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Press Releases

TN Reaches Agreement in Challenge to US Airways-American Airlines Merger

Press release from the Office of Tennessee Attorney General Robert Cooper; November 12, 2013:

Tennessee Attorney General Bob Cooper announced an agreement today in the State’s challenge to the proposed merger of US Airways and American Airlines. The settlement will require the New American Airlines to continue to serve each of Tennessee’s five major airports in Nashville, Memphis, Knoxville, Chattanooga and the Tri-Cities for five years.

Since 2008, several other major airlines have merged including Delta and Northwest, United and Continental and Southwest and Airtran. Each of those mergers has resulted in reductions in seat capacity and in some cases a dramatic reduction of service such as in Memphis following the Delta and Northwest merger. This resulted fewer flying options and higher prices for Tennesseans.

“Today’s agreement should provide Tennesseans more opportunities to buy low-cost airline options,” Attorney General Cooper said. “It also opens the door to increased competition to smaller carriers, benefitting consumers and businesses.”

As part of the agreement, US Airways and American commit to continue to offer service in Tennessee. At issue for Tennesseans was divestiture of airline slots at Reagan National Airport and LaGuardia International Airport. The divestiture of 104 Reagan slots and 34 LaGuardia slots will allow lower-cost carriers such as Jet Blue and Southwest to bid for the slots. Without divestiture, the New American Airlines would have controlled 69 percent of the slots at Reagan.

The U.S. Department of Justice (DOJ) and the States also signed off on a related proposed final judgment that will remain in place for 10 years. That judgment requires the divestiture of flight slots at Reagan National in Washington, DC, LaGuardia in New York City and of gates at Boston, Chicago, Dallas-Love Field and Los Angeles International. The divestitures of flight slots will enable new carriers to enter the Washington and New York markets. Divestitures of gates should enable new carriers to enter the other affected markets.

The States and DOJ filed the action on August 13 this year and a trial was scheduled to begin on November 25. Tennessee was joined by the States of Arizona, the District of Columbia, Florida, Michigan, Pennsylvania and Virginia.

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Press Releases

Tennessee Joins Federal Suit Against Airline Merger

Press release from the Office of Tennessee Attorney General Robert Cooper; August 13, 2013:

Tennessee Attorney General Cooper today joined a coalition of six states in conjunction with the U.S. Department of Justice Antitrust Division and the District of Columbia in a federal court complaint challenging a pending merger that would make a combined U.S. Airways/American Airlines the largest worldwide carrier.

If approved, the merger would reduce the current number of the larger “legacy” airlines from four to three – U.S. Airways/American, United/Continental and Delta/Northwest – and the number of major airlines to five to four. In fact, the three remaining legacy airlines and Southwest would account for over 80% of domestic travel, making fare and fee increases easier to achieve and even more profitable for the airlines than they already are.

American and U.S. Airways compete directly on thousands of heavily traveled nonstop and connecting routes, including many to and from Tennessee.

“Studies show that Tennessee’s four major airports in Nashville, Memphis, Knoxville and Chattanooga will experience fewer flights to certain destinations and travelers will pay more for remaining flights,” Attorney General Cooper said. “If this merger is completed, consumers will face decreased competition and increased prices because airlines can cut service and raise prices with less fear of competitive responses from rivals.”

For example, US Airways and American currently complete for customers with flights between Nashville and Washington Reagan Airport. The merger would eliminate this competition. Service to Chattanooga, Knoxville and Memphis could also suffer from fewer flights to major cities.

History has shown that when competition shrinks, coordination by the remaining airlines becomes easier as similarities in their networks and business models grow. Before 2008, there were six legacy airlines, but various mergers followed, ostensibly to save costs to travelers and offer more options. However, the promised cost-savings from previous mergers never materialized, and the major airlines have followed each other in raising fares, imposing new fees on travelers, reducing service, and downgrading amenities.

American entered bankruptcy with plans to restructure and remain independent, and adopted a standalone business plan designed to “restore American to industry leadership, profitability, and growth.” Now American is on a path to compete independently as a profitable airline; its most recent quarterly results reported a company record-high $5.6 billion in revenues, with $357 million in profits. And earlier this year, American’s management presented plans to emerge from bankruptcy on a standalone basis that would increase the destinations it serves in the U.S. and the frequency of its flights.

In contrast, if this merger goes through U.S. Airways would likely continue to pursue its ‘capacity discipline’ strategy — substantial reductions of service and capacity, a phenomenon that has followed each significant legacy airline merger in recent years. U.S. Airways has said that capacity reductions achieved through capacity discipline enable fare increases, and that pricing power results from reduced industry capacity. As their CEO has said, there is an “inextricable link” between removing seats and raising fares.

See Department of Justice’s release here: http://www.justice.gov/opa/pr/2013/August/13-at-909.html.

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Education News

UPDATED: Guv Signs Memphis Merger Bill

UPDATE: On Friday afternoon Gov. Haslam signed the legislation addressing the potential merger, saying “The bill addresses two of my biggest concerns. It allows an orderly planning process for transition, while leaving the local vote in place for March 8.”

Gov. Bill Haslam has yet to say publicly whether he plans to sign a bill which aims to slow the process of consolidating the two school districts in Shelby County, though legislative leaders expressed confidence the measure would become law.

The bill, SB25, sets down rules and a planning process for merging Memphis City Schools, the state’s largest school district, with Shelby County Schools. It also postpones consolidation until the 2013-14 school year if Memphis voters approve the merger next month. The bill passed the House Thursday and the Senate earlier this week, with both votes along party lines.

Late Thursday afternoon the Memphis City Council voted to allow the Memphis City Schools Board of Education to surrender its charter. The Memphis Commercial Appeal reported that city council members indicated they still want the March 8 referendum to go ahead as scheduled and could rescind Thursday’s decision if the referendum asking voters whether to transfer administrative control of city schools to Shelby County fails.

Speaking before the Tennessee Press Association immediately following the House vote — and prior to the Memphis City Council vote — Gov. Bill Haslam said it was “premature” for him to say whether he planned to sign it.

“We’ll go back and talk about it like we will everything else,” he told reporters from around the state gathered at the Doubletree Hotel in downtown Nashville.

The Republican-sponsored measure zipped through the bulk of the legislative process in eight days.

Memphis Democrats in the Senate tried to convince Republicans to slow down passage of the bill, saying an issue of such magnitude should take more than a week to consider. Democrats pulled out all the stops in the House Thursday in a last-ditch attempt to derail the bill, filing 14 amendments to the legislation, all rejected by the House GOP majority.

Democrats charged Republicans with hypocrisy, saying GOP lawmakers were already guilty of betraying the limited-government rhetoric that’d helped them win so convincingly across the state in November.

“My friends across the aisle who are supposed to be the champions of smaller government, who are the champions of not having Big Brother interfere on smaller governments, stood up in lockstep and voted to act like Washington,” Rep. Mike Turner, the House Democratic Caucus chairman from Old Hickory, said in a press conference immediately following the vote.

Haslam could veto the bill or, if he takes no action by Feb. 21, it would become law without his signature.

Both Republican and Democratic leaders say they have not talked with the governor about his views on the bill, but both expect he’ll OK it, if tacitly.

“We’re not sure exactly if he’s going to sign the legislation or if he’s just going to sit on it and then it automatically becomes the law,” Rep. Larry Miller, the ranking House Democrat of the Shelby County delegation, told reporters in a press conference shortly after the House vote.

The bill’s sponsor, Sen. Mark Norris, R-Collierville, said he’s hopeful the governor will sign the legislation quickly so the state has time to prepare for the March 8 referendum.

Last week, Haslam and the state’s acting education commissioner asked Memphis and Shelby County school districts to submit a transition plan by Feb. 15. Having a plan was imperative to the success of any merger, Haslam said at the time, but he stopped short of weighing in on whether the school systems should merge or comment on the merits of Norris’ bill.

Miller said he hopes Haslam will find a way to keep Memphis Mayor A.C. Wharton more involved in the process. The City of Memphis does not have a seat on the 21-person transition board outlined in the bill.

Haslam, Lt. Gov. Ron Ramsey, and House Speaker Beth Harwell would each appoint a member. Seats would go to the county mayor and the chairmen of the county and city school boards, and those three officials would each pick five other members.

Haslam, who has said he’s been in constant contact with Wharton throughout the past few weeks, said he wants to see “a little bit more city representation” on the committee.

Haslam added, though, that discussions about schools in Memphis and Shelby County need to evolve beyond partisan rancor and regional political feuding in order to address the city’s bleak public educational picture.

“I think we’re having the wrong conversation,” Haslam said. “At the end of the day, the conversation’s all about the legal issues around it instead of how are we going to help educate all 150,000 of those children, and I mean all 150,000.”

The Memphis City Schools board voted 5-4 in December to dissolve the district and hand over authority for educating its 103,000 students to the smaller Shelby County Schools. The board’s decision heightened longstanding area racial tensions and sparked heated political debate over school finances, quality of education and the proper role of state government in the affairs of counties and local communities.

A slim majority of voters favor merging the systems, a recent poll conducted for the Memphis Commercial Appeal showed.