Witnesses diss Delta takeover -- and mergers in generalPacific Business News (Honolulu) - 7:21 PM HAST Wednesday
by Howard Dicus
The prospect of Delta Air Lines being acquired by US Airways appear dim after almost no one testified in favor of it at a Senate hearing Wednesday.
A high-profile hearing of the Senate Commerce Committee, chaired by Sen. Daniel Inouye (D-Hawaii) and playing to a standing room only audience that included Delta pilots in uniform, featured assurances by US Airways CEO Doug Parker that were met with skepticism by airline industry analysts who also testified, and by senators themselves.
"We will not furlough any frontline employees of Delta or US Airways as part of this merger," Parker testified. "We will align the work group cost structures between current US Airways and Delta employees, and going forward we will move to the higher cost scale."
But Delta CEO Gerald Grinstein called the hostile takeover plan a "flight of fancy" that would saddle the resulting company with tens of billions of dollars of debt that he felt would, despite assurances to the contrary, make furloughs unavoidable.
"The stage is set for Delta to emerge as a powerful, competitive force to be reckoned with," Grinstein said. "Our company will emerge from bankruptcy as a formidable global competitor. Delta doesn't need to be acquired."
The Bush administration took a measured view. Andrew Steinberg, assistant secretary of transportation for aviation, said the White House does not automatically assume that industry consolidation is bad for consumers, but does not consider mergers a panacea for industry problems.
Senators on the committee, not including any from Delta's home state of Georgia, mainly seemed worried that the merger could lead to service cuts to their own home states. Some analysts who testified said mergers can tie up management without solving problems that stem from cost structures. And the Consumer Federation of America said airline mergers would be bad for fliers.
"Mergers like US Airways-Delta will result in rising prices and reduced service because they eliminate competition on thousands of routes where there are already too few competitors to prevent price gouging and abuse of market power," said Mark Cooper, the federation's director of research. "The hostile takeover of Delta by US Airways should be rejected."
Doug Parker had earlier said that the advantage of a US Airways acquisition of Delta was that the two both had heavy route networks in the Caribbean and across the Atlantic and could eliminate duplicative service without cutting service to any destination.
Gene Kimmelman, vice president for federal and international affairs of the Consumers Union, said market power needs to be analyzed on a market-by-market basis since it is lack of competition at the point of sale that triggers abuse.
"We have not opposed every merger that has come down the runway," he said, "but the current mergers between major airlines clearly have massive anticompetitive effects."
Kimmelman predicted that mergers will mean more work for Congress because market forces will stop holding air fares down and lawmakers will need to look for statutory or regulatory solutions.
Delta Air Lines flies to Hawaii from Atlanta, Cincinnati and Salt Lake City, none of which have nonstop service to Hawaii by any other carrier, and it among the many airlines flying nonstop to Hawaii from Los Angeles. US Airways flies to Hawaii from Phoenix and several California cities.
The prospect of Delta Air Lines being acquired by US Airways appear dim after almost no one testified in favor of it at a Senate hearing Wednesday.
A high-profile hearing of the Senate Commerce Committee, chaired by Sen. Daniel Inouye (D-Hawaii) and playing to a standing room only audience that included Delta pilots in uniform, featured assurances by US Airways CEO Doug Parker that were met with skepticism by airline industry analysts who also testified, and by senators themselves.
"We will not furlough any frontline employees of Delta or US Airways as part of this merger," Parker testified. "We will align the work group cost structures between current US Airways and Delta employees, and going forward we will move to the higher cost scale."
But Delta CEO Gerald Grinstein called the hostile takeover plan a "flight of fancy" that would saddle the resulting company with tens of billions of dollars of debt that he felt would, despite assurances to the contrary, make furloughs unavoidable.
"The stage is set for Delta to emerge as a powerful, competitive force to be reckoned with," Grinstein said. "Our company will emerge from bankruptcy as a formidable global competitor. Delta doesn't need to be acquired."
The Bush administration took a measured view. Andrew Steinberg, assistant secretary of transportation for aviation, said the White House does not automatically assume that industry consolidation is bad for consumers, but does not consider mergers a panacea for industry problems.
Senators on the committee, not including any from Delta's home state of Georgia, mainly seemed worried that the merger could lead to service cuts to their own home states. Some analysts who testified said mergers can tie up management without solving problems that stem from cost structures. And the Consumer Federation of America said airline mergers would be bad for fliers.
"Mergers like US Airways-Delta will result in rising prices and reduced service because they eliminate competition on thousands of routes where there are already too few competitors to prevent price gouging and abuse of market power," said Mark Cooper, the federation's director of research. "The hostile takeover of Delta by US Airways should be rejected."
Doug Parker had earlier said that the advantage of a US Airways acquisition of Delta was that the two both had heavy route networks in the Caribbean and across the Atlantic and could eliminate duplicative service without cutting service to any destination.
Gene Kimmelman, vice president for federal and international affairs of the Consumers Union, said market power needs to be analyzed on a market-by-market basis since it is lack of competition at the point of sale that triggers abuse.
"We have not opposed every merger that has come down the runway," he said, "but the current mergers between major airlines clearly have massive anticompetitive effects."
Kimmelman predicted that mergers will mean more work for Congress because market forces will stop holding air fares down and lawmakers will need to look for statutory or regulatory solutions.
Delta Air Lines flies to Hawaii from Atlanta, Cincinnati and Salt Lake City, none of which have nonstop service to Hawaii by any other carrier, and it among the many airlines flying nonstop to Hawaii from Los Angeles. US Airways flies to Hawaii from Phoenix and several California cities.
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