11/20/2013 08:38 am ET Updated Jan 25, 2014

The Incredible Shrinking Airline Industry

Now that the proposed merger of American Airlines and US Airways appears to be moving forward, questions linger about how the deal will impact air travelers.

In August the Justice Department filed a lawsuit to block the merger. The two carriers made a number of concessions to address the government's concerns about competition. Last week, Justice announced an agreement to settle the suit. A federal court must ultimately okay the deal.

Under the terms of the settlement, American and US Airways must divest themselves of prime take-off and landing slots at six key airports in Washington, New York, Chicago, and other cities. The two carriers will be forced to sell those slots to low-cost carriers such as Southwest and JetBlue. Without this move, the "New American Airlines" would be in control 68% of the slots at Washington's Reagan National Airport, for example.

Expanding competition in these markets is a commendable objective. Consumers Union believes this could be good for passengers at those busy, congested airports. Historically, the entry of a low-cost carrier has resulted in lower fares, in what the U.S. Department of Transportation dubbed the "Southwest Effect." However, analysts note that even Southwest isn't always low fare these days.

Despite the divesture of prime space at high-volume airports, allowing US Airways and American to merge into the nation's largest airline is still troubling for consumers, who've seen this vital industry shrink dramatically over the last 12 years. Venerable names as TWA, America West, Northwest, Continental, and Midwest have disappeared through consolidation. In March, I testified before the Senate Judiciary Committee to raise concerns about the merger:

• Consolidation eventually leads to fewer flights and fewer choices, which can mean the loss of service, the loss of nonstop flights, the loss of flight frequencies, and the outsourcing of more "mainline" service to regional carriers. Today, 61 percent of all domestic service for the four largest network airlines -- American, Delta, United, and US Airways -- is outsourced.

• While the concessions made by the two airlines could provide a shot in the arm to low cost carriers in key cities, smaller markets may be left underserved with fewer choices for flights. Less competition inevitably leads to higher fares and fees, and a reduction in service quality, as the airlines feel less pressure to work hard to keep business.

• We remain concerned about a marketplace dominated by larger airlines that are essentially "too big to fail." With this latest merger, American, Delta, United, and Southwest would now together control about 80 percent of the domestic market, a concentration we've never seen before.

This proposed settlement now awaits court review, and we hope that review will be thorough, and that the court will not sign off unless and until it is satisfied that the settlement -- with additional requirements, if called for -- preserves for consumers the full benefits of competition.

William J. McGee is a travel and aviation consultant for Consumers Union, the policy and advocacy division of Consumer Reports. In 2010 he was the lone consumer advocate on the U.S. Department of Transportation's Future of Aviation Advisory Committee.