Airlines' merger proposals spark concerns for BWI

State officials fear higher ticket prices, drop in competition

January 12, 2001|By Paul Adams | Paul Adams,SUN STAFF

Maryland transportation officials continue to see disaster for Baltimore-area travelers if United Airlines succeeds in its bid to take over US Airways, a deal made more likely after American Airlines said Wednesday that it will take over a portion of the two airlines' assets in an effort to placate federal regulators.

But analysts remain divided over whether the latest round of airline consolidation will result in less competition and higher prices at Baltimore-Washington International Airport, as state officials fear. And some say that American may have helped the airport when it agreed to acquire ailing Trans World Airlines and take over about 20 percent of US Airways and some United assets.

As part of its deal with United, American will take a 49 percent stake in DC Air, the new carrier created to compete against a combined United-US Airways in the Washington market. Through DC Air, American will control about 48 percent of the market at Reagan National Airport, making it a counter-balance to United's dominance at Dulles International Airport.

American's strength at Reagan National may cause United to rethink its plans to reduce service at BWI after its acquisition of US Airways, said one industry observer.

"I think the implications for BWI out of this [American-TWA merger] are really very positive," said David Stempler, president of the Washington-based Air Travelers Association.

Stempler said United could protect its flank by maintaining a strong presence at BWI as American, the nation's second largest airline, takes on a larger role in the Baltimore-Washington market. Barring any changes in service, a combined United-US Airways would capture 30.6 percent of the BWI market, making it a close second to Southwest Airlines, which has 34 percent.

United has said it will eliminate US Airways' service to eight cities from BWI after the merger. The airline declined yesterday to comment further on its post-merger plans. However, a United spokeswoman said the merger is ultimately about growth.

But David Blackshear, executive director of the Maryland Aviation Administration, fears that United will go beyond the cuts announced so far and potentially will eliminate US Airways' MetroJet service at BWI. Such a scenario would eat into the airport's growing passenger total, which is expected to top 20 million this year and place BWI ahead of both Dulles International and Reagan National.

Maryland transportation officials have not taken an official position on American's plans to buy cash-strapped TWA. State Transportation Secretary John D. Porcari said Wednesday that aviation officials continue to negotiate with United and US Airways in hopes of preserving competition at BWI.

"We're confident we're going to continue to preserve competition for the entire [Baltimore-Washington] metro area," he said.

State officials have said that United's plans to pull back at BWI will give Southwest a monopoly in the airport's top 10 domestic markets, and could result in higher fares.

They cite a consultant's report showing that Southwest's fares tend to be higher in markets where they have no competition.

Southwest officials have denied they raise prices in monopoly markets, and one aviation expert has criticized state officials for raising the issue.

"That's the stupidest thing I've ever heard. Even if they [Southwest] do raise their prices, they will still be lower than United," said Darryl Jenkins, executive director of the George Washington University Aviation Institute, in a recent interview.

"Southwest follows a very controlled strategy of limited pricing which keeps competitors out of their markets," Jenkins said.

Curtis Grimm, chair of the Logistics and Transportation Department at the University of Maryland, said he agrees with state officials that more airline mergers could lead to fewer choices for consumers and result in higher prices.

But he downplayed the potential impact on traffic at BWI, saying the airport's biggest concern in coming years will be a shortage of capacity.

BWI is in the midst of a $1.3 billion expansion plan aimed at keeping pace with the airport's double-digit growth over the past two years.

"If [United-US Airways] ends up pulling back some of the service at BWI ... I'm pretty confident that somebody else is going to step in," he said.

That doesn't mean Maryland officials won't have a strong argument against the two mergers if they can prove to federal regulators that area travelers will suffer, antitrust experts say.

"If the effect of eliminating US Airways and TWA out of Baltimore is to diminish what is pretty significant price competition that Baltimore provides for Dulles and National ... then that's a legitimate antitrust impact that the government would be concerned about," said William Baer, a former antitrust official at the Federal Trade Commission who is now with the Washington law firm of Arnold & Porter.

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