek said the airlines’ current service and routes have very little overlap.
Tilton said, “We are going to have a difficult time fulfilling this commitment, but … no front-line employees will lose their jobs” as a result of the merger.
Some market participants said a merger’s direct impact on service cuts is hard to track given multiple other factors that influence air travel, such as fuel prices and the economy.
However, a brief that Airports Council International-North America sent to airport executives last month said that small communities experienced service cuts following the consolidation of Delta and Northwest airlines, based on data it analyzed. According to the brief, Delta’s weekly departures to non-hub airports decreased by 15.6% following the merger, with 14 of 110 airports removed from the network.
“It is very important to note, however, that very few airports lost service all together” after the merger, the brief said.
The Senate committee hearing followed a similar House Transportation and Infrastructure Committee aviation panel hearing Wednesday, during which Rep. Dennis Kucinich, D-Ohio, worried that “the reduction of market participants will likely provide the new United greater leverage to force concessions out of a whole host of vendors and customers” with whom it does business.
“This could lead to the exercise of vertical abuse of market power at the expense of a wide variety of actors, including travel agents, vendors, and even localities, which may increasingly be pressured to supply better publicly funded infrastructure and facilities for the airlines,” Kucinich said.
House Transportation Committee chairman James L. Oberstar, D-Minn., took his concerns to the Justice Department last month, urging the its antitrust division to “demonstrate its commitment to vigorous antitrust enforcement and healthy competition in the airline industry” by blocking the proposed merger.
He warned that “the carriers will concentrate their efforts on fortress hubs and on the routes they dominate.” He noted that the United and Continental networks overlap on 13 routes that serve Chicago, Cleveland, Denver, Houston, Los Angeles, New York, San Francisco, and Washington, D.C., among others.
