United, Continental deal could spur regulation
June 17, 2010
Restoring financial regulation of the airline industry will be put before Congress, if the Justice Department approves a proposed merger of United and Continental airlines, two key House members said Wednesday.
At a hearing on the merger, Representatives James Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, and Jerry Costello (D-Ill.), chairman of the panel's aviation subcommittee, expressed concern about the impact the proposed deal could have on consumers and airline workers.
United Airlines Chairman Glenn Tilton testified Wednesday that low-cost carriers who drive down prices and then declare bankruptcy have hurt the airline industry.
The legislation would impose federal regulation of airline pricing and re-establish a government gatekeeper role similar to that played by the old Civil Aeronautics Board prior to deregulation in 1978, Oberstar said. The board set standards for the airline market and decided on a case-by-case basis which companies should be granted permission to fly passengers.
Deregulation worked for a while, bringing new, lower-cost carriers into the market and driving down fares, said Oberstar, who -- as a junior congressman -- voted in favor of deregulation. Most of those air carriers -- as well as several "legacy" carriers dating back prior to deregulation -- are gone.
The CEOs of United and Continental, who testified at the hearing, complained that competing against a steady influx of low-cost carriers who drive prices artificially low and then go bankrupt has weakened the airline industry.
United's proposed merger with Continental would create the nation's largest airline. Tilton and Continental's Jeffery Smisek said the new company would be able to compete more effectively against large, foreign carriers in the international market and will be successful because of "synergies" produced by combining the two carriers, not higher fares.
Costello said the committee will ask the Justice Department, which is reviewing the merger proposal, to determine if there is evidence to support the synergy claims.
Also during the hearing, Rep. Dan Lipinski (D-Ill.) asked Tilton if United Airlines supports completion of the final three runway projects planned at O'Hare Airport. Tilton said the company does but that a proposed new western terminal was "perhaps no longer necessary" in today's economy.
Contributing: Mary Wisniewski
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