Friday, August 29, 2014

Flight Reaction

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Will the proposed US Airways/American Airlines merger feed more flights through Phoenix? Or will decreased competition cause ticket prices to take off?


Picture president obama and Governor Brewer on the runway. But this time, they’re both wagging fingers – not at each other, but at would-be merger partners US Airways and American Airlines (AA).


In August, Arizona joined the U.S. Justice Department in an antitrust suit to block the merger, which would create the world’s largest carrier. The merger would also mark the departure of the corporate headquarters of US Airways, a major Valley employer and hometown brand name.

Arizona Attorney General Tom Horne didn’t cite job concerns when he announced Arizona was siding with U.S. Attorney General Eric Holder in the suit. Instead, Horne talked aero-oligopoly: “This merger is anticompetitive and Arizona consumers will be forced to pay millions of dollars more each year in increased airfare if it goes through as planned.”

The net effect of the merger for Valley air travel consumers is a matter of debate. Some analysts predict more travel choices for Valley flyers, with Sky Harbor as the primary regional hub for a mega-airline that will provide lower prices and better service. Other industry watchers predict the opposite, citing the anticompetitive marriage of two carriers that market watchdog J.D. Power & Associates already stacked near the bottom of the satisfied-customer queue.

One thing is certain: The merger would not be a boon for the local economy. Though the new American Airlines would retain most of the roughly 9,000 US Airways employees who currently work in Arizona, much of the management staff based at US Airways’ Tempe headquarters would be shipped to American’s Fort Worth HQ. US Airways sold its Tempe highrise in June, keeping 25 percent ownership of the building and an option to terminate the lease at the end of 2016. “The terms of our lease remain unchanged and we’ve said previously that we will continue to maintain a significant corporate and operational presence in Phoenix after the merger closes,” US Airways spokesman Todd Lehmacher said in a press release.

Tempe Mayor Mark Mitchell makes the best of it: “US Airways has indicated that most of the Tempe jobs will stay right where they are. We believe that having a hub of the world’s largest airline in our region will greatly benefit Tempe.” In 1998, Tempe gave $11.2 million in payments and tax breaks to America West, which US Airways subsumed in a 2005 merger.

But an analysis by economist Elliott Pollack posits post-merger job losses (corporate and contract) at 7,305, with state revenue losses of nearly $21 million. He also predicts a 25 percent reduction in flight operations that would decrease employment by more than 4,500 jobs with a revenue loss of $18.3 million.  

Whether the proposed merger will boost Sky Harbor traffic is uncertain. US Airways now routes an average of 265 flights a day through Sky Harbor; AA departures number about 20. The combined company would probably move into the space US Airways now occupies at Terminal 4.

Air-industry analyst Holly Hegeman thinks it makes economic sense to wing more traffic through Phoenix, because Sky Harbor’s operating costs are half those of Los Angeles International Airport, which AA currently uses as a hub. Neither airline can profit by serving smaller Western cities like Carlsbad or Eugene from L.A., or from other hubs like Denver and Salt Lake City. But by combining resources, the new corporation might see enough demand to serve those smaller cities from Phoenix. Other sky-watchers, like Mike Sunnucks of the Phoenix Business Journal, note that other post-merger hubs have lost traffic, and the same could happen to Sky Harbor.

All these points will be moot if antitrust regulators have their way. “At this point, the merger will be decided in federal court,” Mitchell says. “We are confident that it will be thoroughly vetted through that process with consumers in mind.”

 

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