Lawmakers Question Wisdom Of US Airways Bid For Delta

US Airways CEO Doug Parker got a congressional grilling at a US Senate Commerce Committee hearing Wednesday, and a strong suggestion from some lawmakers that consolidation -- seen as a way by proponents to make airlines more profitable -- may not be best for competition, and ultimately customers.

According to CNN, Senator Ted Stevens of Alaska said at one point, "I hear this from very conservative people in my state, they're asking for re-regulation of the airlines because of lack of service."

Several committee members said consolidation had hurt smaller communities in their jurisdictions, and they worried higher fares might be next.

West Virginia Senator Jay Rockefeller suggested a US Airways - Delta merger would spark two other potential mergers between American Airlines and Northwest Airlines, and United Airlines and Continental Airlines. He said each of the three potential mega-carriers would control 24 percent or more of the market.

"I don't think it has to come down to [re-regulation], but I think it is something in that order," said Rockefeller.

North Dakota Senator Byron Dorgan says he also believes deregulation has hurt smaller markets. He says it costs twice as much to fly from his home state to Washington than it does to fly there from California -- twice the distance.

Dorgan added, "I think the market system is the best way of allocating goods and services, but I think it needs a referee. It's quite possible the market would say that air service only exists between the major cities."

Parker denied suggestions by Delta CEO Gerald Grinstein that fares would increase in markets where Delta and US Airways comprised the only major competitors.

"We understand if we try to charge people in places like Portland, Maine, higher than reasonable prices, they will end up driving to Manchester," said Parker.

Parker argued consolidation will actually help smaller communities because airlines committed to the so-called "hub and spoke" system might reduce costs enough to compete with low-cost carriers in outlying airports.

"For those [senators] who have small communities, which the low cost carriers will never serve, you should be very concerned about the health of the network carriers," Parker said. "We need to encourage an industry that allows network carriers the opportunity to be profitable and not have us in the continual cycle of coming back to you every five or six years to ask for help."

While Grinstein opposes US Airways' bid for a merger with Delta, he couldn't bring himself to agree with airline re-regulation. He says the merger should be rejected simply because it's anti-competitive and it will lead to further mergers.

DOT assistant secretary Andrew Steinberg also argued against re-regulating the airlines, even suggesting mergers might be good for the industry.

According to CNN, Steinberg told the Senators, "Contrary to what some have suggested, having fewer, healthier network carriers could end up with more service to those [smaller] communities."

FMI: www.dot.gov, www.senate.gov