AIRLINE MERGERS

Issues Raised by the 

Proposed Merger of 

American Airlines and US 

Airways 

Statement of Gerald L. Dillingham, Ph.D.

Director, Physical Infrastructure Issues

Testimony

Before the Subcommittee on Aviation 

Operations, Safety, and Security, 

Committee on Commerce, Science and 

Transportation, U.S. Senate

For Release on Delivery 

Expected at 2:30 pm EDT

Wednesday, June 19, 2013

GAO-13-403T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-403T, a testimony 

before the Subcommittee on Aviation 

Operations, Safety, and Security, Committee 

on Commerce, Science, and Transportation, 

U.S. Senate

June 19, 2013

AIRLINE MERGERS

Issues Raised by the Proposed Merger of American 

Airlines and US Airways

Why GAO Did This Study

In February 2013, American and US 

Airways announced plans to merge the 

two airlines and entered into a merger 

agreement. Valued at $11 billion, the 

merged airline would retain the 

American name and be headquartered 

in Dallas-Fort Worth. This follows the 

mergers of United Airlines and 

Continental Airlines in 2010 and the 

acquisition of Northwest Airlines by 

Delta Air Lines (Delta) in 2008. This 

latest merger, if not challenged by 

DOJ, would surpass these prior 

mergers in scope to create the largest 

passenger airline in the United States.

The passenger airline industry has 

struggled financially over the last 

decade and these two airlines believe 

a merger will strengthen them. 

However, as with any merger of this 

magnitude, this proposal will be 

examined by DOJ to determine if its 

potential benefits for consumers 

outweigh the potential negative effects.

This testimony focuses on (1) the role 

of federal authorities in reviewing 

merger proposals, (2) key factors 

motivating airline mergers in recent 

years, and (3) the implications of 

merging American and US Airways. To 

address these objectives, GAO drew 

from its previous reports on the 

potential effects of prior airline mergers 

and the financial condition of the airline 

industry issued from July 2008 through 

May 2010. GAO also analyzed DOT’s

airline operating and financial data, 

airline financial documents, and airline 

schedule information since 2002. 

What GAO Found

The Department of Justice’s (DOJ) antitrust review will be a critical step in the 

proposed merger between American Airlines (American) and US Airways. DOJ 

uses an integrated analytical framework set forth in the Horizontal Merger 

Guidelines to determine whether the merger poses any antitrust concerns. Under 

that process, DOJ assesses, among other things, the extent of likely 

anticompetitive effects of the proposed merger in the relevant markets, in this 

case, airline city-pair markets, and the likelihood that other airlines may enter 

these markets and counteract any anticompetitive effects, such as higher fares. 

DOJ also considers efficiencies that a merger or acquisition could bring—for 

example, consumer benefits from an expanded route network. The Department 

of Transportation (DOT) aids DOJ’s analysis. 

Airlines seek mergers to reduce costs and improve revenues. GAO has 

previously reported that mergers can result in increased revenues by offering 

improved network connections and schedules, but also through higher fares on 

some routes. Cost savings can be generated by eliminating redundancies and 

operational efficiencies, including reducing service, but can be muted by 

problems in combining different aircraft, technologies, and labor forces. In the 

case of US Airways and American, they estimate that a merger would yield $1.4 

billion in annual benefits from increased revenues and reduced costs. 

If not challenged by DOJ, the merged American would surpass United to become 

the largest U.S. passenger airline by several measures. While US Airways and 

American overlap on only 12 nonstop routes, no other nonstop competitors exist 

on 7 of those 12. Our analysis of 2011 and 2012 ticket data also showed that 

combining these airlines would result in a loss of one effective competitor 

(defined as having at least 5 percent of total airport-pair traffic) in 1,665 airportpair markets affecting more than 53 million passengers while creating a new 

effective competitor in 210 airport-pairs affecting 17.5 million passengers.

However, the great majority of these markets also have other effective 

competitors.

Change in Effective Competition from American-US Airways Combination (2012) 

View GAO-13-403T. For more information, 

contact Dr. Gerald Dillingham at (202) 512-

2834 or dillinghamg@gao.gov. 
Page 1 GAO-13-403T

441 G St. N.W.

Washington, DC 20548

Chairman Cantwell, Ranking Member Ayotte, and Members of the 

Subcommittee:

I am pleased to be here today to discuss the potential implications of the 

merger proposal recently announced by American Airlines (American) 

and US Airways. In February 2013, these two airlines announced plans 

for American to merge with US Airways through a stock swap the airlines 

valued at $11 billion. This follows the acquisition of Northwest Airlines 

(Northwest) by Delta Air Lines (Delta) in 2008, the merger of United 

Airlines (United) and Continental Airlines (Continental) in 2010, and 

Southwest Airlines’ (Southwest) acquisition of Air Tran Airways (AirTran), 

in 2011. If approved by the Department of Justice (DOJ), the AmericanUS Airways merger would surpass United’s in terms of number of 

employees, seat capacity, and operating revenues to create the largest 

passenger airline in the United States. However, as with any merger of 

this magnitude, this proposal is being examined by DOJ with assistance 

from the Department of Transportation (DOT) to determine if the potential 

benefits for consumers outweigh the potential negative effects.

Extensive research and the experience of millions of Americans 

underscore the benefits that have flowed to most consumers from the 

1978 deregulation of the airline industry, including dramatic reductions in 

fares and expansion of service. These benefits are largely attributable to 

increased competition from the entry of new airlines into the industry and 

established airlines into new markets. At the same time, however, airline 

deregulation has not benefited everyone; some communities—especially 

smaller communities—have suffered from relatively high airfares and a 

loss of service. We have been analyzing aviation competition issues since 

enactment of the Airline Deregulation Act of 1978.1 Our work since 2000 

has focused on airline competition and industry performance, including 

the financial health of the passenger airline industry, the growth of low 

cost airlines, changing business models of airlines, and prior mergers.2 In 

the airline context, DOJ has the primary responsibility to evaluate most 

 

1

Pub. L. No. 95-504, 92 Stat. 1705 (1978).

2

See list of related GAO products attached to this statement.

 
 

Page 2 GAO-13-403T

mergers in order to carry out its antitrust responsibilities.3 In addition, 

American remains under Chapter 11 bankruptcy protection, however the 

bankruptcy court approved the merger with US Airways in May 2013.

My statement today presents the (1) role of federal authorities in 

reviewing merger proposals, (2) key factors motivating airline mergers in 

recent years, and (3) implications of merging American and US Airways. 

My testimony is based on several reports we previously prepared for this 

Committee—our 2008 report on the potential effects of the proposed 

merger between Delta and Northwest and our 2009 report on the financial 

condition of the airline industry and the various effects of the industry’s 

contraction on passengers and communities—as well as our 2010 

Statement for this Committee on the United-Continental merger4 and 

other past work on aviation issues since 2000. In addition, we conducted 

analysis of the proposed American and US Airways merger, including 

some analysis of the airlines’ financial, labor, fleet, and market conditions. 

To describe the role of federal authorities, in particular DOJ and DOT, in 

reviewing airline merger proposals we relied on information developed for 

our 2008 report and updated it as necessary.5 For example, we reviewed 

new merger guidelines issued in 2010 and recent merger decisions. To 

provide an overview of the factors motivating airline mergers in recent 

years, we relied on information developed from past reports on the airline 

industry and updated it as necessary.6 For example, we reviewed 

American Airlines bankruptcy and merger documents. To identify the 

implications of the proposed merger of American and US Airways, we 

reviewed airline documents about the merger, financial analyst reports, 

 

3

Under the Hart-Scott-Rodino Act, an acquisition of voting securities and/or assets above 

a set monetary amount must be reported to DOJ (or the Federal Trade Commission for 

certain industries) so the department can determine whether the merger or acquisition 

poses any antitrust concerns. 15 U.S.C. § 18a(d)(1). Both DOJ and the Federal Trade 

Commission have antitrust enforcement authority, including reviewing proposed mergers 

and acquisitions. DOJ is the antitrust enforcement authority charged with reviewing 

proposed mergers and acquisitions in the airline industry.

4

GAO, Airline Mergers: Issues Raised by the Proposed Merger of United and Continental 

Airlines, GAO-10-778T (Washington, D.C., May 27, 2010). 

5

GAO, Airline Industry: Potential Mergers and Acquisitions Driven by Financial and 

Competitive Pressures, GAO-08-845 (Washington, D.C.: July 31, 2008).

6

Commercial Aviation: Airline Industry Contraction Due to Volatile Fuel Prices and Falling 

Demand Affects Airports, Passengers, and Federal Government Revenues, GAO-09-393

(Washington, D.C.: Apr. 21, 2009) and GAO-08-845. 
 

Page 3 GAO-13-403T

and analyzed data submitted by the airlines to DOT since 2002 (BTS 

Form 41 financial data, origin and destination ticket sample, and 

operations). We also analyzed airline schedule data. We assessed the 

reliability of these data by (1) performing electronic testing of required 

data elements, (2) reviewing existing information about the data and the 

system that produced them, and (3) interviewing agency officials 

knowledgeable about the data. We determined that the data were 

sufficiently reliable for the purposes of this testimony. 

We conducted this work in accordance with generally accepted 

government auditing standards. Those standards require that we plan 

and perform the audit to obtain sufficient, appropriate evidence to provide 

a reasonable basis for our findings and conclusions based on our audit 

objectives. We believe that the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives.

The airline industry has experienced considerable merger and acquisition 

activity since its early years; especially immediately following deregulation 

in 1978. Figure 1 provides a timeline of mergers and acquisitions for the 

four largest surviving airlines, assuming an American–US Airways 

merger, based on passengers served. A flurry of mergers and 

acquisitions occurred during the 1980s, when Delta and Western Airlines 

merged, United acquired Pan Am’s Pacific routes, Northwest acquired 

Republic Airlines, and American and Air California merged. In 1988, 

merger and acquisition review authority was transferred from DOT to 

DOJ.7 Since 2000, American acquired the bankrupt airline TWA in 2001, 

America West acquired US Airways in 2005, while the latter was in 

bankruptcy; Delta acquired Northwest in 2008; United acquired 

Continental in 2010; and Southwest acquired AirTran in 2011. Certain 

other attempts at merging since 2000 failed because of opposition from 

DOJ or employees and creditors. For example, in 2000, an agreement 

was reached that allowed Northwest to acquire a 50 percent stake in 

Continental (with limited voting power) to resolve the antitrust suit brought 

by DOJ against Northwest’s proposed acquisition of a controlling interest 

in Continental.8 A proposed merger of United and US Airways in 2000 

 

7

Civil Aeronautics Board Sunset Act, Pub. L. No. 98-443, 98 Stat. 1703 (1984). 

8

GAO, Aviation Competition: Issues Related to the Proposed United Airlines-US Airways 

Merger, GAO-01-212 (Washington, D.C.: Dec. 15, 2000) p. 10, footnote 6. 

Background 
 

Page 4 GAO-13-403T

also resulted in opposition from DOJ, which found that in its view, the 

merger would violate antitrust laws by reducing competition, increasing air 

fares, and harming consumers on airline routes throughout the United 

States. Although DOJ expressed its intent to sue to block the transaction, 

the parties abandoned the transaction before a suit was filed. In 2006, the 

proposed merger of US Airways and Delta fell apart because of 

opposition from Delta’s pilots and some of its creditors, as well as its 

senior management.

Figure 1: Highlights of Domestic Airline Mergers and Acquisitions, 1920s – 2010s

Since deregulation in 1978, the financial stability of the airline industry 

has become a considerable concern for the federal government due, in 

part, to the level of financial assistance it has provided to the industry 

through assuming terminated pension plans and other forms of 

assistance. From 1979 through 2012, there have been at least 194 airline 

bankruptcies, according to Airlines for America (A4A), an airline trade 

group. While most of these bankruptcies affected small airlines that were 

eventually liquidated, 4 of the more recent bankruptcies prior to 

American’s (Delta, Northwest, United, and US Airways) are among the 

largest corporate bankruptcies ever, excluding financial services firms. 

During these bankruptcies, United and US Airways terminated the defined 
 

Page 5 GAO-13-403T

benefit pension plans for their labor groups and $9.7 billion in claims were 

shifted to the Pension Benefit Guarantee Corporation (PGBC).9 Further, 

to respond to the financial shock to the industry from the September 11, 

2001, terrorist attacks, the federal government provided airlines with $7.4 

billion in direct assistance and authorized $1.6 billion (of $10 billion 

available) in loan guarantees to six airlines.10

Although the airline industry has experienced numerous mergers and 

bankruptcies since deregulation, growth of existing airlines and the entry 

of new airlines have contributed to a steady increase in capacity, as 

measured by available seat miles. Previously, we reported that although 

one airline may reduce capacity or leave the market, capacity returns 

relatively quickly through new airline entry and expansion of the 

remaining airlines.11 However, in recent years this dynamic may be 

changing. Domestic capacity growth stalled in 2008 owing to the 

recession and high fuel prices and has not rebounded despite a 

strengthening economy and demand for air travel (see fig. 2).

 

9

PBGC was established under the Employee Retirement Income Security Act of 1974 

(Pub. L. No. 93-406, 88 Stat. 1003 (1974) (ERISA) and set forth standards and 

requirements that apply to defined benefit plans. PBGC was established to encourage the 

continuation and maintenance of voluntary private pension plans and to insure the 

benefits of workers and retirees in defined benefit plans should plan sponsors fail to pay 

benefits. PGBC operations are financed, for example, by insurance premiums paid by 

sponsors of defined benefit plans, investment income, and assets from pension plans 

trusted by PBGC, and recoveries from the companies formerly responsible for the plans. 

10The six airlines receiving loan guarantees were Aloha, World, Frontier, US Airways, 

ATA, and America West. 

11GAO, Commercial Aviation: Bankruptcy and Pensions Problems Are Symptoms of 

Underlying Structural Issues, GAO-05-945 (Washington, D.C.: Sept. 30, 2005). 
 

Page 6 GAO-13-403T

Figure 2: Domestic Passenger Airline Capacity (Fiscal Years 2002 to 2012, Third 

Quarter)

In recent years, a key factor limiting capacity growth has been high fuel 

prices, according to industry analysts. In the early part of the last decade 

while network airlines12 were restructuring their costs through bankruptcy, 

low cost airlines like Southwest and JetBlue expanded owing to lower 

costs, especially for labor (see fig. 3). As a result, while in 2002, network 

airlines offered 67 percent of domestic seat capacity versus 23 percent 

for low cost airlines, by October 2012, network airlines share of domestic 

seats had fallen to 52 percent and low cost airline’s share had risen to 33 

percent. However, the expansion of low cost airlines in recent years may 

 

12Network (or legacy) airlines are essentially those airlines that were in operation before 

the Airline Deregulation Act of 1978 and whose goal is to provide service from “anywhere 

to everywhere.” To meet that goal, these airlines support large, complex hub-and-spoke 

operations with thousands of employees and with hundreds of aircraft of various types, 

with service at numerous fare levels to domestic communities of all sizes and to 

international destinations. For purposes of this report, we have defined American, 

Continental, Delta, Northwest, United, and US Airways as network airlines and Allegiant, 

AirTran, Frontier, Midwest, JetBlue, Southwest, Spirit, and Sun Country as low cost 

airlines. 
 

Page 7 GAO-13-403T

have slowed owing to higher fuel costs that diminished their relative cost 

advantage over network airlines. With fuel costs consuming a greater 

proportion of airline operating costs for all airlines, any cost advantage 

that low cost airlines had with respect to labor costs over network airlines 

is diluted.

Figure 3: Total Operating Costs (Fiscal Years 2002 and 2012, Third Quarter)
 

Page 8 GAO-13-403T

Finally, DOJ and DOT’s analysis of merger impacts have relied on an 

expectation that entry by low cost airlines, especially Southwest, would 

check airline fare increases following a merger. However, that practice 

might erode as Southwest expansion has slowed and it recently merged 

with a key low cost rival, reducing the number of low cost airlines that 

might challenge post merger fare increases. In 1993, DOT published a 

report entitled the The Southwest Effect that concluded that low cost 

airlines like Southwest lowered fares in markets they entered and that 

DOT policy should be to encourage the growth of Southwest and airlines 

like it.13 Congressional action and DOT policy in subsequent years, 

especially in the award of operating rights called “slots” at congested 

airports like Washington Reagan and New York LaGuardia, favored new 

entrant airlines like Southwest. Similarly, DOJ cited the relinquishment of 

36 slots by Continental to Southwest at Newark Liberty International 

Airport as alleviating its principle concerns in determining not to object to 

the United–Continental merger in 2010. A November 2008 paper by 

Goolsbee and Syverson, found that even the threat of entry by Southwest 

in a market helped to lower fares in that market, but only if Southwest 

already operated at one of the market endpoints.14 More recently though, 

a 2013 study suggests that the Southwest Effect may not be as prominent 

following a merger. This study found that Southwest raised fares in 

markets following the mergers of Delta–Northwest and US Airways–

America West more than average fare increases overall, unless another 

low cost airline was already in that market.15 The merger of Southwest 

with a key rival in 2011 could further lessen the potential that Southwest 

would deter or counteract higher fares in markets following a merger.

 

13Randall Bennett and James Craun, U.S. Department of Transportation, The Airline 

Deregulation Evolution Continues: The Southwest Effect, May 1993.

14Austan Goolsbee and Chad Syverson, “How Do Incumbents Respond to the Threat of 

Entry? Evidence from the Major Airlines,” The Quarterly Journal of Economics, (November 

2008).

15Najmus Sakib bin Salam, Is There Still A Southwest Effect? Transportation Research 

Record publications, Volume no. 2325 (May 2013).
 

Page 9 GAO-13-403T

The DOJ’s review of airline mergers and acquisitions is a key step for 

airlines hoping to consummate a merger. For airlines, as with other 

industries, DOJ uses an analytical framework set forth in the Horizontal 

Merger Guidelines (the Guidelines) to evaluate merger proposals.16 In 

addition, DOT plays an advisory role for DOJ and, if the combination is 

consummated, may conduct financial and safety reviews of the combined 

entity under its regulatory authority.17 Finally, because American has been 

under Chapter 11 bankruptcy protection since 2011, the merger also 

required federal bankruptcy court approval. 

Most proposed airline mergers or acquisitions must be reviewed by DOJ 

as required by the Hart-Scott-Rodino Antitrust Improvements Act (Act).18

In particular, under the Act, an acquisition of voting securities or assets 

above a set monetary amount must be reported to DOJ (or the FTC for 

certain industries) so the department can determine whether the merger 

or acquisition poses any antitrust concerns.19 To analyze whether a 

proposed merger or acquisition raises antitrust concerns—whether the 

proposal will likely create, enhance, or entrench “market power” or 

facilitate its exercise20—DOJ follows an analytical process set forth in the 

Guidelines.21 The commentary to the Guidelines identifies five factors that 

 

16The Guidelines were jointly developed by DOJ’s Antitrust Division and the Federal Trade 

Commission (FTC) and describe the inquiry process the two agencies follow in analyzing 

proposed mergers. The current version of the Guidelines was revised in August 2010. 

1749 USC § 41110.

18Pub. L. No. 94-435, 90 Stat. 1383 (1976). 

19See 15 U.S.C. § 18a(d)(1). Under the Hart-Scott-Rodino Act, DOJ has 30 days after the 

initial filing to notify companies that intend to merge whether DOJ requires additional 

information for its review. If DOJ does not request additional information, the firms can 

close their deal (15 U.S.C. § 18a(b)). If more information is required, however, the initial 

30-day waiting period is followed by a second 30-day period, which starts to run after both 

companies have provided the requested information (15 USC § 18a(e)(2)). Companies 

often attempt to resolve DOJ competitive concerns, if possible, prior to the expiration of 

the second waiting period. Any restructuring of a transaction—e.g., through a divestiture—

is included in a consent decree entered by a court, unless the competitive problem is 

unilaterally fixed by the parties prior to the expiration of the waiting period (called a “fix-it 

first”). 

20“Market power” is the ability to maintain prices profitably above competitive levels for a 

significant period of time. 

21United States Department of Justice and Federal Trade Commission, Horizontal Merger 

Guidelines (Washington, D.C., rev. Aug. 19, 2010). 

The Department of 

Justice’s Antitrust 

Review Is a Critical 

Step in the Airline 

Merger and 

Acquisition Process
 

Page 10 GAO-13-403T

the department considers in reviewing a merger but notes that their 

importance varies according to the nature of the industry and the scope of 

the merger. The five factors considered by DOJ are:

• the relevant product and geographic markets in which the companies 

operate and whether the merger is likely to significantly increase 

concentration in those markets, which in the case of airlines 

principally applies to city-pair markets;

• the extent of potential adverse competitive effects of the merger, such 

as whether the merged entity will be able to charge higher prices or 

restrict output for the product or service it sells;

• whether other competitors are likely to enter the affected markets and 

whether they would counteract any potential anticompetitive effects 

that the merger might have posed;

• the verified “merger specific” efficiencies or other competitive benefits 

that may be generated by the merger and that cannot be obtained 

through any other means; and

• whether, absent the merger or acquisition, one of the firms is likely to 

fail, causing its assets to exit the market.

In making the decision whether the proposed merger is likely 

anticompetitive, DOJ considers the particular circumstances of the 

merger as it relates to the Guidelines’ five-part analysis. The greater the 

potential anticompetitive effects, the greater the offsetting verifiable 

efficiencies for DOJ to clear a merger must be. However, according to the 

Guidelines, efficiencies almost never justify a merger if it would create a 

monopoly or near monopoly. If DOJ concludes that a merged airline 

threatens to deprive consumers of the benefits of competitive air service, 

then it will seek injunctive relief in a court proceeding to block the merger 

from being consummated. For example, a proposed merger of United 

Airlines and US Airways was opposed by DOJ, which found that, in its 

view, the merger would violate antitrust laws by reducing competition, 

increasing air fares, and harming consumers on airline routes throughout 

the United States. In some cases, the parties may agree to modify the 

proposal to address anticompetitive concerns identified by DOJ—for 

example, selling airport assets or giving up slots at congested airports—in 

which case DOJ ordinarily files a complaint with the court along with a 

consent decree that embodies the agreed-upon changes.

DOT conducts its own analyses of airline mergers and acquisitions. While 

DOJ is responsible for upholding antitrust laws, DOT reviews the merits of 

any airline merger or acquisition and submits its views and relevant 

information in its possession to DOJ. DOT also provides some essential 
 

Page 11 GAO-13-403T

data—for example, the airlines’ routes and passenger traffic—that DOJ 

uses in its review. In addition, presuming the merger moves forward after 

DOJ’s review, DOT can undertake several other reviews if the situation 

warrants. Before commencing operations, any new, acquired, or merged 

airlines must obtain separate authorizations from DOT—“economic” 

authority from the Office of the Secretary22 and “safety” authority from the 

Federal Aviation Administration (FAA).23 The Office of the Secretary is 

responsible for deciding whether applicants are fit, willing, and able to 

perform the service or provide transportation. To make this decision, the 

Secretary assesses whether the applicants have the managerial 

competence, disposition to comply with regulations, and financial 

resources necessary to operate a new airline. FAA is responsible for 

certifying that the aircraft and operations conform to the safety standards 

prescribed by the Administrator, for instance, that the applicants’ 

manuals, aircraft, facilities, and personnel meet federal safety standards. 

Also, if a merger or other corporate transaction involves the transfer of 

international route authority, DOT is responsible for assessing and 

approving all transfers to ensure that they are consistent with the public

interest.24

In addition, American has been under federal bankruptcy protection since 

November 2011.25 In May 2013, the federal judge overseeing the 

bankruptcy approved American’s merger with US Airways as part of the 

 

2249 U.S.C. § 41104.

2349 U.S.C. § 44702.

2449 U.S.C. § 41105. DOT must specifically consider the “transfer-of-certificate” authority’s 

impact on the financial viability of the parties to the transaction and on the trade position of 

the United States in the international air transportation market, as well as on competition 

in the domestic airline industry.

2511 U.S.C. § 1101 et seq. Chapter 11 of the United States code governs business 

reorganizations. This chapter is designed to accommodate complicated reorganizations of 

publicly held corporations. Among other things, it allows companies, with court approval, 

to reject agreements made under collective bargaining and renegotiate contracts with 

other creditors. With the approval of the bankruptcy courts (which administer the 

bankruptcy laws), companies may also modify retiree benefits.
 

Page 12 GAO-13-403T

reorganization.26 Shareholders of US Airways must also approve the 

merger for it to be consummated.

On February 13, 2013, American and US Airways announced an 

agreement to merge the two airlines. The airlines have also notified DOJ 

of their intent to merge. The new airline would retain the American name 

and headquarters in Dallas-Fort Worth while the current US Airways Chief 

Executive Officer would keep that title with the new airline, and the 

current American CEO would become Chairman of the new American. 

The proposed merger will be financed exclusively through an all stock 

transaction with a combined equity value of $11 billion split roughly with 

72 percent ownership to American shareholders and 28 percent to US 

Airways shareholders. The airlines have not announced specific plans for 

changes in their networks or operations that would occur if the 

combination is consummated, but the airlines’ conservatively estimate 

that the merger will result in $1.4 billion in annual benefits to shareholders 

of the new airline as outlined in table 1.

Table 1: Estimated Annual Benefits and Costs from American—US Airways Merger 

(Dollars in Billions)

Benefit Estimated value 

Revenue (network) benefit $1.12

Cost benefits .64

Increased labor costs (.36)

Total annual benefits $1.40

Source: US Airways.

A key financial benefit that airlines consider in a merger is the potential for 

increased revenues through additional demand (generated by more 

seamless travel to more destinations), increased market share, and 

higher fares on some routes. As we reported in May 2010, mergers may 

generate additional demand by providing consumers more domestic and 

 

26On April 15, American filed a formal restructuring plan to exit bankruptcy protection 

based on its merger with US Airways. On May10, 2013, the presiding judge in the 

American Airlines bankruptcy signed an order approving the merger between American 

Airlines and US Airways. In re AMR Corp., United States Bankruptcy Court for the 

Southern District of New York, No. 11-15463-SHL.

Financial Benefits to 

Shareholders Drive 

Airline Mergers
 

Page 13 GAO-13-403T

international city-pair destinations.27 Airlines with expansive domestic and 

international networks and frequent flier benefits particularly appeal to 

business traffic, especially corporate accounts. The American–US 

Airways merger is estimated by airline executives to generate $1.12 

billion in revenue synergies from improved network connectivity, 

increased corporate and frequent flier loyalty, and optimization in the use 

of their aircraft.

At the same time, capacity reductions in certain markets from a merger or 

acquisition could also serve to generate additional revenue through 

increased fares on some routes. Some studies of airline mergers and 

acquisitions during the 1980s showed that prices were higher on some 

routes from the airline’s hubs soon after the combination was 

completed.28 Several studies have also shown that increased airline 

dominance at an airport results in increased fare premiums, in part, 

because that dominance creates competitive barriers to entry.29 At the 

same time, though, even if the combined airline is able to increase prices 

in some markets, the increase may be transitory if other airlines enter the 

markets with sufficient presence to counteract the price increase. In an 

empirical study of airline mergers and acquisitions up to 1992, Winston 

and Morrison suggest that being able to raise prices or stifle competition 

does not play a large role in airlines’ merger and acquisition decisions.30

 

27GAO-10-778T. 

28See Severin Borenstein, “Airline Mergers, Airport Dominance, and Market Power,” 

American Economic Review, Vol. 80 (May 1990); Steven A. Morrison, “Airline Mergers: A 

Longer View,” Journal of Transport Economics and Policy (September 1996); and Gregory 

J. Werden, Andrew J. Joskow, and Richard L. Johnson, “The Effects of Mergers on Price 

and Output: Two Case Studies from the Airline Industry,” Managerial and Decision 

Economics, Vol. 12 (October 1991).

29See Severin Borenstein, “Hubs and High Fares: Dominance and Market Power in the 

U.S. Airline Industry,” RAND Journal of Economics, 20, 344-365 (1989); GAO, Airline 

Deregulation: Barriers to Entry Continue to Limit Competition in Several Key Markets, 

GAO/RCED-97-4 (Washington, D.C.: Oct. 18, 1996); and GAO, Airline Competition: 

Effects of Airline and Market Concentration and Barriers to Entry on Airfares, 

GAO/RCED-91-101 (Washington, D.C.: Apr. 16, 1991).

30See Steven A. Morrison, and Clifford Winston, “The Remaining Role for Government 

Policy in the Deregulated Airline Industry.” Deregulation of Network Industries: What’s 

Next? eds. Sam Peltzman and Clifford Winston, (Washington, D.C., Brookings Institution 

Press 2000) pp. 1-40.
 

Page 14 GAO-13-403T

The other key financial benefit that airlines consider when merging with or 

acquiring another airline is the cost reduction that may result from 

combining complementary assets, eliminating duplicative activities, and 

reducing capacity. As we reported in May 2010, a merger or acquisition 

could enable the combined airline to reduce or eliminate duplicative 

operating costs, such as duplicative service, labor, and operations 

costs—including inefficient (or redundant) hubs or routes—or to achieve 

operational efficiencies by integrating computer systems and similar 

airline fleets.31 By increasing the fleet size, airlines can increase their 

ability to match the size of aircraft with demand and adjust to seasonal 

shifts in demand. Other cost savings may stem from facility consolidation, 

procurement savings, and working capital and balance sheet 

restructuring, such as renegotiating aircraft leases. Airlines may also 

pursue mergers or acquisitions to more efficiently manage capacity—both 

to reduce operating costs and to generate revenue—in their networks. 

Given recent economic pressures, particularly increased fuel costs, the 

opportunity to lower costs by reducing redundant capacity may be 

especially appealing to airlines seeking to merge. In the case of the 

American–US Airways merger, airline executives estimate that the 

merger will allow $640 million in cost savings from reducing overlapping 

facilities at airports and in combining purchasing, technology, and 

corporate activities.

Despite these benefits, there are several potential barriers to successfully 

consummating a merger, potentially reducing the benefits and increasing 

the costs. As we reported in July 2008,32 the most significant operational 

challenges involve the integration of workforces, organizational cultures, 

aircraft fleets, and information technology systems and processes, 

challenges that can be difficult, disruptive, and costly as the airlines 

integrate.33 For example, in the case of the American–US Airways 

merger, with unions supporting the merger, pilots’ and others’ pay will 

increase by $360 million annually if the merger is completed. However, 

merging workforces can take time–for example, US Airways’ pilot 

seniority lists have not been resolved following their merger with America 

West in 2005. Integrating technology, especially reservation systems, can 

 

31GAO-10-778T. 

32GAO-08-845. 

33Airlines also face potential challenges to mergers and acquisitions from DOJ’s antitrust 

review, which is discussed in the previous section.
 

Page 15 GAO-13-403T

also be difficult and costly. For example, United has struggled to integrate 

computer and reservation systems following its merger with Continental in 

2010.

If approved by DOJ, the merged American-US Airways would surpass 

United as the largest U.S. passenger airline. Table 2 shows that 

combining American and US Airways Airlines would create the largest 

U.S. airline based on data for the four quarters ending October 2012, as 

measured by capacity (available seat miles) and operating revenues. The 

combined airline would also have the largest workforce among U.S. 

airlines based on February 2013 employment statistics, with a combined 

101,197 full-time equivalent employees (table 3). The airlines’ workforces 

are represented by different unions, except dispatchers (table 4). Some of 

American’s unions have already signed memorandums of understanding 

for future contracts if the airlines are merged. The combined airline would 

need to integrate 1,215 aircraft (table 5). American has a predominantly 

Boeing fleet, while US Airways has a largely Airbus fleet. In addition, in 

July 2011, American placed a $40 billion order for 200 Boeing 737 series 

and 260 Airbus A320 series aircraft. Despite its bankruptcy, the 

bankruptcy court allowed the order to proceed. American has also been 

trying to sell its regional airline, American Eagle, and its fleet of almost 

280 aircraft.

Table 2: Total Assets, Operating Revenue, and Capacity of Top U.S. Airlines (4 Quarters Ending October 2012)

Airline

Capacity as measured by available 

seat miles (thousands)

Total operating revenue

(thousands)a Total assets(thousands)

Combined American-US Airways 226,545,216 $38,847,509 $130,928,916

United 218,563,833 37,470,318 154,554,977

Delta 200,931,079 36,615,819 144,019,527

Southwestb 128,365,001 17,023,282 75,640,126

Alaska 27,655,088 4,561,605 19,770,760

Source: Bureau of Transportation Statistics Form 41.

a

Revenues include revenues from regional operations but assets exclude regional carrier assets 

unless wholly owned, as in the case of American Eagle.

b

Includes AirTran.

The Proposed 

American and US 

Airways Merger 

Would Create The 

Largest U.S. 

Passenger Airline
 

Page 16 GAO-13-403T

Table 3: Full-Time Equivalent Employees of Top U.S. Airlines (February 2013) 

Full-Time Equivalent Employees 

Airline Total 

Combined American–US Airwaysa 101,197

United 82,212

Delta 73,320

Southwest 45,846

JetBlue 12,636

SkyWest 9,931

Alaska 9,279

Hawaiian 4,423

Source: Bureau of Transportation Statistics.

a

Includes American Eagle.

Table 4: Union Representation for Various Employee Groups

 Employee groups

Pilots Flight Attendants Mechanics Dispatchers

American Allied Pilots Association 

(APA) 

Association of Professional Flight 

Attendants (APFA)

Transport Workers Union (TWU) TWU

US Airways US Airline Pilots Association 

(USAPA) 

Association of Flight Attendants 

(AFA) 

International Association of Machinists 

and Aerospace Workers (IAM)

TWU

Source: American Airlines and US Airways.
 

Page 17 GAO-13-403T

Table 5: American and US Airways Aircraft Fleet (2013)

Aircraft American US Airways Merged

Embraer 190 18 18

Boeing 737 194 28 222

Boeing 757 104 24 128

Boeing 767 72 10 82

Boeing 777 49 49

Airbus 319 93 93

Airbus 320 72 72

Airbus321 75 75

Airbus 330 16 16

MD-80 188 188

CRJa 59 59

E135a 21 21

E140a 74 74

E145a 118 118

Total 879 336 1215

Source: American Airlines and Diio.

a

American Eagle aircraft.

If approved by DOJ, the airlines would combine two distinct networks 

supported by different hubs, where the airlines connect traffic feeding 

from smaller airports. American’s major hubs are in Chicago O’Hare 

(ORD), Dallas (DFW), New York (JFK), Los Angeles (LAX), and Miami 

(MIA), and US Airways has hubs in Charlotte (CLT), Philadelphia (PHL), 

Phoenix (PHX), and Washington D.C. (DCA), as shown in figures 4 and 

5.
 

Page 18 GAO-13-403T

Figure 4: American Airlines Domestic Route Maps (January 2013)
 

Page 19 GAO-13-403T

Figure 5: US Airways Domestic Route Maps (January 2013)

A key concern for DOJ in reviewing an airline merger is the loss of a 

competitor on nonstop routes. The loss of a competitor that serves a 

market on a nonstop basis is significant from a competitive perspective 

because nonstop service is typically preferred by most passengers and 

routes that only have nonstop service do not benefit from the availability 

of alternative, albeit lower valued, connecting service. Based on October 

2012 traffic data, the two airlines overlap on 12 nonstop airport-pair 

routes, which are listed in figure 6.34 For 7 of these 12 nonstop 

overlapping airport-pairs (generally between an American hub and a US 

Airways hub) there are currently no other competitors on a nonstop basis 

 

34This compares coincidently to the same number of nonstop overlapping airport pairs in 

the United—Continental merger.
 

Page 20 GAO-13-403T

and in only one instance is a low cost airline (Southwest) present. And 

unlike the United—Continental merger, where most of the endpoint cities 

had other airports in the region, fewer of these airport pairs have 

significant other airports in the region. This is especially true for the 

Charlotte (CLT)—Dallas (DFW) and Phoenix (PHX)—DFW pairs where 

few alternate options are available at either endpoint.

Figure 6: Total Passengers on Overlapping Nonstop Airport Pairs (October 2012)

The amount of overlap in airport-pair combinations is far more when 

considering all connecting traffic; however, on most of the overlapping 

airport-pair markets, there is at least one other competitor. Based on 
 

Page 21 GAO-13-403T

2011 and 2012 ticket sample data, for 13,963 airport-pairs35 with a 

minimum level of passenger traffic per year, there would be a loss of one 

effective competitor in 1,665 airport pair markets affecting more than 53 

million passengers by merging these airlines (see fig. 7).36 As the figure 

shows, compared to the last major airline merger in 2010 between United 

and Continental, there would be 530 more airport pairs losing an effective 

competitor. This would affect 18 million more passengers compared to 

the merger between United and Continental. In addition, any effect on 

fares may be dampened by the presence of a low cost airline in 473 of 

the 1,665 airport pairs losing a competitor.37 The combination of the two 

airlines would also create a new effective competitor with at least a 

combined 5 percent market share in 210 airport-pairs affecting 17.5 

million passengers.

 

35It is generally preferable, time permitting, to assess city-pair, rather than airport-pair, 

changes in competition. Some larger U.S. cities (New York, Chicago, Los Angeles, 

Washington, D.C.) have more than one commercial airport that can compete for 

passenger traffic. DOJ generally considers the relevant market to be a city-pair 

combination, but also examines the airport pair if relevant. 

36We assessed more than 96,000 airport pairs with any passenger traffic over the last 4 

quarters ending October 2012, but eliminated any airport-pair with 520 or fewer annual 

passengers in one direction or 1,040 for two-way traffic because they would to be too 

small to ensure statistical accuracy. We defined an effective competitor as having at least 

5 percent of total airport pair traffic. These are the same minimum passenger and market 

share that we have previously used to assess whether an airline has sufficient presence in 

a market to affect competition. See GAO-10-778T and GAO-08-845. 

37We defined low cost airlines as JetBlue, Frontier/Midwest, AirTran, Allegiant, Spirit, Sun 

Country, and Southwest.
 

Page 22 GAO-13-403T

Figure 7: Change in Effective Competition from American-US Airways Combination (2012) Compared to United-Continental 

Merger (2010)

Note: All origin and destination airport pairs with at least 520 passengers in either direction. An 

effective competitor holds at least 5 percent of market share.

If approved by DOJ, the combined airline could be expected to rationalize 

its network over time, including where it maintains hubs. The two airlines 

do not share any airport hubs; therefore, the amount of airport market 

share overlap that currently exists at these hubs is relatively small but 

could grow at some hubs while contracting at others under a merger (see 

table 6). For example, New York could serve as a better hub and 

international gateway than Philadelphia in the Northeast, while Miami 

could be a better hub than Charlotte in the Southeast. In addition, 59 out 

of 116 domestic airports served by US Airways from Charlotte are also 

served by American from Miami (MIA). Closing hubs is not 

unprecedented, following the American acquisition of TWA in 2001, St 

Louis ceased to be an American hub and following the Delta–Northwest 

merger, service at Delta’s hub in Cincinnati and Northwest’s hub in 

Memphis has been greatly reduced.
 

Page 23 GAO-13-403T

Table 6: Domestic Passenger Market Share at Hub and Key Airports (4 Quarters Ending October 2012)

American airports American share (%) US Airways airports US Airways share (%) Total (%)

Dallas (DFW) 67 7 74

Miami (MIA) 66 6 72

7 Charlotte (CLT) 63 70

5 Philadelphia (PHL) 49 54

15 Washington DC (DCA) 34 49

Chicago (ORD) 36 7 43

New York (LGA) 20 14 34

5 Phoenix (PHX) 27 32

Los Angeles (LAX) 18 5 23

New York (JFK) 15 3 18

Source: DOT origin and destination ticket sample data.

Note: Hub airports in bold.

Three of the airports noted in table 6 are slot-controlled airports with 

restricted access for new entrants or expanded service. As we reported 

last year, slot-controlled airports have more limited competition and tend 

to have higher fares compared to other hub airports.38 Based on February 

2012 slot holdings, a combined American and US Airways would control 

one-third of the slots at LaGuardia and two-thirds of the slots at 

Washington Reagan as noted in Table 7.

Table 7: Slot Holdings of American and US Airways at Slot-Controlled Airports (February 2012)

Airports 

American 

share (%)

US Airways 

share (%)

Combined 

American – US 

share (%)

United share 

(%) Delta share (%)

Other share 

(%)

Washington DC 

(DCA)

14 54 68 9 12 11

New York LaGuardia 

(LGA) 

22 11 33 5 46 16

New York (JFK) 18 1 19 4 40 36

Newark (EWR) 5 3 8 81 6 6 

Source: FAA.

 

38GAO, Slot-Controlled Airports: FAA’s Rules Could be Improved to Enhance Competition 

and Use of Available Capacity, GAO-12-902 (Washington, D.C., Sept. 13, 2012).
 

Page 24 GAO-13-403T

Both American and US Airways have worldwide networks and serve 

many international destinations. Between the two airlines, they serve 107 

international cities from airports in the United States, 37 of them in 

common, according to published February 2013 schedules. However, the 

two airlines do not directly compete on any of the same international city 

pair markets, though both serve slot-controlled London Heathrow airport 

with more than 830,000 passengers over the last year.39 For international 

routes, U.S. airlines aggregate traffic from many domestic locations at a 

hub airport where passengers transfer onto international flights. In other 

words, at Philadelphia, where US Airways has a large hub, passengers 

traveling from many locations across the U.S. transfer onto US Airways’ 

international flights. Likewise, American aggregates domestic traffic at 

New York’s JFK for many of its international flights to some of the same 

destinations. As such, a passenger traveling from, for example Nashville, 

may view these alternative routes to a location in Europe as substitutable.

Whether service to international destinations from different domestic hubs 

will be viewed as a competitive concern will likely depend on a host of 

factors, such as the two airlines’ market share of traffic to that destination 

and whether there are any barriers to new airlines entering or existing 

airlines expanding service at the international destination airports. US 

Airways is part of the larger Star Alliance, and American is a member of 

the smaller oneworld alliance. 40 US Airways has announced it will leave 

the Star Alliance and join American in oneworld as part of the merger. 

The DOT has authority to approve antitrust immunity applications,41 but 

DOJ may also comment if it has antitrust concerns. According to a 2011 

paper prepared by DOJ economists, “Over the past 17 years, DOT 

granted immunity to over 20 international alliance agreements, permitting 

participants in these alliances to collude on prices, schedules, and 

 

39Of these 830,000 passengers, US Airways transported 52,000 and American Airlines 

transported 778,000.

40An airline alliance is an agreement between two or more airlines to cooperate on a 

substantial level. The three largest passenger airline alliances are the Star Alliance, 

SkyTeam and oneworld. Alliances provide a network of connectivity and convenience for 

international passengers. Alliances also provide convenient marketing branding to 

facilitate travelers making inter airline “codeshare“ connections within countries. 

4149 U.S.C. §§ 41308, 41309.
 

Page 25 GAO-13-403T

marketing.”

42 They found that in granting immunity to larger groups of 

airlines in the three major international alliances, the number of 

independent competitors over the North Atlantic was significantly reduced 

adversely affecting consumers through higher fares. Because both 

airlines are already part of immunized alliances it is unclear what effect, if 

any, this merger might have on competition in international service. 

According to DOT officials responsible for reviewing and approving the 

immunity requests, the agency has analyzed and documented the impact 

of immunized alliances in its many public orders and has concluded that 

in its experience, integrated airline alliances enable a number of valuable 

consumer benefits, including lower prices for many travelers.

Chairman Cantwell, Ranking Member Ayotte, and Members of the 

Subcommittee, this concludes my prepared statement. I would be happy 

to answer any questions that you may have at this time.

For further information on this testimony, please contact Gerald L. 

Dillingham, Ph.D. at (202) 512-2834 or by email at dillinghamg@gao.gov. 

In addition, contact points for our Offices of Congressional Relations and 

Public Affairs may be found on the last page of this statement. Individuals 

making key contributions include Paul Aussendorf (Assistant Director); 

Amy Abramowitz; Susan Fleming; Dave Hooper; Delwen Jones; Brooke 

Leary; Dominic Nadarski; Josh Ormond; Gretchen Snoey; and Carrie 

Wilks.

 

42See William Gillespie and Oliver Richard, “Antitrust Immunity and International Airline 

Alliances”, Economic Analysis Group of the Department of Justice’s Antitrust Division, 

EAG 11-1, February 2011. The views are those of the authors and not the department. 

Contact and 

Acknowledgments 
Related GAO Products

Page 26 GAO-13-403T

Airline Mergers: Issues Raised by the Proposed Merger of United and 

Continental Airlines. GAO-10-778T. Washington, D.C.: May 27, 2010.

April 21, 2009. Commercial Aviation: Airline Industry Contraction Due to 

Volatile Fuel Prices and Falling Demand Affects Airports, Passengers, 

and Federal Government Revenues. GAO-09-393. Washington, D.C.: 

April 21, 2009.

Airline Industry: Potential Mergers and Acquisitions Driven by Financial 

Competitive Pressures. GAO-08-845. Washington, D.C.: July 31, 2008.

Airline Deregulation: Reregulating the Airline Industry Would Likely 

Reverse Consumer Benefits and Not Save Airline Pensions. 

GAO-06-630. Washington, D.C.: June 9, 2005.

Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms 

of Underlying Structural Issues. GAO-05-945. Washington, D.C.: Sept. 

30, 2005.

Commercial Aviation: Preliminary Observations on Legacy Airlines’ 

Financial Condition, Bankruptcy, and Pension Issues. GAO-05-835T. 

Washington, D.C.: June 22, 2005.

Private Pensions: Airline Plans’ Underfunding Illustrates Broader 

Problems with the Defined Benefit Pension System. GAO-05-108T. 

Washington, D.C.: Oct. 7, 2004.

Transatlantic Aviation: Effects of Easing Restrictions on U.S.-European 

Markets. GAO-04-835. Washington, D.C.: Jul. 21, 2004.

Commercial Aviation: Despite Industry Turmoil, Low-Cost Airlines Are 

Growing and Profitable. GAO-04-837T. Washington, D.C.: June 3, 2004.

Commercial Aviation: Legacy Airlines Must Further Reduce Costs to 

Restore Profitability. GAO-04-836. Washington, D.C.: August 11, 2004.

Commercial Aviation: Financial Condition and Industry Responses Affect 

Competition. GAO-03-171T. Washington, D.C.: Oct. 2, 2002.

Commercial Aviation: Air Service Trends at Small Communities since 

October 2000. GAO-02-432. Washington, D.C.: March 29, 2002.

Related GAO Products
Related GAO Products

Page 27 GAO-13-403T

Proposed Alliance Between American Airlines and British Airways Raises 

Competition Concerns and Public Interest Issues. GAO-02-293R. 

Washington, D.C: Dec. 21, 2001.

Aviation Competition: Issues Related to the Proposed United Airlines-US 

Airways Merger. GAO-01-212. Washington, D.C: Dec. 15, 2000.

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