Why US Airways-American merger isn't too big

The proposed $11 billion deal would ultimately benefit consumers, analyst says.

By MSN Money Partner Aug 14, 2013 1:40PM

CNBCA US Airways airplane sits between two American Airlines jets at Dallas Fort Worth Airport, on February 14, 2013 (© Mike Fuentes/Bloomberg via Getty Images)By Paul Toscano

 

Despite allegations in a Justice Department lawsuit, the proposed $11 billion merger between US Airways (LCC) and American Airlines would ultimately benefit consumers by providing increased access to underserved markets, an aviation industry strategic consultant told CNBC on Wednesday.

 

"Both airlines are healthy, but they could be a lot healthier put together," Michael Boyd, chairman at the Boyd Group, said on CNBC's "Squawk Box."

 

He said the issue with the merger is "not so much competition," because airlines will be reducing capacity regardless, but rather that it would provide access to underserved airports.

 

"There are four dozen small communities that will get American Airlines branded service out of this deal. That gives them access to the rest of the world, a whole lot better than today," he said. "Overall, would the consumer be better off as a result of this? I think the answer is yes. Will fares go up? Bank on it. They are going to go up regardless."

 

In a lawsuit on Tuesday, the Justice Department said the deal would result in the creation of the world's largest airline and that a combination of the two companies would reduce competition for commercial air travel in local markets and would result in passengers paying higher airfares and receive less service.

 

When asked about the potential near-monopoly that a combined US Airways/AMR would have at certain airports, including Washington's Reagan National Airport, Boyd said access also would be limited if the new company were forced to sell its position to other carriers.

 

"That means Bangor, Maine, will lose service to Washington National because those [carriers like Jet Blue (JBLU) and Southwest (LUV)] don't have the equipment that can serve Bangor. That means places like Sarasota will lose service," he added. "Smaller communities will get shafted by that kind of a divestiture at this point."

 

Increased access, he said, is more important than lower prices, because additional access will create jobs and better serve communities that would otherwise be missed. "We're beyond the point of hoping to get low, affordable air fares," he said.

 

"I hate mergers," he said. "But this sort of thing, right now, in terms of business for small communities, it pains me to say it, but this merger would be good for that."

 

More from CNBC

3Comments
Aug 14, 2013 2:16PM
avatar
"I've seen this happen many time and the only entities that would gain from this are the CEO's and other high level management from both companies.  Workers will get screwed.  Low profit airports will not be served. "The are not affordable."  Lets stop CEOs from being kings....and the rest of us serfs.
Aug 14, 2013 3:05PM
avatar
Mr toscano is getting paid by big business (wall street bankers) to put out this garbage. this deal will make hundreds of millions in fees for bankers. Less competition means less service, higher prices, less wages, less jobs, and more money for the executives and bankers. But the media (controled by big business) has created the moronic majority that has lost the ability the think for itself so I venture to say this deal will go through, and the ordinary peasants will get the shaft again.
Aug 14, 2013 2:53PM
avatar

Let the economy decide!  When fares get to high an opportunity for a start up airline begins.  All this crap about to big to fail BS!  There will always be someone or an entity to replace the either failed company or the company that has prices so high a cometitor can come in and make him competative, assuming the government doesn't step in and favor the big guy.

 

It's called a free market!

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