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US Airways CEO Disputes Need for Reagan National Divestiture

Stocks in this article: AAMRQ.PK DAL JBLU LCC UAL

CHARLOTTE, N.C. ( TheStreet) -- The possibility of slot divestures at Washington's Reagan National Airport remains the key question in the pending merger between US Airways (LCC) and American (AAMRQ.PK)

At a hearing Wednesday before the Senate aviation subcommittee, various concerns were raised by senators and by a consumer group, but much of the focus was on slot divestiture. The Department of Justice is reviewing whether this ought to be a condition of the merger.

Without divestiture, the new American would have about two-thirds of the slots at National, but US Airways CEO Doug Parker told the committee it would have just 50% of the seats because it allocates many slots to serving small cities with smaller aircraft. If other airlines were given the slots, they would likely fly to larger cities, he said.

Susan Kurland, Transportation Department assistant secretary for aviation and international affairs, said that "service to smaller communities is important to DOT." She said that if the Justice Department seeks divestiture, the DOT would seek to ensure that "the merged carrier would have a slot portfolio sufficient to serve small communities as well."

Parker noted that when US Airways and Delta (DAL) were required to divest National slots in 2011, in order to enable a trade of slots at New York LaGuardia for slots at National, JetBlue (JBLU) used the slots it purchased to add three daily Boston flights, increasing the overall number of National-Boston flights to 25, as well as to add flights to Fort Lauderdale, Orlando, and Tampa, all of which had at least a half dozen daily flights.

Meanwhile, Parker said, US Airways cut its least profitable flights from National, meaning that Madison, Wis., and Grand Rapids, Mich. lost service entirely. "If it is a choice to ask us to divest slots and give them to another carrier, we by definition with a scare resource will continue to (serve markets) that are most lucrative," he said. "We'll reduce service to small and midsize communities, and the carriers that get those slots will fly to large communities."

Operating a hub at National means that US Airways is able to include small cities in its hub network. Parker referred to two cities, Little Rock and Manchester, which had just been mentioned by senators from Arkansas and New Hampshire as cities that benefit from having National flights. He said that only a hub could aggregate enough connecting passengers to serve either one from National.

A few other sticky issues also surfaced. Sen. Maria Cantwell (D-Wash.) said that in the debate last year over FAA reauthorization, US Airways had advocated for loosening the perimeter rule which limits long-haul flying from National -- it now serves San Diego. If new American advocates again for the same thing when the next FAA reauthorization comes up, the result could be a loss in service to small cities, Cantwell said.

Parker responded that given the negotiations necessary to enable changes in the perimeter rule, if new American seeks additional routes outside of the perimeter it would be likely to trade off a route to a large city rather than a route to a small or medium-sized city.

Additionally, Sen. Mark Warner (D-Va.) worried that additional long-haul flights from National could diminish the critical mass of flights at United's (UAL) Washington Dulles hub, which is in Virginia. "My concern is that you will lead the charge to get rid of the perimeter rule," which could impact traffic at Dulles, Warner told Parker. "The next step will be that the premise that helped to build Dulles will be dramatically undermined."

Parker responded that going forward he would be happy to work with Warner to enable more National flights outside the perimeter without reducing service to Washington or service to small and medium sized cities.

Meanwhile, a General Accountability Office analyst told the committee that the merger would reduce competition on 1,665 routes where more than 53 million passengers fly annually. The total includes not only non-stop routes, but also connecting routes with one or more stops. Most of the routes are served by at least one other airline, the GAO said. US Airways and American say they compete exclusively on just 12 non-stop routes.

Charlie Leocha, director of the Consumer Travel Alliance, told the committee that on one-stop routes the two airlines compete on 761 routes. Often on one-stop routes, airlines compete on price.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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