Skip to main content

tv   Public Affairs  CSPAN  March 24, 2013 4:40am-7:00am EDT

4:40 am
to the 31st precinct. guy, i'me wrong innocent. ain't nobody trying to listen. nobody knows the plots. lights, camera, action. they snapped my mug shot. no lawyer, no rights read. professors know i'm not a criminal like these cops ready to take a shot. nothing you can do, boy. youre on lock. second become minute, minute become ours. -- hours. i'm in a bronx cell with people who ain't showered. ex-con with a cap on.
4:41 am
fresh out of disinfectant. so we breath and piss as the moon breaks day. dragged into the interrogation room, we begin. i see a blond attorney shuffling papers. don't take it personal. help you.e to like she's ining daer. needs jesus as her savior. shakes my hand with plastic gloves on behind a surgical mask. this is a at up -- this does not
4:42 am
add up. when did you finish high school? 16, my senior year. how did you pay for college? scholarships, loans. you say you went to graduate school? after colombia, i went to nyu. how did you pay for all these degrees? i got muy master's on a full ride. nothing new. that's what immigrant kids get killed trips to do. a law degreeave from harvard too. why didn't you respond to the charges? w out ofknow, i town. allison is done listening.
4:43 am
in addition to being an attorney, i am also a registered nurse, specializing. in mental specializing it is my obligation to inform you, you may have a bipolar disorder. you have never been to india. you did not teach at nyu. i am noture anything you have told me is true. it's nothing bad. just sometimes people create alternate realities for themselves as a coping mechanism for dealing with stress. you are just under a lot of stress. crazy >ng mlling me the attorney said to save me does not believe i'm me. aha [applause] --
4:44 am
[applause] t to -- you don't want to talk? >> i am happy to say something. this is based on real-life events and not fabricated, although one of the most of soweto magazines in the world or finished a after we performance of the production this is a piece of, published in print that it's a moving story but i don't know why he made all those things up. that's all i think i should say >> thank you. [applause] >> we have time for questions.
4:45 am
please find your way to one of the microphones. >> do the panelists see any relevance today in the fact that wasthe seuss story it more expensive to maintain privileged than it was to earn a privilege? any think that it's like sort of right that's vested, you don't realize how valuable it is. a right being something we sometimes would not think of as a positive thing. you do not know how valuable was until you have lost it.
4:46 am
that is perhaps why he is able to charge more from the people who are at risk of losing their privileged. if i recall correctly, the price might have gone here -- it might have continued to vacillate after the initial round. i'm talking more in terms of the cost, whether or not across the privileged class more to try to keep being a privileged class than the cost the not so privileged class to reach that goal. is it costly to the privileged in today's society to try to keep privilege? >> could you explain what you
4:47 am
mean by costly? >> lack of development of society as a whole. if you maintain privilege, perhaps you are not allowing certain things to develop that we would all be better off for. just being discriminatory or being afraid of people, it may be more of that. perhaps is not relevant. t the n you talk abou privilege, do you mean people who do not worry about being confronted with a police officer with the hard-driving -- when they are driving? >> i am referring more generally
4:48 am
to people on top to discminate against others. i think the price they pay is a bargain. they get a lot of benefits that far exceed what they pay. the cost is a soctal cost. it is borne by other people and assures people o are most qualified are not guaranteed to get the opportunities. i think it is one that ends up adveely affecting society as a whole. the people at top, the reason they are willing to pay that higher price is because it is worth a lot. >> that's exactly the point i would try to make in terms of what happened in little rock in 1957.
4:49 am
the privilege to got to maintain their privileges. the poor and working-class whites carried more of the b urden than the privileged. what the majority has the vantage of getting to spend other people's money. usually they seek to defend an existing discriminatory regime which means it is really a government paying to defend these discriminatory laws. it is e minority groups seeking to challenge it, even though on paper it may look like they are raising a lot of money. in their own cases, it is their own money and it is not tax deductible. sylvester both mcmonkey mcbean anthe star- part of aeetches are privileged class. the analogy in the case of mass
4:50 am
incarceration, the privileged class of folks who are not as worried at about being incarcerated. middle toe iddle to -- upper class, wealthy, white, you're not as worried about being stopped, frist, incarcerated but there are groups that benefit even more among the privileged class. i think about the corporate contract that provides prisons with all the have. everybody from victoria's secret to dell computers havhad private contract in prison that benefit from the prison complex. there is a certain group within the privileged class that benefit financially. in many00
4:51 am
cases to keep one person incarcerated. we all live in a state of fear so we opted that cost -- so we all pay that cost well as small percentage of the pvilege to reap the profits financially. forave you done the show kids? communicateway to this to children? >> yes, last week. we had high-school students at a theater last friday then last february, we had high school students at the schomburg center for research in black culture. young folks are even more
4:52 am
response of that anybody else. it is the first time they are seeing in a public space what they see every day in their communities. >> any other questions? further are no questions, i want to thank our panel of t t t t t t t t t
4:53 am
4:54 am
4:55 am
4:56 am
.
4:57 am
4:58 am
4:59 am
5:00 am
they want as many possible choices and they want choices at affordable prices. the want to know that no small group of airlines gains a stranglehold on the market. >> the u.s. airline industry touches the lives of almost every american in some way or another. these airlines allow us to travel. for business and for leisure, to meet new people and reunite with loved ones. critical to our economy. one out of eight american jobs depends in one way or another on travel and tourism.
5:01 am
expected to goe to more than 230 ballot -- $230 billion in 2014. our country has benefited greatly from airline inegulation since that began 1978. government control of this industry has had unfortunate results. in the years since deregulation air fares have dropped substantially and options for travelers have expanded. these benefits are the result of free-market competition and will continue as long as the industry remains robust and competitive. despite the positive benefits of deregulation, the story of the islines in recent decades not one of unbroken success. fuel costs have led to a succession of airline bankruptcies.
5:02 am
as federal agencies have provided assistance and assume responsibility for many pension plans, the financial stability of the airline industry is one of special concern. to help cope with changing circumstances, airlines have turned to consolidation. in the last decade alone we have than sixewer significant airline mergers in this country. the combined american u.s. airwaves would employ nearly 120,000 people, have to -- 2012 revenues of $40 billion, flying 950 jets to approximately 900 locations. it would leave only four national airlines with significant networks controlling over 80% of the domestic market. as a result, our subcommittee, test with the oversight policy,
5:03 am
they must conduct a thorough examination of this transaction. the department of justice will the proposed merger, applying an analytical framework set forth in the assess the anti- competitive a fax in relevant marker -- markets, and identifying increased barriers and efficiencies that may flow from this consolidation. in previous hearings from the subcommittee several principals of guided the approach to antitrust law. most importantly, we must remember the insight from assest bork. to purpose of these laws is maximize consumer welfare and protect competition rather than to protect competitors. government may sometimes have a
5:04 am
proper role in ensuring that the company does not obtain undue market power, but it is important for federal agencies -- rather it is improper for federal agencies to pick winners and losers in the marketplace. harming consumers. usually government intervention is unwarranted. mergers are representative of a rapidly changing economy, helping to ensure that resources are put to their most productive possible use. i will leave that this murder holds the promise of cost savings and reducing duplicative costs savings. marketmpetitive consumers benefit in the form of higher quality services like to expand a group that works at no profit -- at lower prices.
5:05 am
as experts predict that the market will benefit web becomes economically stable. concernsve expressed that the largest domestic carrier could exercise undue market power, leading to higher prices and reduced services. they argue that past mergers have created capacity reductions from the combined airline hubs. complained about high fares flying into and out of salt lake city. people complained that despite barriers to entry it will prevent others and provide increased barriers of entry, preventing other carriers from providing competitive discipline. they know that just a few miles down the road from here at reagan national airport a combined rate -- combined
5:06 am
american u.s. airways would ,ontrol 78% of all the gates making competition difficult to achieve. thank you to the chair for holding this subcommittee hearing. we are helping to ensure a competitive marketplace to max was consumer welfare and in the and allow our economy to thrive. i look forward to the testimony from each of you today. >> first, we have received written testimony and submissions for the record, including letters from local communities, a joint letter -- joint letter from some of the unions involved in the merger, the transport workers union, the allied pilots association, the air line pilots association, and the association of flight attendants. we have had testimony from the coalition andl
5:07 am
twa flight attendants who have concerns. all materials will be included in the record and will remain open for one week following additional submissions. now i would like to introduce our panel of witnesses. mr. douglas parker has been the chairman and chief executive officer of u.s. airways since 2005. before joining he served as president and ceo of american west airlines. he will be the second witness, actually, even though he is first in line. the first witness to testify and mr. thomas horton, chairman and chief executive officer of emi american airlines. mr. horton served as president
5:08 am
of amr and held a number of positions with the airline. our third witness testifying today is dr. diana loss, director and vice president of the american antitrust institutes. a professor at the boulder, colorado program. prior to joining in 2001 she was a senior staff economist at the federal energy regulatory commission. finally, we have with us mr. william mcgee. journalist, writer, and consumer advocate for consumers union. of former editor in chief the report travel letter and a member of the department transportation future of aviation the advisory committee.
5:09 am
thank you for appearing before our subcommittee today. i would ask all witnesses to rise and raise their right hand as i administer the oath. testimonyirm that the you are about to give the committee will be the whole truth, the truth, and nothing but the truth, so help you, god? thank you. now we will begin our testimony with mr. thomas horton. >> thank you. i appreciate the invitation to testify and what did you would like to explain why this merger will have a positive outcome for customers, people, and financial stakeholders. thanks to the extraordinary efforts of our people who are with us here today, we are on the verge of completing one of
5:10 am
the most successful corporate restructurings ever. andave renegotiated leases optimized fleet facilities and achieve certain stability with labor contracts in place. we have strengthened our network and invested in leading products and services. with a new and modern fleet to better deliver high to our customers -- delivered to our customers. the an additional upside in company of the stock appreciates in value. this is quite an unusual outcome. we are proud of this result. none of our own houses in order, or merger will create a new american airlines. a global competitor worthy of our name. flying under the iconic american airlines brand it will be positioned to compete not just
5:11 am
against other domestic carriers, but against the best the world has to offer. the journey this day has been challenging to say the least. the industry has experienced extraordinary economic headlines -- headwinds. american fought valiantly to doing so. in 2003 we reduce costs without filing for restructuring, but our major competitors went down restructuring pact, giving them a significant advantage. we also hit a wave of competition from low-cost carriers. importantly the positions were further strengthened through
5:12 am
mergers. we made great progress expanding our international alliances and antitrust communities for expanding our ventures. ever new the largest aircraft order with options for more, dramatically improving fuel efficiency and offering state of the art comfort for our customers. despite these efforts, however, our costs remained uncompetitive. after a decade of losses that reached $12 billion, in november 2011 the board concluded that the way forward was to restructure as most of our competitors have done. as difficult as it has been, it was the right decision. we began with the philosophy that it would be fair and equitable within the company. we started by shrinking senior
5:13 am
management by one-third. while we achieved substantial cost savings through long-term labor union agreements, we were still able to grant pay increases and provide retirement so as to reduce the vote -- the involuntary job losses. we work with our creditors community to ensure that the pensions to our people would be paid rather than handed over to as others have done. our problem work helped us to achieve record revenues, topping our peers in year-over-year revenue growth. ofe we have line of sight how strong the restructuring could be, we knew it was time to consider a merger. american began to look at merger alternatives using a fact based different -- fact based
5:14 am
discipline process. everyone involved and agreed that the merged american and u.s. airways would deliver a range of benefits and improve stability in the industry that greatly needs it. last month we had a deal that would give american financial stakeholders 72%. the new american will take flight in what continues to be the most intensely competitive industries in the world. there is nothing the people one more than to put american back on top as a fierce competitor. i am optimistic about the future and pleased to make that vision a reality. thank you for repeat -- thank you for this opportunity to address the subcommittee. >> thank you. mr. parker? >> good morning. members of the subcommittee,
5:15 am
thank you for the opportunity to testify today. creatingr today is door of the best airline. chairmanoug parker, and chief executive officer of u.s. airways, connecting some 80 million passengers per year to more than 200 communities, large and small, primarily through our hubs. ourgin by thanking employees today who supported this merger. clinton pilots who know that this represents a better future for our employees. i am proud to represent them and am extremely grateful for their support. this merger will benefit customers, employees, shareholders, and communities that we serve by integrating and at work into something better of the hot either airline to
5:16 am
offer on its own in a vigorously competitive marketplace. passengers and communities will benefit from more and better services. will our shareholders will benefit from the improved financial stability. because of this, this combination has attracted unprecedented support. consumer demand is the driver for this combination. passengers want broader networks, gaining more access to more places more efficiently. as a response, a southwest responded to the some commuters demand when the maid and acquisition, cleared by the justice department as a created substantial passenger benefits with minimal overlap. by combining american and u.s. airlines, they will compete more
5:17 am
networkely with a airlines. -- other network airlines. out of over 900 domestic routes, american and u.s. airways have only 12 nonstop overlaps. by combining these networks we will provide better alternatives with 1300 new connecting opportunities and the potential to access numerous opportunities to access cities served by one carrier and not the other. the new american airlines will of thess than 45% domestic available. the new american airlines will compete against southwest and its lower cost structure with a host of successful, smaller, fast-growing lower-cost
5:18 am
airlines. u.s. airways has historically high not provided small and medium service. with service for smaller communities becoming possible thanks to the traffic across the network. the best example of this commitment is the hub that was built here at brigham international airport, where we will serve large and medium- sized communities to extend beyond the nation's capital. the new american airlines will be a stronger financial company. we expect to generate $1 billion in energies thanks to increased revenue and the improve service. with the and enhance the opportunity for full recovery. this will provide significant benefits to our employees, more
5:19 am
jobs, and it really improved job security. we have been and will continue to work with the justice department to demonstrate competitive benefits of this merger. we commit to working with you in your oversight capacity. i would be happy to answer any questions at this time. >> thank you. dr. moss? >> [inaudible] >> is your microphone on? >> it is on now. >> 90. you do not have to address just again. >> it is an honor to be here today. we have concluded, based on analysis using publicly available information that the
5:20 am
proposed deal raises significant competitive issues that could result in issues to consumers. coming in the wake of six major mergers in recent years, it will speed the transformation of the industry from one where hubs were meant to accommodate many multiple airlines to just a few large systems. competitivecant discipline. the merger will increase competition on the national level, enhancing the ease with which the big four carriers can pass on. without creating functional stronghold struck the u.s. and midwest. my second point is the importance of considering the effects of previous legacy
5:21 am
mergers. the similarities here and make a strong case for why a post- mortem malices should inform this merger. several routes affected by those deals are in the largest markets in the u.s., and both previous mergers made elimination of competition with pre-proposed fare increases. this comes under strong public scrutiny and similarities between these and others. the third issue is that the combination is likely to affect a number of important routes and markets. half of the routes affected would be entirely or merely monopolize. u.s. air would create a dominant firm the would restrict service, particularly since the carriers are each other's closest competitors, increasing the risk that the remaining legacies
5:22 am
could coordinate capacity and low cost carriers would no longer have a strong incentive to maintain aggressive pricing. low-cost carriers can no longer be it relied upon to save the day. the dwindling stock makes them increasingly unreliable as a source in the industry. they may find it more difficult to enter legacy dominated jobs. in cities affected by the merger in secondary airports the risk may not provide a good substitute for consumers. many midsize communities have seen reductions as results of previous mergers and evidence indicates that they have driven to large tubs with the potential side effect of starving routes in other cities. choice variability is very important in these networks. forcing them in smaller
5:23 am
communities to use less convenience -- less convenient measures. this includes economic analysis showing cost savings dwindling with it increase congestion costs. post merger integration problems should be considered as the + is to merged company pass the costs onto consumers -- companies to pass the costs onto consumers. the system is far removed from where competitive harm is in fact it -- inflicted. directly to tied adversely affected markets. price transparency is currently lacking.
5:24 am
meaning that ancillary be used on appreciated with efficient comparison shopping. further reducing the worry to create incentive for sellers to engage in price transparency, enhancing the ease with which airlines can agree on contesting themes. there is a heavy burden of demonstrating that the merger would not be harmful. thank you for the opportunity to testify. thank you, doctor. mr. mcgee? >> thank you. this is not the first time in recent years that we have examined a merger. the nation's commercial aviation industry becomes ever more concentrated and this is invoking the age of who for many of this year.
5:25 am
-- many of us here. if this merger as through, there will be three. northwest,tinental, and the many others that have appeared. where once again being told that this is the key. order will be restored to a chaotic business. the consumers will be better served. competition will be righteously enhanced. frankly, we are not so sure. allowing them to combine, bringing harm to passengers in numerous communities. the main line jets from source regional carriers.
5:26 am
we are concerned that entire cities and regions could lose their hub operations. analysts are already speculating in the future of some of them. this has been at a test to other communities, like the former hub in st. louis, delta, and continental in cleveland. fewer airlines mean fewer reasons for hubs, we have seen it in other mergers. concerns over less competition in less incentive, combined with the difficulties of combining workforces. meanwhile, two frequent-flier programs would find much larger upgrades.
5:27 am
airlines, itning can become increasingly difficult for starter carriers to enter the market. we are concerned that as major airlines become bigger, they will increasingly be eroded as too big to fail. the federal government originally give the airlines the $5 billion in 2001. as some otherby event threatens to disrupt the to -- up to 25%. will consolidation stop at the water's edge? lawslaws -- will the preventing foreign ownership be repealed? pleased at the justice
5:28 am
department and its antitrust committee. we do not prejudge the legality of this. we explain in greater detail, but insurance should be regarded with skepticism as the to counter to the business keep an airline from raising fares and reducing service. a merger of this magnitude can change the structure of the market and fundamentally offer market incentives, improving service. at the conclusion of its investigation we hope that the department will find its reasons for whatever action is called for. are asmercial airlines vital to the american economy and security as the
5:29 am
telecommunications networks. distaste about the higher for the passengers facing fewer choices. thank you, i will be happy to answer any questions you may have. i want to start with you, mr. parker. the most basic concept is with your competitors to give businesses, services tend to decline and prices tend to rise. as it was pointed out by the dr. mcgee, we will be down to only three network carriers. in your view, what is the minimum number needed for a competitive market? how would your merger in any fordefy the basic concept services to the client? >> we think that this enhances
5:30 am
competition by creating another global airline on par with delta and united. creating a competitive counterweight to those airlines. the new american will compete in a global marketplace. jetblue.delta, united, companiesmpete with around the world. this is about creating a more competitive industry. there is a new one new company, virgin america, which has entered. there has not really been a new viable carrier since the year 2000. do you not think that there are many barriers to entry? over the last many years
5:31 am
there have been new entrants into the industry. jetblue is a great example of a in the that sprang up early part of the last decade and has become very successful nationwide. i think there are ample opportunities and capital available. >> i know they are only 5% of the market. with joy to respond? >> noting the complementary networks, by putting them together we have created a third competitor -- actually, a fourth competitor to the airlines. notllows more competition, less. with better and more efficient $1vice for consumers, with
5:32 am
billion in synergy there has not been one simple fare increase in there. this allows us to attract more customers in a more efficient way. the reality is that there are no barriers to entry today. no more so than in the past. capital, it is a tough business. the legacy airlines have struggled for many years to return to making a return on capital. i would note that those that exist today are growing much faster than the legacy and loved our.
5:33 am
while there may not be any new ones added of late, there are plenty out there. it is an intensely committed business. as we know cost of the competition tends to be between these major metropolitan areas. dr. moss did agent -- good job of raising those concerns, the idea that for these mid-sized metropolitan areas they are not seeing as much competition. the mitch engineer from international center for air transportation found that between 2007 and 2012 nearly 1.7 million yearly departures have been removed from the u.s. domestic system and there has been a disproportionate share of cutbacks in non-hub airports. of departures were
5:34 am
flown in non-hub markets compared to 44% in two dozen 7. pittsburgh, which i mentioned before, is a good example of that, with other economies picking up, and a number of flights going down with a loss of support -- loss of service flights. in your testimony you make a new commitment to serve small and medium-sized communities where appropriate. explain these in theseg language midsize cities? >> i was happy to hear your comments, the believe that service to midsize cities is more important than ever.
5:35 am
i would like to point out that the way that's midsize and smaller communities receive their service is by having hub and spoke airlines like american to fly it into other markets. .here is not enough demand in order for us to better serve small and mid-sized communities, we need vibrant carriers. that is what this merger does, taking two strong carriers, building one that is even stronger. example, for the people of rochester, minn., to connect onto the new american airlines.
5:36 am
we will provide more connections for people in communities like that. the people that do not have the ability to connect. >> i will ask one more question mostly because i am afraid that senator schumer will ask this if i do not when he comes. i think of that was brought up by our witnesses on either side of the table, issues with transparency in these fees. 2011 that should have been seeing fees. if you look at how prices have been affected, the fees have been going up. the doctor is arguing that these murders might make it more difficult to make it transparent when responding to that. think that the unbundling
5:37 am
been constructive and good for customers, allowing the selective services that they want. want to payo do not for that can by the sec one. one of the most successful low- cost carriers, spirit, has taken that approach to a new level. about fares in particular, -- farehave been increases, they have been very restrained. to go back to the early part of the last decade, 2000, fees are up about 20%. fuel prices are up almost three times. that is less than the actual rate, so we think that the airline industry has done a good
5:38 am
.ob of providing value >> i will turn it over to senator league. thank you. >> a number of commentators have expressed concerns about the impact that the proposed merger could have on certain so-called hub airports. mergedmple, the new combined american airlines would ate nearly 70% of the slots the reagan international airport. critics are concerned that it could allow the new american airlines to raise prices because competitors would not be able to compete effectively. a couple of questions for mr. courtney and mr. parker at this point.
5:39 am
given that it is known as a closed airport, the number of slots is fixed and is not likely to change in the near future. share ofdominant available slots in your opinion and do the advantage in the marketplace, leading to increased prices as a result of the undue influence on the market? >> we do not think so. that is because the washington area is served by three airports. you look at the market as a whole, the new american would have something on the order of 25% of capacity. we think it is a robust competitive marketplace. >> i agree completely. even at reagan, the number of
5:40 am
slots is the number of seats. because we serve so many small and mid-sized communities, we have about two-thirds of the ones there with 50% of the seats. as tom notes, this market is intensely competitive. , the new american will be smaller than united in this market. >> but your just suggesting that it is mitigated by the number of seats? >> i am not suggesting that it is irrelevant. it is an issue that should be addressed. i leave that as the committee looks of the slide, they will come to the same conclusion. slots utilize by the new and theywill be used would be found in larger
5:41 am
markets. >> the second part of my question on this issue relates to what happened last year when u.s. air and delta executed a swap agreement for a number of slots at la guardia and reagan national. i believe that u.s. air had to give up 16 of those slots at reagan. capping the market concentration it leads to a question in my mind. how many are they prepared to divest and would you support another blind option for them? >> we do not believe it would be good for consumers to divest any of them. definitione would by
5:42 am
divest those that are the least lucrative to the airline. to the smaller and mid-sized communities that we enjoy serving. they would go to another carrier. ones the mentioned, by the way, were auctioned off. they now serve very large communities. that is where they were taken, where smallm us, communities would be the service. >> already intensely competitive with a lot of service. >> anything to add? >> american leases slots to
5:43 am
jetblue, who leases some spots at jfk to american. it is reflective of the banana competitive marketplace. >> the 2010 horse of merger guidelines state that there needs to the potential to generate significant potential for incentive to compete. at the same time they also make it clear that antitrust officials should credit mergers specific deficiencies. that is to say the ones likely to be accomplished with the proposed merger. accomplished in the absence of the proposed merger or another means of having comparable
5:44 am
effects in the circumstances. specificer deficiencies would you anticipate from this? weas i described earlier, have had successful restructuring to reduce costs and debt. creating a vibrant and competitive airline. restructuring has been unique in that it is all about renewal and growth build upon our new order for aircraft. it has been about building and growing, creating a new global competitor. we have used the merger as an extension of that. consequence we see a much more efficient airline going forward. there will be efficiencies to be had in the combination as we think about putting together the i.t.i.t. systems and recorder s.
5:45 am
the efficiencies that have been approved for past mergers are the ones of our most likely to be accredited. can you point to the efficiencies that have happened and obtained as a result of customers, for example? from the american twa merger? supporting your argument there? obvious andhe most clear arrests. you do not need two headquarters to function. you to largely eliminate that redundant staffing. >> anything to add? >> we have efficiencies for consumers and the ability to connect more markets more efficiently. ba you cannot get there on
5:46 am
either today, and you will now be able to connect efficiently. those are real efficiencies. we have seen others, like management reduction, i.t. systems consolidated, facilities in certain airports to consolidate. those of the largest cost efficiencies. primarily it is revenue driven by giving more on the airline by being more efficient. >> i have one follow-up question about reagan. as you rightly pointed out, the combined airline would have up to 67%, 70% of those slots. any questions about divesting? pointing out that the sometimes go to airlines in major metropolitan areas.
5:47 am
there are concerns -- what a fall of this happened and the department of justice required divesting those into smaller and medium-size markets? would that not the way to get around it? >> it would probably have to be subsidized. the fact of the matter is that we could not serve those without a hub. there's not enough demand for small communities. would not be able to serve the smaller community markets about the connections across the d.c. of. without those connections i cannot imagine how could be profitable. >> i thought it was medium-size. >> market by market. we are happy to discuss this and work through it. any airlineis that promising to fight to those routes will not be there long.
5:48 am
therefore any mandate that someone serve those routes, it would be difficult to honor over time. >> doctor, would you like to respond? on?uses thank you. >> a couple of points worth making. first of all, any of the slot divestitures seen as a remedy for competitive concerns and small, non-lucrative markets according to the horizontal merger guidelines, those are not great candidates for divestiture.
5:49 am
the point is to identify assets that are viable and if were spun be able to maintain a robust competition in the market. divesting assets in the small communities, those are not particularly viable assets. as we just heard. the session when it comes to hubs for these increase levels of dominance. thank you. there is another point to be made, particularly the slot concern in airports. that is how the network carriers are using them. that 61% of the domestic departures in the united states, american, delta,
5:50 am
u.s. airways, a 61% are outsourced to regional carriers. a staggering statistic. not main line service. the regional airline association post's most the departures between washington and new york every morning. are operated by regionals. are these being used to the maximum? increase reliance on regional carriers raises all kinds of issues. >> senator grassley? >> i am one to use part of my seven minutes to make a statement. currently there to airlines
5:51 am
serving five airports. however the merger needs to be evaluated to determine the transaction consolidating airlines. what is the effect of air travelers in small cities? that is a big issue for me. i was asking about the availability of flights for options and occurrences of air carriers in iowa, reasonable and competitive air carriers. specifically the concern that this could lead to a key route eliminations to iowa. some many of these key ones that
5:52 am
i am really interested in. to the prosperity of smaller and rural communities. even the threat of the elimination cut back services can be harmful to these communities in the economic development. bankruptcyn airlines has objected to the terms of management compensation. i have had concerns with multimillion-dollar payoffs to executives in previous bankruptcy's while they were going through the process. the trustees should see that these types of payments are going through to me to bankruptcy standard. i question is all about travel and competition. tell me about the impact of these, mr. parker. tell me about the impact of the
5:53 am
proposed merger to my state of iowa. are you envisioning any reduction or elimination beyond the cities currently serviced? >> thank you. we are not. because these levels are complementary, the intent is to keep all the airplanes, all the people, retain independently. because of that, that is rather value is created. the value exists to connect for people to more places. >> anything to add? >> we have been proud to serve iowa for decades, as a thank you note. we do plan to serve iowa for many decades to come. as it is important to point out that for small communities,
5:54 am
having american and u.s. airways come together actually helps. the reason i say that is american airlines today has 240 destinations around the world. combined there will be three and 40. those are just four points to reconsider. making those markets for durable in the long run. >> what are the opportunities, if you have gone this far in your thinking about the merger, under a combined airline for any increase services? puttings stated, again, the networks the other provides opportunities for more service to different cities. there is nothing planned as of yet. optimized networks certainly create more opportunities than american had independently.
5:55 am
it certainly provides more opportunities. obviously if you folks are talking about mergers, you probably have the same idea about what happened. -- what will happen. willis the impact for travelers?- rural >> that is the right question. creates intense competition. today you have two really big global airlines, united and delta, this creates a counterbalance to that. a lot of competition and we think that this creates competition on a global scale that did not exist before. with respect to air fares, i
5:56 am
think it is important to look at the record over the past decade or so since these mergers have taken place. it is one where air fares, including fees, have grown less rapidly than the rate of inflation and at the same time oil prices have -- have risen dramatically. the industry has done a pretty good job. >> beyond the questions and mewers given, could you tell as you study your murder for the other specific benefits by a constituent would see if it goes through? >> one simple example that everyone here can appreciate, most of your members of frequent-flier programs. the new combined frequent-flier program will have 100 million it -- members. more people will have
5:57 am
utility, the ability to earn and burn those miles across a much broader network. people that is an improvement. >> anything else? >> connecting markets, as you noted be serve a number of suits -- and number of cities served by one and not the other. american does not serve flagstaff, which u.s. airways does. to get toable burlington, vermont. citizens of bio will be able to get to places that they could not get to before because the u.s. airways network, they will have markets of the other did not have. >> senator schumer? >> first, i want to compliment
5:58 am
the chair on her first hearing since assuming leadership of this important committee. shaping up to be a good one. i will not ask about baggage fees. [laughter] i trust my colleagues to continue to have -- continue keeping the promises that have made to me and others. are airways and american both very important airlines for the state of new york, serving not only as downstate hubs but also for the smaller and regional airports around the state. it is critically important to me that new yorkers continue to have access to a wide breadth of services. all the way from rochester, syracuse, albany, to our smaller
5:59 am
airports, and of course than the metropolitan airports. we have a lot of issues out there. important is equally that the services competitive. for many situation where the number of players gets reduced because of consolidation we need to look carefully of the consequences that consolidation will have. this merger is no different. shall we be cleared for takeoff if we are sure it will not be behind fares, service, or reduction? i am sure many of my colleagues feel the same way. i would like to ask you, mr. parker, some questions about what new yorkers can expect from the combination. you have always been accessible and open to the concerns that we have had, which have very much appreciate.
6:00 am
american, the u.s., new york, texas. [laughter] you have a large commitment to new york and we very much appreciate that. parker, will you commit to maintaining new york jobs yes, sir. >> will you commit to maintaining jfk for a hub for american? this merger is about putting together two networks that are highly complementary and not cutting off service. we have a commitment to our employees. we are happy to make those commitments. >> answered the second one. making themmit to commitment to the airports across new york state? >> yes."
6:01 am
>> and jfk? >> >> yes, sir. >> so that's great and you've told me those answers face to face and glad to get them on the record and very much appreciate it. companies are good when they are efficient.... theret want to make sure is enough competition still out there and they not service. the second question relates to national airport. currently, u.s. air provide service between pdca and several regional york airports. as i understand it, a combined control-american would most of the slots and i have heard concern expressed by one of your competitors, a new york co., jet bl;ue, a letterike to enter they sent to me
6:02 am
>> without objection. >> now i have a few questions about d.c. specifically. last year when u.s. airways and delta execute edd a slot swap agreement, they required to give up 16 slots at washington... which capture market at 55%. given that a combined u.s. airways and american would control significantly more, it would seem you would need to divest slots to ensure competition. the ranking member and the chair asked about slot but i would like to hear it again. what is your position onslaught divestiture? how many slots does u.s. air was proposed to divest and would you support and at a blind auction? >> >> senator. we wouldn't propose divesting any. we believe that wouldn't be good for competition. but we understand some interest. dca is of interest and... we will continue to work with this committee and the department of justice and to make our case and listen to
6:03 am
those views them my concerns, and i think you mentioned, you might give up the slots to serve the regional airports, an airport like islip, you didn't mention it, but... sure yourmake obligation to allow competition of the york is not mutually exclusive? >> fly in and out of d.c. it will result in a reduction of service somewhere. but we're happy to work through this and talk to others. we were happy to... work with you to start theislip service and we want to fly out of all of the places we fly out of the d.c. in could not do that if we did that have all the slots week have today. >> one final question. much of the service u.s. air operates are utilizing small regional aircraft, but small communities, where small
6:04 am
aircrafts... largecessary, these aircraft slots are often being used to fly smaller aircraft to larger airports. if you could elaborate on this, what is the breakdown and you can submit this in writing. i will just note that the smaller aircraft allow what can you say that you will not use small aircraft in large aircraft slots? we will submit that in writing. the smaller aircraft allow us to serve smaller communities. and any effort to reduce the number of small aircraft... is going to be inconsistent with the committees' desire to see
6:05 am
service to smaller committees. >> want to see the small planes go into larger cities. does that make sense to you? >> we'll submit to you in writing. >> thank you, mr. parker and mr. horton and thank the other witnesses for their being here and their testimony as well. >> thank you, senator. >> senator flake? >> thank you. i want to say what a pleasure it's been a pleasure to have in phoenix. and we have benefitted tremendously from it. you have been great corporate... .itizens i have flown a lot what many pilots. all of us have experienced in -- in elementary school, when your thisfriend moves away, time to dallas -- there are
6:06 am
promises that they will write and to visit and everything else. >> i will write you senator. >> but the thing i was never able to do at that time was put our friends under oath. [laughter] >> noted. but i know that promises are promises and the reason mergers happen is economies scale and that has to be taken into account. certainly in... arizona we are concerned about the level of commitment that you have been there and it will be maintained and it is concerning when you have dallas, los angeles, and phoenix as major hubs. how will you manage that? it seems the proximity of those clubs is close enough it will be difficult to maintain the same level of service. >> thank you it, senator, and thank you
6:07 am
for the remarks. i love arizona like you do. and what i'm happy to report to you is this merger is good for arizona.... much like when they merge america west and u.s. airways and the people of hours and at the time were worried about what it would mean to america west airlines and the service. it just made it better. because of that merger, we gave the people of arizona more opportunities to fly more places. this merger will do that yet again. the phoenix hub is a critical piece of profitability. we will just be able to provide more service to the people of arizona and i feel good about that. the headquarters issue is one that is difficult situations like this, not one we took lightly, but one we did what we needed to do to make sure -- we
6:08 am
had to pick one and the reality is american airlines has been headquartered in dallas for some time and we thought that was the right place to keep the american airlines headquartered but it was not done lightly. we expect to maintain a large andorate presence in tempe we expect to maintain that facility and keep it fully staffed with personnel because we are committed to arizona and the community and we will be a huge part to the community. i assure you i will still come to visit you and your colleagues because we love arizona. it is important to us. it is also the right business decision. the phoenix hub is extremely important. away and the miles l.a. situation is a very different type of flying. american uses los angeles largely as a gateway to asia. it is half the size of the
6:09 am
connecting facilities that we have in phoenix so they are completely complementary. we don't see any reason that anyone in arizona should be concerned about the merger and i think it is good for arizona. >> the taxpayers of phoenix have spent considerable money upgrading facilities in sky harbor with sky tran and other things. i know there's concern with... this merger that that will continue and you talked some about it. can you talk about growth opportunities that exist out of the phoenix hub with the merger? >> again, what i can tell you is to put the two airlines together as they currently exist. and growth is obviously something in the future that's harder... what ever growth opportunities a exist in phoenix now will be greater in the future. there are international possibilities that i know are
6:10 am
important to the state that we have not been able to accomplish that u.s. airways on a stand- alone basis that will become more viable now with the combination. no promises on that but they are much more viable than they were when we were stand-alone. the potential for growth is much greater, i am certain of that. american is a founding member of one world and one of the things we found over the years is that we tend to flow one world international connections... our big hubs in north america. down the road, those are the opportunities we want to have a look at as to whether companies fly japan airlines and if we could put flights into u.s. airways hubs that are now part of the new american. >> lot of talk about the dca slots here. how will that relate with the merger in terms of slots or flights between phoenix and dca?
6:11 am
>> i don't believe... it will have any impact. those, as>> that was a self-interested question. [laughter] >> i have seen you on the flights several times. you also helped the people in arizona get those flights. and again, i do not believe, although it's up for the... thank you. >> thank you very much, senator. senator blumenthal of connecticut. >> my congratulations and thanks to you for your first subcommittee hearing. and thank you to all of the witnesses for being here today and for your cooperation both mr.... lorton and mr. parker in providing information leading to this hearing. is with thehere impact on consumers and
6:12 am
passengers not only from our state but others around the united states and obviously the picture is bigger than just the industry insofar as it is here today. it is really a global issue where we confront competition in the united states against airlines that are, in effect, creatures of their government, they are subsidized by the government and treated unfairly and use that term advisedly, not in the legal sense, but in this sense of their ability to use the vast resources of the government, in effect, to buy new airplanes and set prices that are unfair to our airlines which is one of the reasons why we see consolidation and concentration in the industry and the degree of consolidation that threatens consumers in our country. understand the
6:13 am
economics of the merger and the reasons that it makes sense on paper, on the ground, and in the air. at the same time, i think the department of justice has to be vigilant about the industry, not only for the sake of your passengers but also other airlines were the threat of consolidation may be on the horizon. let me begin my questions in terms of the outlook and interest of our passengers by asking about connecticut passengers and consumers. i would like a commitment, mr. parker, that service will be maintained at its current levels were increased at both airports. tweed >> yes, sir. again, that is our cognizant in all these... of the reasont
6:14 am
there is skepticism about the airline's ability to do this is the others came before us and made commitments and people feel they were not kept. what i have continued to say is the value of this merger, flying everywhere we fly today, we will continue to fly the places we continue to fly today, including connecticut. one caveat -- there may be something that allows us or requires us because of market conditions will change. there is nothing in this merger in any of the markets we serve that would lead us to discontinue service and that is the case in connecticut. >> what you're saying if passengers or consumers decide they don't want to go to washington anymore, you won't continue to fly. >> or the cost of fuel gets too high it's too expensive to fly. but precisely. >> but your present expectation and commitment is to continue to fly at the present
6:15 am
levels of service to both tweed and bradley? >> yes, sir. >> and one of the proposals i've seen and probably you've considered this to increase the service into tweed insofar as, could you comment on that possible route? 2 washington dc. >>... i don't have that data in front of me, but i'd like to get back to you on that to say what might make sense there. the airline does well flying to tweed. we're happy... with the service we have there today. i'm not certain about growth opportunities but we will get back to you. >> the increasing economic activity in the new haven area, particularly involving bioscience and biotech may justify that kind of flight from washington...
6:16 am
i would appreciate you getting back to me about it. >> we would like to fly anywhere we can do so profitably. >> then maybe i can ask both of you whether you see yourselves as competitors on any particular routes? in other words, generally you said you're not flying the same routes,... there for you are not competing with each other. are there any routes where your competitors? >> it's a unique merger in that it's very complimentary and there's very little overlap of network. so today the combined company operates 900 routes and... only 12 of them do we directly overlap. that is unique as compared to prior mergers in the industry. >> where among those 12 yourselves as really going head to head? >> well, we're competitive on all of them, but airlines are a network business, as you know.
6:17 am
direct overlap, we're competing via... connections over hobbes. that's why the industry is so dynamic and so competitive and that's why it has been constrained over the years, there is so much competitive activity. you agree, mr. parker? >> yes, sir. we absolutely are competitors today. we compete vigorously against each other. but we have two route networks that independently aren't as... capable of competing against larger carriers as we will be together. when we put this together, we create a stronger competitor to the rest of the industry. >> mr. parker, i believe u.s. air has resisted raising fares when other airlines have done so. and i guess one of the concerns that we may have is the... the merger might lessen the downward pricing pressure that
6:18 am
the past conduct has created. thatu foresee a change in pricing behavior or conduct? >> i don't see anything in the merger that would change pricing behavior at all. in indeed, all it will do is allow us to put the prices on more markets for us in the united... states. >> you your perspective on fair prices as a result of impact on the prices of these two airlines generally and in particular... in any particular routes? >> thank you. i think that these two airlines are, in fact, head to head competitors. they are each other's closest competitors. in our white paper, we have... a table that presents the results of the overlap analysis. yes, there are definitely routes that -- where competition will
6:19 am
be significantly eliminated. several marchers -- several mergers and antitrust analysis is very good at predicting what the effects of a limited head- to-head competition are. that is a direct effect. the statistics show that and the important point is that based on the delta-northwest analysis and the united-continental, we sought elimination of competition -- substantial elimination of competition on some very important routes in the united states. we did see some fare increases which were pretty significant and we saw very few fare decreases but in addition, we saw the carriers driving traffic to our hubs. fors a similar fact pattern the last two mergers. for the good of aviation policy and competition policy and public policy and american
6:20 am
consumers, we have to inform what goes on in this case from what has happened in the past. at 8 route level, that is what we see and at a national systems level, with very pure large systems, you certainly increase the probability that the airlines will simply follow each other on capacity decisions, keeping capacity tight, to maintain fares as part of a tacit agreement and there is a lot of that already. other airlines indicate they want capacity discipline to maintain fair is. there is quite a bit of evidence andthere already -- empirical economic analysis that shows this finally, i think the broader perspective is really important. the airlines want to compete in the global system. i understand that i see where the business is going and that is where the dollars are. we are really stuck with a
6:21 am
fundamental tension over expanding globally without sacrificing domestic consumers. that is what is happening here. we are expanding globally to butete in the global arena, we have to find a way not to sacrifice domestic consumers over the global traffic. everybody travels internationally. i was just in south dakota were a bunch of little farmers came to a conference some of whom had never been on an airplane before. >> farmers are not so >> speak for your own farmers. [laughter] >> i couldn't resist. he was making fun of farmers. >> so i think global competition doesn't equal domestic competition. we have to make sure that we maintain competition in the u.s. and for u.s. consumers. and essentially...
6:22 am
i hear here are concessions and promises to maintain service in new york and connecticut and arizona. what you are getting here are upfront commitments to condition the murder and if that is what is going to happen, we have to ask ourselves -- that is a regulatory approach to approving the merger. why not just how good antitrust policy in place that looks hard at the murder and determines whether it will eliminate competition and harm consumers? >> my time has expired but i really appreciate that very thoughtful answer. and very much appreciate the testimony. thank you very much. asthank you. senator cruz, a member of the judiciary committee but is visiting since his state has been mentioned. >> thank you, madame chairwoman and thank the witnesses for being here. if i may express my apologies to my
6:23 am
friend from arizona and at the the same time express to... mr. parker that i am looking forward very much to welcoming you and your colleagues. >> thank you very much. >> i think you will find the state quite welcoming and an environment that celebrates your coming to our state and joining us. my focus for a long time has been, and i think... all of us, should be on economic growth. and ensuring the economic growth and our country return to historic levels and remains strong going forward. the question i would like to pose to both mr. horton and mr. parker focuses on the impact of this merger on growth, both from
6:24 am
the perspective of the great many employees of both companies and from the perspective of consumers. by askingke to start the american ordered in texas which has a great many jobs that we are grateful for but american has challenging financial circumstances in recent years. i would like to get your views both on the negative impact that would flow to american disapproval -- this murder were not approved. it is widely expected to be approved by would like your repercussions if it were not and on the flip side, the positive benefits to the many thousands of men and women who worked at american right now if this merger is approved. >> thank you, senator. i would also like to welcome doug parker to the great state of texas. i can affirm he does own cowboy boots. i have
6:25 am
seen him wear them. [laughter] >>... that is the bestnews i have heard all day. >> i do think the merger is good for american airlines in every way. american has embarked on a difficult restructuring, but it's been a successful revur itting. what's set... -- restructuring. what has said it apart from other restructuring in addition to creditors getting full recovery is it does been about renewal and growth. it was built upon the largest aircraft order in the industry and about reinvesting in our products and services and customers have taken out of that. it has been about growth. it is about extending that strategy and creating a new global leader in the aviation industry and one that will be headquartered in dallas-fort worth. we are excited about that.
6:26 am
i think the new american will be haveg and vibrant and i said that independent of a murder, we would have been strong and vibrant, but i think we will be that much stronger and more forceful as a global competitor combined with u.s. airways. i think it is nothing but good for american and it is good for the state of texas and good for the dallas-fort worth area. >> a follow up question i would ask of both of you. in my view, the surest protection of consumers is vigorous competition. and the question i would ask both mr. parker... and mr. horton is -- post- merger, in your judgment, what would make the new american and more effective competitor and able to compete more vigorously ofh other airlines in terms prices and service, in terms of
6:27 am
providing consumers ultimately with a better product? >> >> i will start. i think aviation is a very important industry. it's an industry where we have not in the u.s. been -- we haven't been a global leader because... the turmoil of the last decade. the u.s. invented aviation so i think we should have the best airlines in the world. that is what this is really about is creating an airline that is not only the largest but can be the best in the world and will have the financial capacity and wherewithal to invest. that is what we're going to go do. >> let me comment on the first question, this is one of the great economic growth stories in business today. we're taking two companies and putting them together and... creating so much economic value that is shared virtually
6:28 am
everywhere. the creditors of american airlines will come out of bankruptcy and people will be paid in full which is unheard of in airline bankruptcies. it is happening because of this merger, those creditors will get paid back 100 cents on the dollar. the employees will work for a stronger and more vibrant company that can pay them more and provide them better benefits with more security which is why they are so supportive. as to consumers, we are creating a competitor to two other airlines which is where the value comes from is by attracting more consumers to airline combined then we could independently. because of that value shared with the creditors of american and the shareholders of u.s. air wis and employees of both companies. itterms of economic growth,
6:29 am
is a very good success story and as it relates to consumers, a great story as well. >> very good. thank you. >> thank you, senator. >> thank you very much, senator cruz. i have a few more questions i promised to go back to you dr. moss on the ticket price issue. and it's not just ticket price, it's... also the fees and there seems to be some disagreement about u.s. air and american about where we are with ticket prices. i don't want to put words in your mouth but you've argued that depending on the route and the city that some prices have increased significantly depending on how much competition there is. also, i would like to respond to the point about field costs going up even more than the ticket prices in these areas and how we get a grasp on where we really are with the cost to the american consumer during this time of great consolidation. >> their prices are probably one
6:30 am
of the most controversial topics you can find when it comes to pricing. certainly fuel costs are a huge part of what an airline... incurs to do business. and fuel price volatility is a big factor but airline prices have become good at hedging that risk and managing their portfolios. aboutnot talking ancillary fees. those are separate at this point and very non-transparent as far as consumers are concerned the analysis we have done accounts for fuel costs and shows that above increases, there are fair pricing increases that are above increases at these destination airports and origen airports on these large hub to hub router. on these large crowds, there is limited competition. in some cases, just two carriers
6:31 am
and after the murders of these guys and united desk continental and delta-southwest, some routes are monopolize. there is very little incentive where there are just two firms -- >> you're not just talking about about major hub to hub major hub to hub routes where -- competition there's limited kpe i guess. if and if you eliminate a competitor in a small market, meaning few competitors, the chances... fare increases. there are similarities and those in need to be duly noted and investigated by the doj when they look into this merger. >> thank you. mr. mcgee? >> yes, thank you it, senator. i think in many ways what we have is really two different domestic industries because you have to look at routes on whether... served by low-fare carriers. 20 years ago, the department of transportation pointed out with
6:32 am
the famous report that south west. of connecticut and it crystallizes this issue because in routes where there is low-fare competition with southwest, there is pressure to keep fares down, on routes where major network carriers compete head-to-head without low-fare competition across the country, we see that prices have increased and continue to increase and this is borne out of recorder by the department of transportation quarterly airfare report. added to that, there is increasing evidence that southwest itself, which is often pointed out as the low-cost leader, that southwest fares have increased as well. there has been discussion over downabout fair is going and there is evidence of that.
6:33 am
what has not been discussed are the fuel surcharges and the ancillary fees on top of that. we're very much comparing apples and oranges in many cases. you really have to dig down to look route by route to see where consumers are benefiting and where there is no low-fare competition and consumers do not benefit. >> any response? >> we welcome the analysis. we understand, as we said at the beginning, the scrutiny of this is important and we welcome it and we believe that the result of that... analysis will be a recognition of what we describe here which is that this is a merger that is good for competition, that should be approved, and is good for the united states and i would mention as it relates to our customers -- what we are trying to do is provide more to our customers. we do not have the ability to connect people or get people to as many places as some of our
6:34 am
larger competitors by not combining. we cannot be in business if we don't provide good service to our customers and this will allow us to provide better service to customers than either of us can individually. >> one of the things we looked at is how you compete now and i will give you one example is that a lot of the general public look for lower cost flights by going through fobbs because they found that if they make a stop somewhere they get a cheaper rate. charge $549 to connect between dallas and washington- national which is less than $1,500 direct. still believe there will
6:35 am
be this kind of competitive rates when you see this merger were regular people choose to take some kind of ridiculous or out some time or go through a hub or code direct to save money. how will it affect that part of the merger? >> direct routes are of more ofue to a customer instead stopping at a hub. it stands to reason that it would be priced differently. i think there will be any number of connecting opportunities to compete against any nonstop flight. take an example like that and somebody could also connect over atlanta on delta or chicago on united. there are other ways to do it. there are literally thousands of those competing alternatives in the marketplace which is why fares in the industry have not grown as fast and as inflation. it is a very competitive
6:36 am
marketplace. >> a response from dr. moss? i think you have to be careful when you sort out nonstop service. >> there are different ways to get places. we really cannot under-emphasize the critical role of a low-cost carrier. it has provided an important point of discipline and that routes and nonstop connecting route. many people will take connecting route on a low-cost carrier. others will fly a legacy airline. it depends on the consumer. low-cost carriers in an environment where there is increasing legacy consolidation are going to have a tough time providing that discipline. they will be a blast like little and they will face
6:37 am
this critical decision about whether to continue to be aggressive and take share from the legacy as for whether to follow what the legacies are doing in terms of their pricing policies and that is the critical juncture we are at. we are increasing this nullification of most of the market and leaving by low-cost carriers with less than 10% of the market. i don't think we can't rely on them to save us all from higher prices. >> i think the big four would each have about 20% market share? the next largest would be jet blue with 5% and the remaining airlines with less than 2%? >> yes. >> that is the reason we're asking for the gao to do a study of the entire industry beyond just this merger in terms of the effect of all this
6:38 am
consolidation on pricing on competition and service to consumers which i hope will be helpful. two more follow ups -- the integration of the merger were to occur -- mr. parker had a long transition in merging with america west and other glitches we will not go into right now. if the merger is approved, what are you going to do to ensure that these problems do not occur again for consumers? >> we recognize that it is not an easy test but the good news is, both of us have done it once before and i have learned a lot through that. thatimportantly, the fact we have an agreement with all of our employees and labor unions as to how they will integrate and make this easier was one of the more difficult parts of the integration which backs to hard
6:39 am
work on their part and working with us, we already have largely resolved. that will help tremendously. your left now with systems integration which is difficult as well but we have learned a .ot through our experience american has done the same and we have a great team to put together between the two airlines and it is our primary focus going forward to make sure we integrate in a way that is done efficiently with structure. >> mr. horton. we have learned from our experience and what we have seen. when the deal is close later this year, we want to hit the ground running
6:40 am
and our focus is getting this right for our customers. >> thank you. to end on a positive note for everyone, tomorrow we're holding a hearing in the commerce committee about airline safety. since... the last faa resolution, the airlines have participated on improving safety. i would like to say that i sought 2012 was the best and safety history according to the international airport -- airline transport association and we know anything can happen. on my flight yesterday, everything went well even in a bad storm. we all think about every time we get on a plane. how do you see these mergers as affecting airline safety? >> >> thank-you for the comments. we're extremely proud of our people and what they have accomplished over time. it's the most safe form of travel and will continue to... the set.
6:41 am
this will have all the benefits that i stated that first and foremost will be ensuring safety by working with the faa to will -- to move to a position where we do that well and the faa will ensure that and we worked extremely well with the regulator because we share a view on how critically important it is for the safety of our customers and consumers. it will take something on the order of 1.5 years to get a certificate because it is important. most consumers will not see that. it will be two separate airlines until we are all certain that we have our procedures and policies coordinated well enough that we can move to one buffet a operating initiative. >> thank you. >> i would just second doug's comments. we're very proud of our safety record in the airline business and proud every day. >> anything more... before i turn it over?
6:42 am
turn it over to senator lee and any of my questions i had of the airline executives? >> i just have one quick point on efficiencies. i think it's the system integration stuff that has been the skeleton in the closet. we the... america west-u.s. air merger. when the o.j. looks and efficiency, they want to see stuff on the table. they want to see the merger- specific deficiencies and they want to make sure they are realized. these integration problems pop out of the bushes after the merger has been consummated. we have seen enough of this and have enough of a track record to say that ok, this is probably something we should expect to happen. i think it is important to balance or account for those probable system integration problems at the time the merger is reviewed because they cut significantly into the efficiencies promised by the
6:43 am
airline. if they cut significantly into them and those costs are passed on to consumers, the deficiencies are not as great as they were originally forecast. this is something new antitrust analysis should be accounted for? >> thank-you very much. mr. mcgee? >> thank you. one other thing we wanted to point out is we're concerned not just about the merger which we have detailed... today but also the macro effects even on the pricing issue as we talked about when you have three network carriers as opposed to 6, 7, or eight -- we have seen in the past would fare increases that one or two airlines would match the fare increase and others would not and the fare increase would be rescinded -- we have seen it with new innovations. wereffects of this merger different seven or eight years ago had we not have all of these
6:44 am
other mergers. we just don't want that to be lost in all of this. the argument has been made that we did it for others to why not do it for us? with rapid consolidation of the industry, the industry continues to change and, in our view, it raises disturbing questions. >> thank you very much to all of you. senator lee. >> thank you. dr. moss, first of all, i'd like to commend you on your opening statement being exactly five minutes, no more. [laughter] >> he actually turned to me during it and said, that was amazing. >> mitt-like precision -- military-like precision. there. in conducting anti-trust analysis, our subcommittee often looks to weather and to what extent there may be barriers to entry in a particular... market place. these might be better that might prevent a competitor from coming into the marketplace and providing market discipline.
6:45 am
when the barriers to entry are minimal, new competitors or existing rivals find it relatively easy to get into the market and have more of an ability to emerge and compensate for any concentration of market power. on the other hand, with our significant barriers to entry, that becomes less possible. what do you see as the greatest barrier to entry into the airline industry? >> that's really good question. entry can be a very powerful thing, just like efficiencies can be. if mergers create anti-competitive effects and harm harm,... -- and potential harm, then the first thing we look to is price increases post-merger and will efficiencies have countervailing effects to the adverse effects of higher prices and reduced service and lack of choice. the biggest barrier to entry is the concentration of a couple of
6:46 am
airlines dominating large hubs. it is a big wall to scale for a small potential and trend to get into a market where they can scrabble and scrape to get slots and gates and ticketing space, baggage handling -- all of the pieces of the puzzle that need to be in place for an airline to offer service. as concentration increases, it becomes less inviting and was easier for small carriers to get an. that is what we have seen. we used to have hubs that were very conducive to multiple airline serving ban and as consolidation has occurred, those hobbes have shut down -- shut out potential competitors. airlines are in the unique position of having very fungible assets or they can move aircraft around and go to profit centers, markets that are lucrative and
6:47 am
profitable. that is what you want to see. you would like to see that in the wake of a merger that creates price increases. is that harder to do today than it was six years ago? probably yes. i think we need to look very carefully at that and as the french of competitors such ranks with the low-cost carriers and regionals, they are facing higher barriers to entry which could potentially help consumers. >> the barriers to entry that you would see might be saying that would be felt most acutely in these hubs? >> i think... if the hobbs become more consolidated and we've shown that to be the case in many major airports, yes, i think it will be harder. >> any other barriers to entry that you can point to that would flow naturally from this merger? >> were to proceed? >> i think that's the major
6:48 am
one. not reallyrriers do operate as large national footprint systems. it will be difficult for them to expand their operations to warn in on the market to get a foothold and that market. one, any route specific level. if you look nationally, right, you're also looking at potential >> you've testified in the past with regard to another number of other mergers in the airline industry. you've recommended against them and nonetheless,... justice under of republican administration and democratic administrations has approved of those that you testified against. did the department get it wrong in this case is? >> i don't want to say the department of justice got it wrong. i think they do very good and solid and exhaustive analysis in these cases.
6:49 am
what has happened is perhaps beyond the ability of antitrust to address on a comprehensive basis. we have had a series of mergers that have put this ball into motion, to allow the carriers to compete globally which we have discussed a few minutes ago and that is fine. those are a lucrative market and they want to compete and expand globally. the question is -- what does that do for the domestic market? we seek a negative trait of the effect between expanding globally and serving american consumers in the form of more competition. i am not sure the department of justice has the ability to even take that larger view of how consolidation is changing a moving target in the industry. it is a biggers sort of policy issue. i think we need to keep an eye on this carefully.
6:50 am
>> thank you. let me shift to mr. mcgee. that leads into my next question for you. the department of justice has in the past focused much of... on the routes -- on what a particular merger might do to routes, the concern being that if an airline can achieve dominance through consolidation on a flight and 60b. -- and city b. case of this merger, as i understand it, approximately 900 routes that would be covered by the combined airline, only about a dozen or so overlap between the two partners in this
6:51 am
proposed merger. does that suggest that at least that part of the antitrust analysis suggests that this is mostly okay? >> no. i think consumers union has some concerns about the analysis being a little narrow in that sense. certainly, it's important to look at head to head... nonstop competition and that certainly is the first thing the public would look at. >> but that aspect is would concede, is not a red flag, 900 routes, 12 overlap. >> relatively -- obviously if you live in those cities or do business in those cities, it's certainly a big concern. i was going to say, as mr. horton pointed out earlier,... we're talking about network carriers. you can pick any two points on the domestic map and say these two carriers have a fair shot at competing over their hubs because of the geographic penetration. in order to get from savannah to
6:52 am
milwaukee, you may choose to use to do it through charlotte or atlanta with delta war -- on not sure american would serve that through miami. there are a plethora of options. when you look at network carriers, you are looking at a much bigger scope. how closely is the department of justice looking at that? >> okay. thank you. we've talk a lot today about consumer welfare. we've acknowledged the fact that the best way to protect consumer welfare is through... robust competition, making sure that within the market place that we are examining that there is effective, strong competition. aboutponse to questions proponents of the merger have suggested that this transaction, if approved and proceeds, will have important
6:53 am
pro-competitive be faxed. by givingke to close mr. parker a chance to respond to statements that have been made on the other side of this by providing in brief form what you think are the benefits to competition and consequently to consumer welfare that could be achieved through this merger. >> i will start by saying i think a strong airline industry is important to the u.s. economy and all americans. i do think consolidation has been part of creating a... u.s. industry more able to invest on behalf of our customers. i have seen that at american and i think you will see that the new american. it is about choice. this merger will create more choice for customers and more ability to fly to more places and connect more dots on the map and create a truly global
6:54 am
competitor to the big u.s. airlines to compete with but also, the global airlines that we compete with. this is a globally competitive industries so i think it is about creating more choice and opportunities for our customers and we think that is good for american and we think it is good for u.s. airways and good for america. >> mr. parker? >> tom. i'd like to follow on thanking you for your comments about the importance of our business. some don't understand how important the airline business... is to the u.s. economy. one in eight jobs is in some way tied to the airline business. it is a vitally important business that needs the ability to compete . we need to have strong and vibrant competitors. thate here is suggesting we cannot be better together. we can provide better competition and better service to consumers and i think that is
6:55 am
good for the country and for consumers and that is why we are here. i want to come back to the question earlier. the reality is, there are no barriers to entry in this business. we have worked hard to modernize our fleets. there are large and expensive aircraft for any entrepreneur that wants to buy an airplane, the airplanes are out there. if you ask an entrepreneur why they do not do that, they will not tell you because they cannot find their plans are cannot fly to routes. they will tell you because i cannot make any money doing it. it is too intensely competitive and you can cover your costs of capital by starting up a new airline not because of barriers but because it is so competitive, you cannot make money. >> add to that the regulatory
6:56 am
>> it's expensive yes, sir. >> as well. >> lawyers aren't cheap, as yeah. but, no, honestly, i'd entrepreneur why it is. you'll tell you.... why would i want to invest now in that business? it is too competitive. we think this is great for our two airlines and the employees of both airlines and great for consumers because we are going to create a stronger airline that provides customers more choice. >> thank you, senator >> lee and all the witnesses. this concludes the hearing. i want to thank my staff, caroline holland, who previously worked with senator cole, our ... and also our staff director and i know senator lee has staff
6:57 am
working diligently on this as well i want to thank the witnesses for appearing today. you provided meaningful insight into this murder and the challenges that are faced by the company -- this merger and the challenges faced by the companies in this international market and the challenges faced by consumers as we try to look at these things not only in terms airline's ability to compete in the global market and the reason it would create an make sense for merging but what would -- how it would affect people and smaller and major market to make sure they get the service they need and fares are kept at an affordable level and our airline industry, which is so important to our country, that the benefit of everyone in the country. that is one of the reasons we want to see the gao study because we think it will be important in the context of one
6:58 am
murder also in the context of the entire industry. i want to thank everyone for attending. as i said, the record will remain open for one week with any remaining submissions or testimony. thank you very much, this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> next, your calls and comments on "washington journal." van"newsmakers." after that, president obama speech to the israeli people in jerusalem. >> we can take pictures of the brain with mri stands and see the whole thing but there is this enormous gap in between about how the circuits of the brain function in order to be able to move my hand or be able to look at you and process that information or to lay down and
6:59 am
memory. we don't know how that works. with technology yet to be invented, this will develop. a lot of this will be nano- technology. fromybe have to record hundreds of brain cells at the same time and be able to understand how these circuits work. that is the brain activity that about.g talked we are very -- we're in very early days. it is getting to be a very exciting moment to put something together that we could not have thought about more with the nih director tonight at 8:00. >> this morning, a discussion on president obama's trip to the middle east. then, senior white house correspondent will discuss the history and importance of id

71 Views

info Stream Only

Uploaded by TV Archive on