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New Organization To Love: GOA

Source: Archived Content

Date: Dec 20, 2000

Ladies and gentlemen, please give a warm round of applause and tip your hats off to...(drum roll please)...the General Accounting Office in Washington DC.  This office is an investigative division of U.S. Congress and just published a report today saying that the United/US Airways merger "would create an airline so large and with dominance in so many markets that . . . it would spur further industry consolidation."

According to today's Reuter's news story, "The General Accounting Office (GAO), looking at the top 5,000 air routes, said the merger as proposed in May would reduce or eliminate competition in 290 markets that carried 16 million passengers last year.  The deal would increase competition in only 65 markets carrying 2.9 million people, it said."

Words like those can rattle the U.S. traveling public, especially those who had to deal with United's operational nightmare of last summer.  The great thing about this report is that it's been splashed all over the media, like a jar of pee-green Gerber thrown against the wall by an fussy infant.  Here's a couple of appetizers to wet your appetite:

"GAO estimated that the merger would reduce or eliminate competition in 290 markets for nearly 16 million passengers.  The GAO study also asserts that a 'new United' would dominate 1,156 of the 5,000 most heavily traveled markets, affecting 61.1 million passengers. It also would be 36 percent larger than that of the next carrier, Delta Airlines
                                        -- CBS Market Watch, December 20, 2000

"GAO said officials of several larger airlines, which it did not identify, had told GAO that a larger United would have a significant advantage and they would be unable to compete unless their airlines also merged.  The GAO study acknowledged the benefits of 256 new connections in relatively small markets that would be established by the United-US Airways deal, but it said the dominance of the new United at eight hub cities, combined with gate shortages and a large frequent-flyer program, could create formidable barriers for would-be competitors."   -- Reuters, December 20, 2000

Needless to say, it's pretty obvious what news like this can do to an airline's stock.  While UAL's stock is hovering at around a low 36 1/4, the US Airways stock dramatically slid down the buh-bye scale to lose 18 % and close at a lower 38 15/16 on Wednesday.  The probable reason: there is less likely the chance that United would pay $60.00 per share for US Airways if new conditions are placed on this deal.  If the recent GOA report points out anything, it's that modifications will have to be made in this deal before the DOJ will accept it.

It seems to me that investors are as worried as many of us are, only they don't have to deal with seniority and pay issues.  Of course, United has tried to counteract their worries with promises like 256 new flight connections and a moratorium on higher fares for two years following the merger.  Whoopee.  **United also released today (12/21/00) their GOA announcement on NewsReal.  They've quoted their buddy, Mark Anderson, director-Governmental Affairs, when they report: "According to Anderson, the United/US Airways deal initially will create 29 new nonstop flights, 25 of which will be international flights, and 500 new airport-to-airport flights."  Again whoopee.  Still not worth the long-term end result being 3 for 4 mega-merged airlines.

This GAO report is good news for two reasons: 1.) It will be forwarded to the Department of Justice (the folks responsible for making the FINAL DECISION) for their consideration and 2.) It will hopefully get some folks in the American public to reconsider their support for this mega-merger---as stifling the competition is never good news for any company, airline or otherwise.

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