Competition and Bankruptcy in the Airline Industry: the Proposed Merger of Amer- Ican Airlines and Us Airways
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COMPETITION AND BANKRUPTCY IN THE AIRLINE INDUSTRY: THE PROPOSED MERGER OF AMER- ICAN AIRLINES AND US AIRWAYS HEARING BEFORE THE SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION FEBRUARY 26, 2013 Serial No. 113–22 Printed for the use of the Committee on the Judiciary ( Available via the World Wide Web: http://judiciary.house.gov U.S. GOVERNMENT PRINTING OFFICE 79–583 PDF WASHINGTON : 2013 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 COMMITTEE ON THE JUDICIARY BOB GOODLATTE, Virginia, Chairman F. JAMES SENSENBRENNER, JR., JOHN CONYERS, JR., Michigan Wisconsin JERROLD NADLER, New York HOWARD COBLE, North Carolina ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia LAMAR SMITH, Texas MELVIN L. WATT, North Carolina STEVE CHABOT, Ohio ZOE LOFGREN, California SPENCER BACHUS, Alabama SHEILA JACKSON LEE, Texas DARRELL E. ISSA, California STEVE COHEN, Tennessee J. RANDY FORBES, Virginia HENRY C. ‘‘HANK’’ JOHNSON, JR., STEVE KING, Iowa Georgia TRENT FRANKS, Arizona PEDRO R. PIERLUISI, Puerto Rico LOUIE GOHMERT, Texas JUDY CHU, California JIM JORDAN, Ohio TED DEUTCH, Florida TED POE, Texas LUIS V. GUTIERREZ, Illinois JASON CHAFFETZ, Utah KAREN BASS, California TOM MARINO, Pennsylvania CEDRIC RICHMOND, Louisiana TREY GOWDY, South Carolina SUZAN DelBENE, Washington MARK AMODEI, Nevada JOE GARCIA, Florida RAU´ L LABRADOR, Idaho HAKEEM JEFFRIES, New York BLAKE FARENTHOLD, Texas GEORGE HOLDING, North Carolina DOUG COLLINS, Georgia RON DeSANTIS, FLORIDA KEITH ROTHFUS, Pennsylvania SHELLEY HUSBAND, Chief of Staff & General Counsel PERRY APELBAUM, Minority Staff Director & Chief Counsel SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW SPENCER BACHUS, Alabama, Chairman BLAKE FARENTHOLD, Texas, Vice-Chairman DARRELL E. ISSA, California STEVE COHEN, Tennessee TOM MARINO, Pennsylvania HENRY C. ‘‘HANK’’ JOHNSON, JR., GEORGE HOLDING, North Carolina Georgia DOUG COLLINS, Georgia SUZAN DelBENE, Washington KEITH ROTHFUS, Pennsylvania JOE GARCIA, Florida HAKEEM JEFFRIES, New York DANIEL FLORES, Chief Counsel JAMES PARK, Minority Counsel (II) C O N T E N T S FEBRUARY 26, 2013 Page OPENING STATEMENTS The Honorable Spencer Bachus, a Representative in Congress from the State of Alabama, and Chairman, Subcommittee on Regulatory Reform, Commer- cial and Antitrust Law ........................................................................................ 1 The Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law ........................................................................................................................ 2 The Honorable Bob Goodlatte, a Representative in Congress from the State of Virginia, and Chairman, Committee on the Judiciary ................................. 5 The Honorable Steve Cohen, a Representative in Congress from the State of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law .......................................................................... 7 WITNESSES Gary F. Kennedy, Senior Vice President, General Counsel and Chief Compli- ance Officer, American Airlines Oral Testimony ..................................................................................................... 23 Prepared Statement ............................................................................................. 25 Stephen L. Johnson, Executive Vice President, Corporate and Government Affairs, US Airways, Inc. Oral Testimony ..................................................................................................... 27 Prepared Statement ............................................................................................. 30 Kevin Mitchell, Chairman, Business Travel Coalition (BTC) Oral Testimony ..................................................................................................... 43 Prepared Statement ............................................................................................. 46 Christopher L. Sagers, James A. Thomas Distinguished Professor of Law, Cleveland State University Oral Testimony ..................................................................................................... 100 Prepared Statement ............................................................................................. 102 Clifford Winston, Senior Fellow, Economic Studies Program, The Brookings Institution Oral Testimony ..................................................................................................... 111 Prepared Statement ............................................................................................. 113 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Ranking Member, Committee on the Judiciary ................................................................................................... 3 Material submitted by the Honorable Steve Cohen, a Representative in Con- gress from the State of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law ................................... 8 Additional Material submitted by the Honorable Steve Cohen, a Representa- tive in Congress from the State of Tennessee, and Ranking Member, Sub- committee on Regulatory Reform, Commercial and Antitrust Law ................. 16 Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Rep- resentative in Congress from the State of Georgia, and Member, Sub- committee on Regulatory Reform, Commercial and Antitrust Law ................. 21 (III) IV Page APPENDIX MATERIAL SUBMITTED FOR THE HEARING RECORD Material submitted by the Honorable Steve Cohen, a Representative in Con- gress from the State of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law ................................... 146 Prepared Statement of Paul Hudson, President, Flyersrights.org, and Execu- tive Director, Aviation Consumer Action Project .............................................. 199 Response to Questions for the Record from Stephen L. Johnson, Executive Vice President, Corporate and Government Affairs, US Airways, Inc. ........... 222 Response to Questions for the Record from Gary F. Kennedy, Senior Vice President, General Counsel and Chief Compliance Officer, American Air- lines ....................................................................................................................... 225 Response to Questions for the Record from Christopher L. Sagers, James A. Thomas Distinguished Professor of Law, Cleveland State University ....... 227 COMPETITION AND BANKRUPTCY IN THE AIRLINE INDUSTRY: THE PROPOSED MERG- ER OF AMERICAN AIRLINES AND US AIR- WAYS TUESDAY, FEBRUARY 26, 2013 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW COMMITTEE ON THE JUDICIARY, Washington, DC. The Subcommittee met, pursuant to call, at 10:02 a.m., in room 2141, Rayburn Office Building, the Honorable Spencer Bachus (Chairman of the Subcommittee) presiding. Present: Representatives Bachus, Goodlatte, Farenthold, Marino, Holding, Collins, Rothfus, Cohen, Conyers, Johnson, Delbene, Gar- cia, and Jeffries. Staff present: (Majority) John Hilton, Counsel; Ashley Lewis, Clerk; (Minority) Perry Apelbaum, Staff Director & Chief Counsel; James Park, Minority Counsel; Veronica Eligan, Professional Staff Member. Mr. BACHUS. Good morning. The Judiciary Subcommittee on Reg- ulatory Reform, Commercial and Antitrust Law is in session. By way of introduction, this is the first hearing of the year for the Subcommittee. Chairman Goodlatte has given me the great privilege of Chairing this Subcommittee. And under its antitrust jurisdiction, the Judiciary Committee has the duty to examine the competitive impacts of significant transactions on the marketplace. It is responsibility that I take very seriously from the standpoint of consumer choice and the functioning of free markets. Today’s hearing is specifically to examine the proposed merger between American Airlines and US Airways. The resulting airline with a 24 percent market share would become the largest of what might be called the four legacy U.S. carriers. The Department of Justice will conduct a detailed review of the proposed merger under the Hart-Scott-Rodino Act. There will be several other layers of scrutiny both here and in the U.S. and in Europe. This hearing is intended to provide information to the public, not to state a Subcommittee policy position, although I think there ob- viously will be independent—I mean, each Member will have inde- pendent opinions, and obviously are free to state those. (1) 2 The airline has been in a state of near constant change and inno- vation since Federal deregulation in 1978. We have a marketplace or we have a marketplace in which familiar names that most of us grew up with, like Pan Am, TWA if you traveled overseas, or in the south, Eastern, and Republic, and Southern no longer exist. They have either merged, bankrupted, or gone out of existence. But we have also seen the emergence of new carriers with different