US Airways President Disputes Report Calling AMR Merger Uncompetitive

CHARLOTTE, N.C. ( TheStreet) -- A new report by advocacy groups said a potential merger between US Airways ( LCC) and American ( AAMRQ.PK) could substantially reduce airline competition, but US Airways President Scott Kirby called a merger "pro-consumer."

US Airways, the fifth-largest U.S. airline, wants to merge with bankrupt American, the fourth largest, producing the largest carrier with an approximate market share around 20%. For its part, American said it wants to reorganize as a standalone carrier during its bankruptcy, then determine whether a merger makes sense.

The report, released by the American Antitrust Institute and the Business Travel Coalition, said a merger would pose problems but stopped short of recommending that Department of Justice antitrust regulators reject it. US Airways has had preliminary conversations about a merger with officials from the Justice Department's antitrust division.

Kirby said in an interview that a merger would be pro-consumer because "it would create an airline that can compete with United ( LCC) and Delta ( LCC) which neither US Airways nor American can do. Today, you have two (U.S.) airlines that serve the frequent flier who travels globally: This merger would create a third competitor."

Told that the report identifies a half dozen markets where no competitors would remain after a merger, Kirby responded, "Six is a pretty small number.

"Look at a route map," he said. "We have very complimentary and non-overlapping routes out of the hundreds of markets we serve."

A half dozen markets would lose non-stop competition, the report said. The markets are Charlotte/Dallas; Charlotte/Miami; Philadelphia/Dallas; Philadelphia/Miami; Washington National/Nashville and Phoenix/Dallas. (Since the report was prepared, Spirit ( SAVE) has said it will fly Phoenix/Dallas starting in 2013.)

The report raised several other questions about a potential merger. Among them:

-- It challenged the long-standing assumption that low-fare carriers would provide sufficient fare competition to the legacy carriers. "This consolidation would occur against an industry backdrop marked by a dwindling fringe of low-cost carriers and growing questions as to whether legacy look-alike Southwest ( LUV) exerts any significant competitive discipline in the industry," the report said.

Said Kirby: "To say Southwest is 'not competitive' calls into question the validity of the entire report."

-- The report said four airlines would dominate the market. Post-merger American would have a 20% share, followed by Southwest with 18%, United with 17% and Delta with 16%.

-- It said the airline industry would be even more concentrated in a few key hubs, noting: "Hubs were designed to be open access facilities at which multiple, competing airlines provided service," but the system is becoming one with "a few mammoth, closed systems that are virtually impermeable to competition."

-- The report said a merger could harm "behind-the-hub" communities, which in mergers have can see reduced frequencies, smaller equipment or less service, noting that: "Scores of airports are expected to lose scheduled service in the immediate years ahead as well as attendant local and regional economic benefits that flow from connectivity to the world's important business (because) merged carriers have adjusted capacities on overlap routes where they are dominant."

Kirby said a merger would be "an unequivocal positive for small cities." US Airways currently serves 31 cities, including Fayetteville, N.C., and Roanoke, Va., which are not served by American. Some would get service they don't have currently to American hubs such as Chicago and Dallas. Additionally, US Airways has no service to 56 Midwest cities, and some would get new service to US Airways hubs.

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