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The Deal: Airline Merger Could Mean Higher Prices, Senators Suggest

Stocks in this article: LCC

NEW YORK ( TheDeal) -- Two lawmakers who head the Senate Judiciary Antitrust Subcommittee are calling on the Obama administration to carefully scrutinize the proposed merger of AMR Corp.'s American Airlines Inc. and US Airways Group Inc. to determine whether the deal will lead to higher prices for travelers.

Subcommittee chairwoman Amy Klobuchar, D-Minn., and Utah's Mike Lee, the ranking Republican, in a letter to Attorney General Eric Holder and Transportation Secretary Ray LaHood acknowledged that consolidation has made airlines more stable and more efficient, but worried about the impact on workers and prices.

They note that post-deal, four airlines would control nearly 90% of the domestic market, down from 11 legacy airlines in flight two decades ago.

"Consumer advocates assert that this additional consolidation could lead to a reduction in consumer welfare in the form of increased prices and fees, and decreased choice, service, and quality," the senators wrote. "They fear that a merger of this size in an already concentrated market will lessen competition and heighten the potential for coordinated action among the remaining competitors, resulting in higher prices and lower quality service."

Shares of US Airways were falling 1.8% to $16.78.

The letter comes ahead of a hearing set for Wednesday, June 19, on the merger by the aviation subcommittee of the Senate Commerce Committee. Klobuchar and Lee held their own hearing on the deal earlier this year, and earlier this month questioned Holder about the impact past airline mergers had on pricing, competition and service.

Tempe, Ariz.-based US Air in February announced plans to acquire the larger AMR out of bankruptcy in a deal that would create the world's largest airline. US Airways chief executive Doug Parker, who will lead the combined company, on Wednesday told Senate Commerce Committee members that the combination would be good for passengers because "it gives them more choices, a wider variety of services, and more competition on more routes" in an industry that remains highly competitive.

The airlines in addition to seeking U.S. regulatory approval have also filed with the European Commission, where they should receive a provisional response by late July. The companies hope to close the deal, which also requires bankruptcy court and US Airways shareholder approval, in the third quarter.

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