Chief executives of United Airlines and Continental Airlines braced on Wednesday for the strongest political headwinds that their proposal to create the world's biggest airline will likely face.
United's Glenn Tilton and his counterpart at Continental, Jeff Smisek, encountered little pushback in Senate testimony last month on the deal to create an airline they say would
generate nearly $30 billion in annual revenue.
But the executives can expect sharper questioning at a House of Representatives aviation subcommittee hearing from members up for re-election and concerned about the impact of possible job and service cuts in their districts and potentially higher fares on tighter capacity.
We cannot allow the reduction of the airline industry to three large carriers, Representative James Oberstar, a senior member of the panel and chairman of the full Transportation Committee, said in a letter to Justice Department antitrust officials last month.
If the deal is approved, United/Continental operating as new United, would join Delta Air Lines , which merged with Northwest in 2008, and American Airlines as the three largest domestic carriers with a combined 35 percent share of the market. The new United would command about half that.
Labor leaders for pilots, flight attendants and ground workers are also set to testify. United and Continental pledge minimal job losses among the combined company's 90,000 workers.
Both carriers are trying to negotiate contracts with their respective pilots' unions before the end of the year, the timeframe they have set to win antitrust approval of their deal. Other workers could face more hurdles in contract talks as unions overall are looking for richer deals to offset concessions taken during industry restructuring from 2002-07.
Aviation finance, antitrust and consumer experts will also appear at the hearing, the second of four planned by House and Senate members. The third meeting is set for Thursday before the Senate Commerce Committee.
United and Continental sought to ease political concerns before the hearing by releasing a list of governors and mayors who support the deal.
This week's hearings come amid fresh data showing the industry continuing to cement its recovery from the 2008-09 recession-fueled downturn. Airline executives are predicting stronger second-quarter revenues driven by rebounding business and international traffic, pluses on both counts for global operations of United, a unit of UAL Corp , and Continental.
Oberstar, who also spoke out against the deal involving Northwest, his homestate airline, said the United/Continental combination would harm competition at hubs in Chicago, Houston, Denver, Los Angeles, Newark and Washington Dulles.
The combined carriers will be a generally bigger competitor at its hubs and will exert its power to discourage competitors from entering the market, according to a briefing memo prepared by committee staff for panel members.
Tilton and Smisek told the Senate antitrust subcommittee on May 27 that the industry was hypercompetitive and could absorb consolidation.
William McGee, a travel and aviation expert for Consumers Union, the publisher of Consumer Reports magazine, warned the proposed level of concentration also would create a potentially risky too-big-to-fail scenario in an industry often criticized for being fragmented.
The overnight shutdown of such a large percentage of the nation's commercial airlift would have immediate and adverse effects on America's economy, infrastructure, and even security, McGee said.
(Reporting by John Crawley, editing by Dave Zimmerman)