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News > Deals
UAL-US Air deal draws fire
June 13, 2000: 6:14 p.m. ET

Congressional committee predicts customer horror stories if deal OK'd
By Staff Writer Chris Isidore
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WASHINGTON (CNNfn) - The proposed combination of United Airlines and US Airways came under harsh attack at a House Transportation Committee meeting Tuesday afternoon, as representatives worried that it would bring about higher fares, worse service and other airline mergers that could hurt the industry.

The chief executives of United parent UAL Corp. (UAL: Research, Estimates) and US Airways Holdings Group tried to assure the committee that customers would see greater choices and strong competition on prices into the future if the proposed $7.3 billion deal is approved. But many representatives seemed less than convinced.

"This merger and the others that follow will mean fewer choices - due to reduced competition, higher fares and likely, a serious deterioration in service," said Rep. James Oberstar, D-Minn., the ranking Democrat on the committee. He outlined some poor service rankings by United and US Airways (U: Research, Estimates), and added, "I am very skeptical that the merger of these two 'customer service-challenged,' organizations will improve this already dismal situation."

Some members suggested that consumer concern over airline service and the possibility of higher fares due to further industry consolidation could lead to re-regulation of the industry, or perhaps even open the door to allowing overseas carriers to compete for U.S. domestic passengers or buy controlling shares in U.S. carriers.

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In an interview after his testimony James Goodwin, chairman and chief executive of UAL, said the service problems and frustrations being voiced were due to current U.S. airports and infrastructure operating beyond capacity.

"You can't take existing infrastructure that has been in place forever and put 70 percent more flights on that have been added the last 22 years," he said. "The infrastructure is past the point of being strained."

The proposed merger has sparked opposition from the United pilots, who own a 25-percent stake in the employee-owned carrier. The union is also in the midst of negotiations on a new contract with United, negotiations that Goodwin said have gone well in the two weeks since the deal was announced.

"I think it will all come together (negotiations and pilots support for the deal)," he said. "Technically, no, we don't need support of the pilots for the deal, but from a practical perspective, it makes sense for us to have a meeting of the minds."

graphicGoodwin said he wasn't surprised by the anger he heard from some of the representatives at the hearing Tuesday about service and concerns about the future of U.S. aviation.

"I think the frustration you hear, we all share from consumers wanting more, more, more, and we can't give them more."

But it was clear that if all representatives do not blame the airlines for current complaints, many due. None of them gave a ringing defense of the deal, and there was criticism from both sides of the aisle about the proposed merger.

"I think service is going to go right down the tubes," predicted Rep. Ray LaHood, R-Ill., "I think the flying public is in for real horror stories. If there was a vote by Congress on this, I think it would not go through."

LaHood said that he believed that the deals might well be approved by Justice Department antitrust officials, who are granted regulatory oversight of the deal, along with the recommendation of the Department of Transportation. Officials from those two departments voiced their own concerns about the proposed deal in prepared comments that were due to be presented later in the evening.

"If the division concludes that air carrier mergers threaten to deprive consumers of the benefits of competitive air service, I can assure you that the antitrust division will take appropriate enforcement action," said John Nanes, deputy assistant attorney general for the antitrust division, in comments prepared for later in the hearing.

Nancy McFadden, general counsel for the Department of Transportation, said in her prepared remarks that DOT would look at whether an airline the size of the combined United-US Airways would make entry by new carriers more difficult, as well as what other major airlines are likely to do as a competitive response to the merger.

UAL's Goodwin vowed that passenger choice and service would be enhanced by a merger. "Worldwide access, convenient travel, economic growth - that's what this merger will deliver," he told the committee.

The merger is needed by US Airways to remain competitive in the current marketplace, said Stephen Wolf, chairman of US Airways, although he would not predict his airline's demise without the deal when questioned by several representatives.

But some members of the committee, including Chairman Bud Shuster, R-Pa., raised that possibility in their comments.

"We are not talking about a choice between this merger and the status quo," Shuster said in his brief opening comments. "US Airways has been hemorrhaging money. If nothing happens, it is my judgment we'll see US Airways in bankruptcy or out of business in coming years." Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.