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The merger will allow American Airlines to emerge from bankruptcy. Photo: AFP

US Airways and American Airlines to merge as world's biggest airline after easing competition fears

US Airways

US Airways and American Airlines will be allowed to merge to become the world’s largest airline after they agreed to give low-cost competitors more access to several key US airports, including in New York and Washington.

The agreement, subject to court approval, ends a US Department of Justice lawsuit filed in August. The government opposed the merger of US Airways and AMR parent of bankrupt American Airlines, on the grounds it would hinder competition and lead to higher fares.

Justice officials termed the settlement a major boost to the competitiveness at key major airports, while some analysts said the number of flights affected – only about 112 out of about 6,700 daily flights – indicated the change would be incremental.

The merger, now expected to close in the first half of next month, is central to American’s effort to emerge from a two-year bankruptcy process.

The two airlines agreed to give up 52 pairs of takeoff and landing slots at Reagan National Airport, just outside Washington, and 17 pairs at New York’s LaGuardia Airport, both busy airports with limited capacity.

The biggest impact will be felt in Los Angeles and Chicago, as the combined company was looking to grow in those markets
Analyst Helane Becker

The Justice Department will select which airlines are eligible to buy slots that the airlines must sell as part of the proposed settlement, according to a source close to the deal who was not authorised to speak publicly.

The government has said the divestiture at Reagan National and LaGuardia would deliver “substantial additional benefits”, specifically to Southwest Airlines and JetBlue, and that low-cost carriers would be able to acquire spots at the Washington and New York airports, as well as Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.

“The biggest impact will be felt in Los Angeles and Chicago, as the combined company was looking to grow in those markets,” Cowen & Co analyst Helane Becker said in a research note.

Smaller regional cities are still likely to face higher ticket prices because of a lack of competition, said Rick Seaney, chief executive of FareCompare.com, which tracks air fares.

Robert Mann, an airline consultant in Port Washington, New York, said the divestitures amounted to a “miniscule impact” on the combined carrier.

“These are minor gives and the ability to maintain the billion-dollar network benefit is reflective of that,” he said.

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