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Merging American Airlines & US Airways is a lousy deal

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Thursday, Feb. 14, 2013, 3:36 p.m.

American Airlines and US Airways have agreed to a mega-merger. And provided a bankruptcy court approves of the $11 billion deal, the combined carrier, under the American nameplate, will be on the runway to becoming the world's largest airline by passenger volume.

But this flight should be canceled. It's not a good deal — not even with the much-touted 25 percent “premium” holders of US Airways stock will receive. In fact, it's a lousy deal likely destined for failure, one that should be summarily rejected by regulators.

As columnist Peter Cohan put it, “the pro-merger chest-pounding can't hide the fact that combining two losing companies does not make a winner.” The merger of American — a perennial loser of market share and money ($12 billion over the last decade) and in Chapter 11 bankruptcy since late 2011 — and US Airways — which began life in Pittsburgh as Allegheny Airlines, then grew up to snooker and shaft the taxpayers and political leaders who fed it and fawned over it — will lead to less competition and higher, monopoly-fueled fares. Additionally, as travel writer Rob Lovitt sees it, “low-cost carriers are unlikely to fill any gaps that result in post-merger cutbacks.”

And just as US Airways shafted Pittsburgh a few years back when it decommissioned Pittsburgh International Airport (built to its specifications at a premium) as a hub, look for it to now also shaft its current hometown hub of Phoenix, which sits between Los Angeles and Dallas, two robust American hubs. Some think US Airways' international hub in Philadelphia also will be on the chopping block.

The kind of “synergies” being touted by backers of this deal — that larger automatically means more efficient — is a false rubric in industry in general and for airlines specifically, notes Stanford University business scholar Jeffrey Pfeffer. “Mergers just increase market concentration, raise prices and make customers worse off,” he wrote for Bloomberg Businessweek. “Or in the airline business, if you take one troubled airline and combine it with another, all you get is a larger catastrophe.”

This catastrophe-in-the-making can and should be stopped.

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