Ever since American Airlines and US Airways announced their intention to merge in February, investors and industry observers have been wondering what effect the merger will have on competition. For the most part, American and US Airways have complementary route networks: They only overlap on 12 routes out of a total of 900. As a result, the two companies’ management teams have recently stressed that the merger should not raise antitrust concerns.

There’s always a but!
However, JetBlue Airways CEO Dave Barger recently squared off against US Airways CEO Doug Parker about the “new American’s” dominant position at Reagan National Airport, just outside of Washington, D.C. Reagan National is one of several U.S. airports covered by slot restrictions, where the number of flights is capped. As a result, airlines can only add flights by acquiring slots from carriers that already serve the airport, which can be very difficult to accomplish. JetBlue has had trouble growing its presence at Reagan National because of the unavailability of slots.

US Airways is already by far the largest carrier at Reagan National. Last year, the company completed a “slot swap” with Delta Air Lines , whereby Delta received 132 slot pairs at New York’s LaGuardia Airport in return for 42 slot pairs at Reagan National Airport. To win regulatory approval for that transaction, the two carriers had to divest eight slot pairs at Reagan National, leaving US Airways with 55% of the slots there. (JetBlue purchased those slots at auction for $40 million.) Based on current schedules, American Airlines appears to hold approximately 50 of the remaining slot pairs. As a result, if the merger goes through with no slot divestitures, the combined carrier would hold approximately two-thirds of the slots at Reagan National Airport.

US Airways and American only compete on two routes from National Airport: Nashville and Raleigh-Durham. Thus, a merger would only directly impact competition on those two routes. However, American’s potential stranglehold on slots at National Airport would give the company a massive competitive advantage in the D.C. region.

National is the key to D.C.
Doug Parker argued last week that holding two-thirds of the slots at Reagan National would not violate antitrust laws for two reasons. First, US Airways utilizes many smaller regional jets and turboprops there, so the combined carrier would only control about half of the seats, even though it would have two-thirds of the slots. Second, the D.C. area is also served by Washington Dulles Airport, where United Continental operates a hub, and Baltimore-Washington International Airport, which is the third-largest focus city for Southwest Airlines (including flights by its AirTran subsidiary). Between those three airports, American would only operate 25% of flights.

However, National is by far the closest airport to downtown D.C. and has its own stop on the Metro system. This makes it the preferred airport for most travelers in the region. While Dulles Airport will be connected to the Metro …read more
Source: FULL ARTICLE at DailyFinance