United/US Airways Merger Challenged

Wed Dec 20, 2000 9:03 am

The Wall Street Journal is reporting that federal and state regulators will soon be filing lawsuits in order to stop the merger. The lawsuit will try to at least force United and US Airways to make great sacrifces if they are to unite.
This comes after meetings with the Department of Justice went poorly.
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RE: United/US Airways Merger Challenged

Wed Dec 20, 2000 4:31 pm

Good for the federal and state regulators! This merger is highly anticompetitive, not only of itself but because of the massive tectonic restructuring it would set off in the US airline industry. A Big 3 could crush WN, et al, something the current Big 6 does not have the concentrated market power to do.

The regulators may be able to kill this monster with a thousand cuts, or with a huge amputation or two--say requiring United to divest PIT to a major competitor, as well as the US Shuttle. And awarding DCA to a major competitor or a coalition of established low-fare carriers.

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RE: United/US Airways Merger Challenged

Wed Dec 20, 2000 10:51 pm

Big 3 crush WN? Not likely - WN has trounced UA, DL, AA, CO, etc etc etc whenever they went head-to-head. WN plays the game differently... I think they'd do just fine with the Big 3.

I'm sure UA and US realized there would be concessions -- no one ever accepts a first offer -- so I think they're ready to negotiate. US needs this merger, and so does UA. Don't count them out yet.

This is just part of the business cycle, folks. It happens in every sector of every industry. Just keep calm and enjoy the ride.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 2:09 am

Consolidation may be a periodic event in most industries, but history shows that sometimes the gov't has to speak loudly and wield a big stick to protect consumers.
Teddy Roosevelt did it, breaking up Standard Oil to protect consumers from Rockefeller monopoly abuses, and Ronald Reagan of all people did not fight the court-ordered breakup of AT & T--which has led to far cheaper long distance service, (even allowing for inflation) for most Americans.

Sure, consolidations and mergers can be good--People Express was going bankrupt due to its stupid beyond-capitalization expansions, and better high-cost CO buy them and save something rather than have them simply go under. But US is nowhere near PE's 1987 situation.

Consolidation isn't just "part of the ride." It's a hazardous ride that has to be watched closely to make sure its captains don't wind up taking consumers for a ride. And the 1990s have demonstrated conclusively that Big Air's captains will shave consumers bald and close the skies to the non-wealthy when given half a chance.

UA and US want to merge? Justice should require that US be divvied up like a hog at the butcher shop, and distributed among the majors and low-fare carriers, rather than let market concentration happen. And today's reports suggest that Justice will demand that to some extent (though not enough if they're not demanding hub divestitures). Otherwise, US keeps flying and has to work out its problems. Or merge with TWA after 2003 and preserve the industry structure.

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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 2:21 am


This is not a socialist state. The act of dividing and distributing among everyone is itself socialist.

Also, check your history:

-The court-ordered breakup of AT&T wasn't due to merger activities... it was due to the fact that the entire country was served by one and only one carrier, considered a common carrier under the law.

- The court-ordered breakup of Standard Oil was much the same: that monopoly grew internally, and they were willfully breaking the law. Not due to merger activity.

Yes, United will be huge after the merger. Yes, more consolidation will occur. But, as I've said before, mergers that end up being huge companies open niches for new companies to start and grow. Look at all of the startups that have happened in the past 20 years -- all to fill niches that have opened up.

Airline regulation was ended because it was ineffective. Regulation has to be either complete or completely absent. As a society, we can't say "do your own thing" one time and then turn around and micromanage the next.

RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 4:18 am

If anything, the case for government intervention is stronger in mergers than in simple internal expansion. For two companies that aren't on the brink of collapse (as UA and US aren't), mergers are a way of avoiding the bother of expanding by themselves and dealing with the competition along the way. (See MCI-Sprint, which was blocked, incidentally.)

Government, in a role as a representative of the people, has a right to scrutinize behavior that it believes will harm. In my opinion, the only people who can point to any tangible benefit from the merger are the airline execs and high-level UA frequent flyers; I think the rest of us deserve some consideration.

If someone could explain why reducing competition in hundreds of markets is good for us... maybe I'll change my mind.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 4:22 am

There will be a reduction in competition for some markets, while an expansion of available destinations for others. You can't look at this market by market - you have to look at it from the top down.

This merger creates a true national airline - east-to-west, north-to-south. Competition in the central eastern seaboard is reduced, true, but in many many other markets, UA and US never really competed anyway.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 8:41 am

FlyMDW is exactly right about the fact that there is no meaningful difference between monopoly or oligopoly practices that arise from internal growth or merger practices. My history is just fine, Flashmeister, you've introduced a meaningless distinction to distract discussion from the true issue.

Both the Standard Oil and AT & T monopolies were broken up for the same reason: they were dreadfully harmful to consumers. The good results of both--competition in the oil business (which is diminishing again, unfortunately) and in the long distance communication field--were due to government intervention to break up monopoly (effectively the same as oligopoly) situations.

The same goes for a UA-US merger: it is certain to be highly destructive to consumers. The idea that DOJ should somehow look at the merger "from the top down" only and not look at market pairs, is like saying that sociologists should ignore data for individual cities and simply look at nationwide statistics when studying crime. In other words, ignore hard facts and base macroeconomic policy decisions on airy-fairy abstractions alone.

There's nothing the least bit socialist about my argument that the AIR-21 law's intention to redistribute LGA traffic to better include underserved markets should be continued. Even if a most of the additonal slots must be rescinded to reduce congestion. IF I weren't such a strong Republican I would think that such a poorly-informed reading of my argument were for political reasons.

Apparently I have to repeat what wasn't read the first time. Airports are NOT private facilities. Whether airlines or municipalities ultimately pay for most of their cost, they are public entities and their bond ratings are publicly backed. The public owns and operates airports and there is nothing the least bit socialist about demanding that severe imbalances in their use be just a little corrected.

The Airline Deregulation Act of 1978 was also unquestionably intended to foster greater competition, with lower fares and more city pairs. Protecting a level playing field for free competition, real free-market capitalism, is not the least bit socialist. Any charges that it is such are very poorly informed and clearly ignore the history of capitalism in the United States, which is that freedom stops where harm to others begins.

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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 12:54 pm

Airports may be public, but airlines are far from that. Fine, regulate the airports all you want, but to extend that to carving up a private entity at the government's whim is socialist any way you cut it.

You cannot extend governmental oversight to individual, private airlines based on the fact that they use public facilities. If you do, then what's the difference between that and trying to extend governmental oversight to musical groups using a public venue? (Can you say First Amendment??) What about taking a public park and saying that each citizen gets exactly their slice of time in it, and no more, since we're concerned about misuse?

Look at the name of the law that was passed: The Airline Deregulation Act. It was passed because government realized (correctly) that it shouldn't be in the role of approving/denying service, setting prices, and the like, in an industry that is perfectly capable of being a free marketplace.

Once you deregulate something, you have two choices to be most successful: stay out of the way and let the market be truly free, or reregulate it entirely. Don't go halfway. (There are many cases where we have gone halfway with miserable results: energy deregulation in CA, cable deregulation, telephone deregulation, etc etc etc.)

Also, one other point: The Needs of the Many Outweigh the Needs of the Few or the One. This merger creates a true national network for the first time, with a very appealing route structure and new opportunities for millions of passengers. Yes, it will harm service in other areas. I think, though, that the number of people who will benefit will be far greater than the number harmed.

You can't judge this on counting city-pairs with competition changes. This is progress for the majority, which is the way that this country has always worked. It sounds harsh, but there are two sides to every action, and unfortunately this will hurt some people. Too bad, that's life. No one situation will make everyone happy.

If there's a city-pair that was really that impacted -- and there's a market there -- you can bet that another carrier will begin service. That's like ignoring money dropped on the ground.

And, finally, if this is going to be such an awful thing, then people will leave the big airlines in droves and go to the new carriers that will inevitably spring up from the shadows. It happens all the time, and there's no reason to suggest that this is any different.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 12:59 pm

And, by the way, CNN is reporting that additional divesititures will probably be necessary, but DoJ probably won't go after a hub:


The Wall Street Journal reported in its electronic edition Wednesday that DOJ officials are expected to demand divestitures that go far beyond what the companies offered when they announced the merger in May.

A person close to the talks said the companies are preparing concessions more substantial than anything put on the table or discussed with the DOJ previously, the newspaper said.

The concessions would involve a wider sale of assets, but wouldn't include any of the companies' eight hubs, the paper reported the person as saying.


So... they lose the shuttle... maybe MetroJet... big whoop...

This is still a great thing...
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 3:03 pm

I bet if they are forced divest US Airways Shuttle this thing dies on the vine.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 3:17 pm

I doubt the USAirways Shuttle will go

United Shuttle... oh yeah i can see that going, maybe being merged with MJ and spun off...
I can also see the forced termination of contracts with some of the commuter airlines in the east (ACA or Piedmont or Mesa)

i can also see United being forced to swap some gates at ORD with other airlines, maybe DEN and SFO too.

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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 4:04 pm

Your arguments are well thought and well put Flashmeister--and with the last two detailed posts I get a clearer picture of your overall view of the US-UA buyout and airport capacity regulation.

The admittedly risky semi-regulation approach has emerged as desirable, I think, because neither full regulation before 1978 nor the almost laissez-faire approach practiced after, have produced good results for the majority of American communities. A system that caters to the most wealthy travelers in the densest markets at the open and unapologetic expense of medium and small markets seems to me an antitrust and outright social justice problem.

Air travel is not a luxury and it seems to me that the laissez- faire approach has left too many communities underserved and/ or overcharged for airline service. The virtually unrestrained market has had its chance to bring more flights, more city-pairs, and lower fares--which were also an explicit intention of the deregulators--to more communities. I would say the airline industry has failed badly in that regard, and my own home region, Upstate New York, has fared terribly.

Since about 1992, the major airlines have adopted a strategy of seeking not simply profits but fat profits from every route, and cutting those routes that can't produce the high yields that shuttle routes or transcon routes routinely produce. Is it really just--and consistent with the Deregulation act--that airline execs should expect Des Moines, Rochester, or Syracuse to produce high margins like New York LaGuardia? It seems to me not.

The market has responded unevenly and haltingly to this unjust business strategy. Southwest can't get everywhere at once, and it seems to me that DSM, ROC, and SYR shouldn't have to wait ten years or more for WN before they get reasonable, if not always low, airfares. ROC at least has JetBlue, and a 90-minute drive to BUF for WN, so we're making progress. (IT'll be even better when WN comes to ROC, but for now BUF offers a practicable option for many).

I would love to share your confidence that the unrestrained laissez-faire approach to the airline industry can produce a justly structured airline system that neither stifles growth and innovation, nor exerts undue government influence in private companies' business decisions. But so far it's failed miserably.

Those of us from once-healthy airline markets that can't produce fat enough margins for Big Air on every route are tired of being gouged. We've had enough. And if Big Air doesn't start listening, they might find the worse option--complete reregulation--imposed upon them. There has to be a better way.

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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 4:29 pm

I must agree with Jim and take issue with Fleshmeister's assertion that the federal government's protection of the public, a collective set of rational actors themselves acting in a capitalist mode, can be considered socialist in the matter at hand.

I subscribe to the conservative notion that a free market system will achieve its points of maximum economic and technical efficiency if it is able to deploy resources freely of government intervention and regulation. I remain optimistic that our economy leads us in that direction.

But I also have concerns for the consumer in this context. If we accept that the mega-carrier resulting from the UA-US merger will seek to carve for itself a network of economically efficient proportions, then we must ask ourselves whether or not that economically efficient situation is truly beneficial to consumers.

The answer is no.

Monopolistic pricing in markets which lose service will cause the cost of air travel to rise, and could have some serious inflationary consequences 5 or more years down the road. That effect, coupled with consistently rising oil prices and the volatile Mideast political climate, could be potentially crippling to individuals, private firms, and businesses.

The reason? I think Jim implied that air travel is more or less a public service - not a mass-consumptive machine or market in which individuals throw away their disposable income. Rather, it has evolved to become an indispensible component of the worldwide economic existence - it's a tool for business and the machine driving the movement of people around the globe.

With the currently technical efficient system of air travel in the United States has come an increase in the velocity of our money supply, due in large part to the ability it has afforded large masses of people and firms to migrate, relocate themselves, and make transactions they wouldn't normally be able to make.

The government's primary role is not to bow out of regulating corporate malfeasance, but rather to uphold the laws of the land, laws which specifically PROSCRIBE monopolistic firms. As a constituent of that government, I have a right - as do you - to be sure that my interests are being looked after. And my interests - as are yours, I'm sure - include the availability of affordable air travel offering a wide range of connections.

So, in short, the assumption that the federal government's protection of consumers with regard to the merger is socialist has no foundation. Rather, there are three separate issues here to examine.

Will the merger be economically efficient for UA/US? I contend that the answer is yes, and I don't think anyone would disagree.

Will the merger benefit consumers? Absolutely not, and if you disagree, I suggest a re-evaluation of our entire free market system.

Should the federal government intervene if the answer to the above question is "no"? It absolutely should, because it is obligated to protect consumers from monopolistic, noncompetitive, and inherently non-capitalist forces. The law requires it to intervene. In fact, NOT intervening would be illegal and unjust.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 10:32 pm

If air travel is, as you say, a public service, then what's the next step? Let's look at it from the perspective of a business owner, OK?

You have a business where you're currently successful at making money. That's why you go into business, anyway, right? Few of us are volunteer entrepreneurs.

Your business relies on a large revenue stream, as it's capital intensive, and your variable costs are fairly unpredictable. Even still, you are making money by pretty much serving customers that are profitable ones to serve.

Nothing wrong with that, right?

Now, the government says that you are not serving your customers correctly. They start to tell you which customers you may serve and what prices you may charge. This new mix is now completlely out of whack with the business you've built, and you're now losing money.

Are we talking about an airline here? Or maybe an ISP? How about a pizza delivery business? or a salon?

The point here is that in any case, the government is going in and out of management of a private enterprise.

If having 'affordable' air service was so important to us as a country, we'd have calls to at least partially socialize an airline to get service there. We've done it in most major cities with public transit, why not an airline? Or, Why not expand subsidies for affordable lifeline service to these communities? Somehow, I think that this scenario won't happen anytime soon.

Secondly, it's not illegal to make money, and it's not illegal to control individual area markets. If Wal-Mart was sued every time they go into a town and immediately controlled the retail scene in that area, they'd never leave court. Consumers adjust, though -- if they don't like Wal-Mart, they drive to the next city and go to another store.

Finally, I think that we're really overblowing the service issues in markets like DSM, ROC, and SYR. Do they have access to 'affordable' air travel? Yes. Is it at their home airports? No. Is there a reasonable expectation to have always-'low' airfares at every airport? Absolutely not!

Why? Maybe the loads aren't there. Maybe the costs to that station are higher. Maybe other airlines simply don't have the available equipment/crew to expand there. In other words, maybe the market is less attractive to capitalist businessmen. Maybe there's less money to be made there. That's life.

If there was a market in DSM, ROC, and SYR for additional service at what people consider 'affordable' rates, believe me, that market will be exploited. Otherwise it's like refusing free money. The only reason any of these markets were once-'healthy' was that the government was regulating (forcing) airlines to serve those cities.

Again, this sounds harsh, but it's simply the result of our choice of living in a very capitalist society... money talks. We have to get used to it.
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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 11:15 pm

Here is the press release from US Airways in response to the GAO report. Pay particular attention to the following line, in paragraph 3 of the release:

" Given that the report, on its own terms, failed to take into account US Airways’ financial position – and given that the status quo is not an option....."

If the status quo is not an option, then what ARE US Airways' options? If US Airways should cease to exist, Jim believes that other airlines will fly those routes and serve those city-pairs --- and he's partially correct. Over time those city-pairs WILL be served. After all, if people want to fly someone will come and fly them. But what happens in the interim? As a weakened US Airways pulls out of unprofitable markets one by one as it struggles to stay in business? By the time US goes to bankruptsy court there will have been thousands of employees laid off (not only at the airline but in cities that the airline serves...hotel employees, rental car employees, taxi drivers etc...), dozens of city-pairs left without vital links to the nations air transportation system. The exapansive east-coast route structure will collapse with a massive economic impact resulting....until such time that the remaining network air carriers can pick up the pieces and rebuild the east coast. How long will that take? Beats me....a year? 10 years? How long can Ithaca, Elmira, Morgantown, Johnstown, New Bern, and Hagerstown survive without air service? The biggest argument against this merger is that which proclaims there will be less competition and therefore higher prices. My question is, what difference does it make if this occurs due to a merger which upholds a strong east coast network, saves jobs, and sustains city economies, or the shut-down of the 5th largest airline in the country?

Jim will have you believe that cities like Pittsburgh will survive...but he doesnt understand. As long as he can fly from Rochester for low fares he simply doesnt care. Pittsburgh has open gates right now. Any airline in the country can serve Pittsburgh or Charlotte any time they want to. Jim will have you believe that it is necessary to divest of a hub which has plenty of room for adequate competition...that doesnt make sense. If he were to have said "Philly", I might have agreed that divesting some of Philly where there is no room for competition would be a requirement....but Pittsburgh? A hub by virtue of the fact that it was a hub for Allegheny and no other reason? A city that, in fact, does NOT have the O&D traffic to SUPPORT a hub? A city that, without US Airways loses its second largest employer....and a city whose own newspaper proclaimed that the loss of US Airways would have a greater economic impact on Pittsburgh than the closing of the steel mills did. Jim doesnt understand.
US Airways says that the status quo is not an option. The DOJ may sue to block this merger...if they are successful, then what IS the option? The remaining airlines simply do not have the manpower and resources to carve up the 6th largest airline in the country and continue serving every market instantaneously without disruption! Jim believes otherwise and apparantly hasnt taken the economic impact of the disruption of even 1/3rd of this route system for even two WEEKS into consideration. I've rambled's the press release. Status Quo is NOT an option:-----

ARLINGTON, Va., Dec. 20, 2000 -- US Airways issued the following statement in response to Rep. James Oberstar’s release today of a General Accounting Office report on the US Airways-United Airlines merger:

"Congressman Oberstar has stretched the GAO report to serve his own agenda. He has used it to make a statement that has no basis in that report – or in reality: that it would be better for
US Airways to close its doors than for this merger to be approved. This statement is an insult to US Airways’ 45,000 employees and their families, reflects a careless disregard for the 202 communities US Airways serves – and in no way is supported by the GAO’s report. His suggestion is as baseless as it is reckless. It may serve Mr. Oberstar’s parochial interests – but it does not take into account the jobs of tens of thousands of workers in other states, the communities they serve – or the actual findings of the GAO report itself.

"That report, while raising questions about the United-US Airways merger in some respects, does acknowledge that the "merger would benefit consumers in three major ways," including expanding competition in numerous markets, improving service for many consumers, and enhancing opportunities for frequent flyers. Given that the report, on its own terms, failed to take into account US Airways’ financial position – and given that the status quo is not an option – the GAO’s mixed review of the merger, based on this partial data, is no surprise. Rep. Oberstar’s efforts to stretch these findings for his political benefit may also not be a surprise, but it is certainly disappointing."


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RE: United/US Airways Merger Challenged

Thu Dec 21, 2000 11:32 pm

UA already offers terrible service and if this goes through, we'll just have more terrible service!
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Fri Dec 22, 2000 1:32 am

I understand your points about the right to make money, etc., etc. I understood them when you initially raised them 35 posts ago.

You present a sophisticated argument advocating a lack of government intervention.

But I respectfully submit that you're wrong.

You do raise a good point about the situation from the perspective of the embattled business owner, who must relinquish an economically efficient situation to satisfy government regulations. Of course it's less profitable for him. Of course it is.

But I contend that, in the global interest of a nation of consumers, that government regulation is necessary IF THE BUSINESS OWNER ENJOYS THE ABILITY TO CONTROL A PREPONDERANCE OF THE PRICES IN HIS/HER MARKET IN SEVERAL LOCALES. That is why we have antitrust laws.

Air travel IS a public service. It wasn't 30, even 20, years ago, but it certainly is today. That doesn't mean that I regard it as an industry that needs to be re-regulated; to the contrary, air travel is a private enterprise providing an indispensible service, in which there is significant opportunity for profit. You don't HAVE to buy Wal-Mart products; many people HAVE to fly. I refer back to my earlier post in an explanation of how dependent we are on air travel.

We cannot admit the merged UA/US machine as a full-fledged monopoly, simply on the technicality that other airlines exist, and that some route networks overlap. We can, however, examine the market-specific inflationary effects which this merger could carry, and we can examine the markets in which local monopolies will drive up fares. That is intolerable and meets the legal criteria for antitrust litigation.

Our government would intervene in this case because we as citizens of a democratic and capitalist institution elected representatives who drafted antitrust laws. We elected them to draft those laws because we trust them to act in our stead, to represent our interests, and to ensure our social, political, and financial security.

Should you, Flashmeister, be concerned about government intervention, look not to the "government" (capital-G) acting against the interests of the capitalist structure, but rather to the people - your peers and you - on whose behalf the laws were written. Those laws determine the Dept. of Justice's action. In this case, they both prescribe it and require it.

If you believe that potentially quasi-monopolies such as this one should not be challenged by the government - if you believe that a mega-carrier should be allowed to dominate the skies in more than a few markets simply because "this is capitalism" and it will make money - then you should reevaluate your electoral choices next time.

I'm a Republican and I believe that government regulations are a negative externality on our economic structure, one which hampers economic efficiency and productivity. But my interest for the public comes first, and since air travel remains such an important public service that should remain free of regulation, I believe that the government must do in this case what we've told it to do.

It's unsophisticated to decry the government's ability to protect you under the blanket whine that "this is capitalism."
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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 1:50 am

Representative Oberstar remarks in response to US Airways press release:
(This guy cant seem to KEEP his foot out of his mouth...first he calls Johnson's DC-Air a "plantation" and now this!)

In a telephone interview later, Oberstar said, "I was not wishing them goodbye." He said he was asked a hypothetical question about the consequences of US Airways being forced out of business if the merger isn't approved.

"I said speculatively that the public might be better served in the case of a bankruptcy liquidation by the absence of US Airways and other airlines coming to pick up their service," Oberstar said.

US Airways accused Oberstar of trying to stretch the facts to serve his own agenda, which is to block the merger. It said in a prepared statement from its Arlington headquarters that nothing in the GAO report "would make it better for US Airways to close its doors than for the merger to be approved." The airline called Oberstar's remarks an insult to its 45,000 employees.

US Airways has maintained that it cannot survive long if the merger fails to go through.

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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 2:41 am

Gnomon, I can see that we're going to have to agree to disagree.

I just don't see where you can call a market free and open, in the capitalist spirit, yet enlist government to regulate something every time you don't get the service you want at your front door.

I, ironically enough, am a democrat, but I have strong feelings about government meddling in the marketplace. I disagree with a lot of these anti-trust holy wars(Microsoft, Worldcom-Sprint, etc.). I do believe strongly in the natural cycle of business, which only is clouded up with often-irrational intervention by underinformed bureaucrats.

I think this merger is a great thing, you do not. That's clear, and I think we should leave it at that.

I submit, as you did before, that you are wrong. Neither of us is going to be convinced of the others' view. So let's leave the condescending tone, boldface type, cap letters, and the like, and move on to something new to argue about.
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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 7:29 am

ARLINGTON, Va., Dec. 21 /PRNewswire/ -- US Airways Chairman Stephen
M. Wolf said today that the agreement between United Airlines and the
state of Pennsylvania and Allegheny County underscores the value that
the US Airways- United merger will bring to consumers, to the
Pennsylvania economy and to the futures of US Airways employees.

Pennsylvania Gov. Tom Ridge and United announced earlier today that
an agreement has been reached on the future of the US Airways
maintenance facilities in Pittsburgh. Under the agreement, United
will establish a $160 million maintenance unit in Pittsburgh,
preserving some 3,000 jobs in Southwest Pennsylvania. Gov. Ridge and
United said the agreement is subject to approval of the US Airways-
United merger.

``Gov. Ridge is an ardent advocate of the interests of the people of
Pennsylvania. With the approval of this merger, US Airways' deep
roots in Pennsylvania will remain as part of the much larger,
stronger United system. Jobs and service will be protected and
enhanced,'' Wolf said.

Gov. Ridge, Senators Arlen Specter and Rick Santorum, Rep. Bud
Shuster, Allegheny County Executive Jim Roddy, Pittsburgh Mayor Tom
Murphy, and, especially, US Airways' labor leaders, are to be
congratulated on reaching this milestone agreement, Wolf said.

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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 7:38 am

Good to hear from you AirwaysDC9, happy holidays to you and your family. Although I agree with Rep. Oberstar's view of the merger (and his view that DC Air is a subsidiary sham), you're right on that he does have trouble keeping his feet on the floor and out of his mouth.

I have to submit too that I disagree with Flashmeister and share in detail Gnomon's view of the merger. Like Gnomon I am a Republican but recognize that the gov't is the steward of the common good. Neither Gnomon nor myself have demanded "just what we want at our front door." This view caricatures our arguments.

We have argued that air service is a public good and as such the private companies operating it are not free to do whatever they please to every community. Interestingly no one here seems to think that total re-regulation is a good thing--and we do not call for it. We have not called for airlines to be charities. We simply want them to recognize that not every route is going to have fat shuttle or transcon profit margins. That's life in a diverse country.

And if airlines choose to show contempt for the less lucrative medium-and-small markets, those airlines can't be surprised if these cities' Congressional reps are steaming mad about more consolidation. No one has said every city is entitled to "low" fares. We do expect "reasonable" fares, and history demonstrates conclusively that airlines can offer such fares if they care to do so. We reject the claim that economics demands "high" gouge fares in small and medium markets. And we reject the claim that further consolidation is going to help either airline employees or consumers. The memory, and costly effects, of the last round of consolidation are quite close at hand.

In any event, a happy holiday season to all.


Need a new airline paint scheme? Better call Saul! (Bass that is)
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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 7:46 am

Jim --

Happy Holidays to you and yours as well. I find it interesting that you change your tune somewhat on a public board. When you and I have spoken in private you've told me that it would be OK if US Airways ceased to operate. You asserted that other airlines would quickly "pick up the slack" and the northeast would suffer no impact from the loss of US. You even said that US Airways employees would likely find employment with these replacement carriers. (despite the fact that they would most likely lose all seniority that was earned during their tenure at US Airways)

You essentially echo Senator Oberstar and Senator Kerry's you not?

Is it not your opinion that a decrease in competition resulting from the complete shutdown of US Airways is preferable to a decrase in competition resulting from this merger?

What is your impression of the US Airways press release indicating that the "status quo" is not an option?

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Fri Dec 22, 2000 8:00 am

Very well spoken, gentlemen! I can't wait to see how the DoJ rules and what it shaves off next year.

If anything, I think Flashmeister and I would be banned from our respective political parties for our views in this forum!   I know that at least for Republicans, advocating the position I've advocated can be hazardous...

It's going to be interesting to see our little debate here evolve in the face of future consolidation, if it indeed occurs. Maybe we'll revisit it then.

In the meantime, y'all have a great holiday season.
United Airline
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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 1:20 pm

I am sure the merger will go through.  

Just my own opinion!
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RE: Flashmeister

Fri Dec 22, 2000 2:04 pm

Competitions between different companies is the core to the idea of capitalism, without competitions capitalism won't even exist. UA and US merger is an anti-competitive move in my opionion. They would be having to much control in a particular area.
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RE: United/US Airways Merger Challenged

Fri Dec 22, 2000 3:18 pm

AirwaysDC9, I'd love to respond but I'm not sure what you're saying. Maybe it's brain damage from a combination of writing too many Christmas cards and caffeine consumption, but I don't get your point.

At all times, at the forum and in private discussion, I've maintained that:

--Consolidation of the airline industry is an economic evil to be avoided at all costs. No one of the Big 6 should be allowed to buy any of the others.
--The entire damfool industry should not be consolidated in order to deal with US Airways' problems. A UA buyout would do that. A merger with TWA would not.
--US Airways cannot continue forever with its current cost structure, but it ain't anywhere near trouble yet. At least 8-10 years until real danger.
--Should US Airways shut down, years from now, other airlines would pick up their routes, probably with little interruption if any. And US Airways employees would have jobs. (Yes, they'd lose seniority. But that's the New Economy for everybody. What makes airline employees entitled to what the rest of us can't expect?)
--It would thus be better, should worse come to worse 10 years from now, for US to be parceled out to other carriers than allowed to merge with one of them.
--And of course, should Heaven intervene and US Airways actually get its untenable costs in order, I for one would be glad to see them stay. As I've said to you privately and publicly numerous times. (US's service is way better, IMO, than UA's.)

Maybe Rep. Oberstar doesn't allow for miracles, but as a strong Catholic I believe in them. Even the occasional economic one, like say US getting a grip on costs. Thus I'm willing to say that bankruptcy is better than supermerger and consolidation into SuperBig 3. But I'm not willing to say that the United States is positively "better off" without one of its major airlines. Two very different propositions.

Your zeal to find inconsistencies in my arguments is impressive. It would simply help if you explain better what you think them to be so that I could respond, instead of simply restating things.


Need a new airline paint scheme? Better call Saul! (Bass that is)
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RE: United/US Airways Merger Challenged

Sat Dec 23, 2000 12:41 am


You said: --Should US Airways shut down, years from now, other airlines would pick up their routes, probably with little interruption if any. And US Airways employees would have jobs.

I think this about the most naive post I have ever seen. To believe that a major airline could go out of business and have little or no interuption in service in its cities is a fantasy. In fact, to believe that other airlines would pick up all of the routes without disruption is fantasy as well. I find it hard to believe that an educated individual such as yourself can not envision the massive economic impact that the shutdown of a company of this size would have. You also failed to answer any of the questions I posed in my last posting to you.

Yes folks, I disagree with DCA-ROC's assertion that if US Airways and United merge than every other major airline in the country will merge again resulting in a "Big 3". That seems to be the basis of his entire argument and I absolutely disagree that it will happen.

I do believe that the shutdown of US Airways would leave the country with 6 major airlines (including Southwest--unfortunately there will be massive turmoil in the interim as this vital link to the east coast network is disolved.

I also believe that, should the merger take place, there will STILL be 6 major airlines (including Southwest). The number of competitors in each situation remains the same.

I further assert that the major network airlines do not compete in price anyway. Low fare and discount air carriers moving into markets drive fares lower...not competition from other majors.

Furthermore the GAO report failed to mention, except in small print on the last page, that the 260+ city-pairs that would lose a competitor did NOT include the creation of DC-Air. With Bob Johnson prepared to announce his choice for a major airline partner in January, DC-Air will most likely get an enthusiastic nod from the DOJ. (If Delta is a 49% partner, DCAir will not need to rely on United at all...all part of a carefully formulated plan by Wolf to appease DOJ concerns.)

According to the SEC filing, DC-Air will take over the entire Washington DCA hub from US Airways along with certain hub-to-hub routes.

In conclusion a few points:
1. Regardless of whether the merger succeeds or fails the result will be 6 major airlines (including Southwest)
Competition will still be strong.

2. The merger and creation of DCAir will ensure that the entire US Airways network is upheld and that there is no lapse in service as there would almost certainly be as US Airways downsized and eventually failed.

3. The merger ensures that the 46,000 employees of US Airways and the hundreds of thousands of support employees in hub cities (taxi drivers, car rental employees, restaurant and hotel employees, bus drivers, parking lot attendants, etc....) remain employed and at salary and benefit levels equal to their years of service. The NEW Economy will allow YOU, Jim, to move to another job and retain a very similar scale of pay and benefits. With a heavily unionized industry such as the airline, we would all return to newhire payscales and benefits under your scenario. If you dont believe that will have an economic impact on our cities and towns you are again naive.

4. US Airways themselves have stated in a press release responding to Senator Oberstar that the status quo is NOT an option. Airline historians know full well that when Stephen Wolf says something like that it is not an idle threat. I belive that within 18 months US Airways will be way or another.

5. Airlines are a public utility and you deserve to have that utlity at a reasonable price??? Gimme a break. I think that Mercedes is a public utility and I should have a convertable at a reasonable price. The fact is that this industry has been deregulated and if you expect companies to survive you must let them set prices at a level which they need to set them in order to be profitable. If that means higher prices in cities like Ithaca and Elmira then so be it! Supply and demand dictates the fares! Dont like it? Vote with your to Buffalo and fly AirTran or Southwest. Trust me, when the airplanes arent full, marketing will lower the prices. I dont see how airlines are expected to make money with this "shadow regulation".

6. The DOJ is prohibited by law from sueing to block a merger based on what "might" happen. Saying that the industry WILL consolidate is conjecture and can not be used in a DOJ ruling. -- and yes folks, the DOJ can not simply "BLOCK" a merger...they can only sue to block it. If UAL and US believe that they can win that suit they can continue with their plans to merge and take the DOJ to court, for years if necessary, to prove that this merger is not anti-consumer.

7. I dont advocate that this merger should take place in order to "Save US Airways from its problems" -- but I DO insist that if you're using "less competition = higher prices" as your reasoning for why this merger should be blocked that you consider the future of US Airways without the merger. 6 network competitors is 6 network competitors regardless of how you count.

8. AirTran, Vanguard, Midway, Frontier, Alaska, America West, National, Midwest Express, TWA, PanAm, Sunjet, ATA...and if you choose not to include it as a major, Southwest. 13 other regional competitors??? I'm sure I've forgotten a few. Exactly how much competition is required in the airline industry to bring your fares to an acceptable level? How much competition in the oil industry? In the automotive industry? Too much competitions dilutes the market and weakens the airlines. Is that how we want to enter the global aviation marketplace? With weak competitors. I submit that one or two mergers to consolidate this industry is HARMLESS when you have in excess of 20 competitors. No other country in the world has this much competition in their airline industries.

9. Factoring inflation airline tickets are less expensive today than they were in the 1970s.
Factoring inflation airline employee salaries have trended downward every year since 1980. (not including the recent United pilot contract)

Folks, today at the gas pump is cost me $1.55 a gallon to fill my car. What did that cost in 1970? Flying airplanes is expensive business. I honestly believe that air travel is FAR less expensive than it should be in the year 2000. Airline profit margins are unacceptably thin.
This is not a charity, its a business.

10. Senator Oberstar from MN and attorney Mike Hatch from MN have the largest arguments against this merger...can you think of anything that has headquarters in MN that might sway their opinion? Anything that made an $18,000 campaign contribution to Oberstar perhaps? ( has a red rail and looks a lot like a bowling shoe...)

Anyone else have anything to say about this merger? Perhaps McCain? oh wait...he's from Arizona....anybody in Arizona that wouldnt want this to take place? Damn interesting that when America West was going to merge with United he didnt have a thing to say about that.

Bottom line:
These companies have an 8% route overlap decreased to 2% after the creation of DC-Air.

DC-Air will NOT be reliant upon United due to Johnson's sale of 49% of the company to another network major due to be announced in January.

Of the 5000 most heavily traveled city-pairs in the country the GAO report found approximately 250 where competition would be decreased as a result of the merger (5%) and those numbers AGAIN did not take into account the creation of DCAir

The DOJ is NOT in the business of "blocking mergers", their only job is to ensure that there has been no violation of the nations antitrust laws. There is no law preventing a company from being "Big".

It is not a constitutional right for the public to enjoy low airfares. Certain companies have been created that offer such airfares and they are very successful with that formula. In a deregulated environment companies are free to price their product based on basic economic formulas. If you have difficulty understanding supply and demand perhaps you should ask a 5th grader to explain it to you.

Network air carriers do not compete in price. While not technically "price fixing" they price very similarly. Hence the "fare wars" each airline lowers fares the rest follow...if one of them fails to follow the remainder of them snap back to their original prices. Major airlines do not compete in price. One more or less will not make a difference. Only the introduction of Southwest or AirTran into markets will add fare-pressure.

I'm sorry that you dont understand the need for a globalized airline industry in today's economy.

I'm sorry that your airfares are too high in Rochester.

The only thing I can suggest is Go Greyhound...
because this merger's gonna fly!

(If it doesnt you'll find me at Wall Mart handing out carts because...either way US Airways is not long for this world)
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RE: United/US Airways Merger Challenged

Sat Dec 23, 2000 1:41 am

Dear AirwaysDC9:

Two points first, then I'll deal with your specifics:

First of all, the idea that a United-US Airways merger won't lead to a Big 3 is naive fantasy in the extreme. Every informed airline commentator in the civilized world--investment analysts, Aviation Week, airline officials and employees, knowledgeable elected officials, FAA officials, DOT officials, and the GAO have stated that a UA-US merger would force the other airlines to combine. Do you *really* think the other four big carriers would sit on their thumbs while United becomes twice as big as American? Who's the economic fantasy monger here?

And do you really think that a Big 3, led by the same folks who brought us the early 1990's consolidation and farejacking of medium markets would just sit back and not use market power to destroy low-fare competition now, as they have for years? And that as a Big 3--each of which would be 3 times the size of WN--that they couldn't do it? That is sheer naivete, whether willing or unwilling.

Second, US Airways employees have expressed to me the attitude that they don't like the merger because they want to live at the same domicile all their lives. And don't want to lose their seniority. Again, this is naivete--destructive naivete--in the extreme. The entire rest of the civilized world has to deal with the New Economy. I'm going into *academia* for crying out loud, and I don't expect to have the same employer or domicile my whole life. The New Economy has affected academia too.

What in hell entitles US Airways employees to have the entire airline industry restructured to protect their seniority and domiciles? Who do they think they are? Do they really think that the rest of America should sit back and hand them a Supermerger Bottle and security blanket, and tolerate more fare gouging and service losses, so they can keep their seniority? For crying out loud, said employees need to grow up and face reality.

Now for some of the specifics of your rapidly detreriorating arguments:

--We've discussed the presence of the smaller carriers (TWA, Alaska, etc) before. None of them threatens the Oligopoly like low-fare carriers do. They don't upset the high-cost applecart. They have endured and will survive a consolidation frenzy (those that don't get bought, anyway). They do NOT offer meaningful, fare-lowering competition. They're irrelavant to our discussion and your repeated mention of them is a smokescreen.

--You're damn right airlines play the role of a public utility. But your comparison to cars is inaccurate and irrelavant. Unlike Mercedes Benz, however Big Air are for many, and ruthlessly strive to be, the only game around for flying. I can drive my 14-year old Toyota Camry for as long as the amazing old bucket holds out (and it could go several more years). Big 6 Airlines don't offer the option of old Toyotas to those of us who can't afford Mercedes Benz. You would like to make Mercedes the only option, sir, and that's unjust. Your comparison is apples and oranges, and again a smokescreen.

AirwaysDC9, I'm sorry *you* don't understand that airlines are not an entitlement program for employees, and to hell with the people served. That is the attitude you have expressed in this discussion. We want our merger bottle to avoid the hard reality that US Airways has to either get its costs in order or face bankruptcy.

Please don't preach high-minded nonsense about how expensive it is to run an airline and that justifies mergers. IT's about airline employees who feel entitled to *escape* the New Economy by picking my fool pocket.

*That's* what most support for the UA-US merger is based upon. Other industries have had to face the hard reality that companies whose costs are way above industry average don't last, once consumers have a choice. We are not sugar daddies for unionized airline employees who don't want to deal with the same economic realities the rest of us have to deal with.

And as for global airline systems, alliances are proving a very good way to provide those benefits without destroying competition. Northwest and Continental just got a good lesson in that. Ally, fine, but don't hold controlling equity.

The status quo is indeed not an option. (Yes, I read the press release). US Airways has to get its costs in line, but it also cannot expect the industry to restructure on its, and only its, behalf. Consumers are not a welfare program for US Airways employees.


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RE: United/US Airways Merger Challenged

Sat Dec 23, 2000 2:08 am

Some more responses to specific points. If I didn't answer some questions you posed before I either missed them or had to get on to some other duty in life. But here are a few:

Yes, you are right there will be some disruption if US Airways goes under. I should not have made it sound like there would be none. But I think it would be far less than you suggest. Already, one northeastern regional that used to provide US Airways Express flights from Rochester to SYR, ALB, HPN, ISP, BDL, and MHT, has moved to Continental and is operating those same flights with CO (as of this month). That's a big part of US's claim to being vital for the Northeast--its broad regional network of point-to-point flights. The regional carriers will continue to serve regardless of who they contract with.

What about US itself? Other airlines, and the financial institutions that lend the kind of money to get the mainline jets airborne, would have a big interest in getting US planes back in the air as soon as possible. Even at high fares, traffic is dense in the Northeast and many of the largest US lending institutions are based there. This bankruptcy would not be about lack of market--it would be about the cost of the product. I would not be surprised to see US hubs operating for different carriers within less than two months of a bankruptcy.

(Sidebar to a previous point of yours: Furthermore, it would be virtually impossible to redistribute PIT's traffic to other airports under current constraints. A few years ago the Pitt Post Gazette noted (as have other sources since) that an airline hub needs about a third O& D traffic to be viable. At the time PIT carried 21 million pax and 7 million were O& D. So no, Pittsburgh does not lack O & D traffic. US's hub has simply hovered at the economically sustainable proportions the Pittsburgh area can support. It won't be an O'Hare, no. But a PIT hub will be there, probably at its current size, as long as Pittsburgh remains the same size).

Would the few months be traumatic for employees, taxi drivers, etc? Yes. But it's Edwin Colodny's and Steve Wolf's and Rakesh Gangwal's fault for not getting costs in order. And the unions' fault for not letting them. They had ten years after the Piedmont merger to do so. They tolerated a hodgepodge fleet and high maintenance costs. They tolerated employee work rules that Aviation Week says are the laxest in the industry. And still do today.

The hard cold truth is that US Airways problems are US Airways fault. Not Rochester's. Not Pittsburgh's. Not LaGuardia's or DC's or Charlotte's or Buffalo's. And now the years of bad management, management greed, and union greed and entitlement-mentality are coming home to roost. IT is very sad and no one is happy to see the "non-option status quo" we see today. But there it is.

No one likes to see economic disruption--and yes there will be some, however temporary--when a big company goes under. But US Airways is in danger of going under ten years from now because of a bad product or lack of market. IT is because of the decisions of its own management and employee unions.

And no, no one denies that running an airline is expensive. Especially when oil prices are high. But US Airways is too expensive today. Much more so than even the other Big 6 carriers as you know. And the free market, thanks to Southwest, AirTran, JetBlue, and others, is resolving the problem US Airways has created for itself.

Need a new airline paint scheme? Better call Saul! (Bass that is)
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RE: United/US Airways Merger Challenged

Sat Dec 23, 2000 3:14 am

Compelling arguments as always Jim.
Its quite obvious that you and I see the world through different colored glasses.

We're obviously not going to resolve our differences here nor will we come to any agreement.

So we'll sit back together and count down until January 16th, when we will hear something from the DOJ.

Happy New Year.

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