Three months after warning that creating the world’s largest airline could cost consumers hundreds of millions of dollars, the Justice Department on Tuesday announced that it had reached a settlement and dropped its opposition to the merger of American Airlines and US Airways.
The deal requires the merged airline to relax its stranglehold on the Washington area’s Reagan National Airport, a mandate that will increase competition and could lower fares for flights to major cities. But it also may end some direct flights to smaller communities, officials said.
Dominance of Reagan National, where the new airline would have controlled 69 percent of all flights, was a major impediment to the merger. The airline, which will retain the American Airlines name, will have 44 fewer departing flights from Reagan National under the agreement, but it will remain the airport’s major carrier with 57 percent of all flights.
“This agreement has the potential to shift the landscape in the airline industry,” Assistant Attorney General William Baer said.
In addition to opening the door at Reagan National for low-cost carriers such as Southwest, JetBlue and Virgin America, the settlement requires the new American to give up ground at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International, Miami International and New York’s LaGuardia airports.
American Airlines chief executive Thomas Horton called the agreement a “common-sense solution.”
“I don’t think the settlement is that different than what I would have anticipated early on,” he said.
Many analysts saw a merger between US Airways and American, which recently emerged from bankruptcy, as inevitable in the aftermath of mega-mergers that combined Delta with Northwest and United with Continental.
In the eyes of low-cost carriers, the merger was akin to the last land grab. If they did not get access to prime-time slots at key airports through the Justice Department’s intervention, they might be locked out or have only a limited presence at those airports for a long time.
“Airports in these cities are the most difficult for an airline to enter and establish a meaningful presence,” Baer said in a conference call after the announcement. “The low-cost carriers that acquire these slots and gates will be able to offer increased competition.”
Baer said the agreement would “disrupt the cozy relationships among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices.”
Access to key airports may prove critical to the survival of those competing with the three big airlines known as legacy carriers. Seventy percent of commercial passengers board planes at just 29 — or about 6 percent — of the nation’s airports.
But low-cost carriers that buy the slots from American may find routes to larger destinations more attractive than providing service to small cities, some analysts said.
Major cities are “where the so-called low-cost carriers want to serve. They don’t have the airplanes to serve the nation’s small communities,” said William Swelbar, a researcher at the MIT International Center for Air Transportation.
Insiders at American conceded that the sale of slots may eliminate some direct routes to smaller cities.
Baer said his department was “mindful of concerns that the merger would lead to fewer flights from Washington, D.C., to small and medium-size communities.” He pointed out that the Justice Department has no governance over where airlines choose to fly.
At the very least, Reagan National’s slots for commuter planes flying to smaller cities would be preserved due to a prior commitment to the Department of Transportation, American officials said.
Under the terms of the settlement, American will give up 44 slots for its planes at Reagan National as well as eight others that it leases to JetBlue.
“This settlement not only prevents increases in dominance by US Airways at Reagan,” said Baer. “It provides for expanded competition at this airport.”
The settlement also requires American to give up 17 slots at LaGuardia, along with gates and related facilities to support service at those airports. It will give up two gates each at Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.
“These are significant concessions that could provide a real shot in the arm to low-cost carrier airlines,” said William McGee, aviation consultant for Consumers Union. “That competition could help lower prices for consumers in those markets. But we’re still very concerned. The merger could still leave smaller markets underserved with fewer choices for flights. ”
Other analysts noted that some fares were bound to increase.
“Most fares will go up in those markets where US Air eliminates a multi-stop route that competes with American,” said Vaughn Cordle of Airline Forecasts. “That’s a fact, but it’s such a small percentage of the total.”
Cordle also noted that if the airline achieves savings because there are more passengers per plane as a result of the merger, that could have a positive effect on fares.
Justice’s suit, filed in August, alleged that US Airways’ $11 billion acquisition of American would undermine competition for commercial air travel in local markets throughout the United States and would result in higher airfares and less service for passengers.
American Airlines is based in Fort Worth, Texas. Last year, American flew more than 80 million passengers to 250 destinations worldwide. It made more than $24 billion in revenue. US Airways, based in Tempe, Ariz., flew more than 50 million passengers to more than 200 destinations worldwide and made $13 billion in revenue.