14-Aug-2013 8:59 AM

DoJ files antitrust lawsuit challenging merger of US Airways and American Airlines

US Department of Justice (DoJ) and the attorneys general of Arizona, Florida, Pennsylvania, Tennessee, Texas, Virginia and the District of Columbia filed (13-Aug-2013) a civil antitrust lawsuit challenging the proposed merger between US Airways Group Inc and AMR Corp in the US District Court for the District of Columbia. DoJ said the filing "seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate." DoJ and the attorneys general cited the following factors in their decision to file the suit:

  • American Airlines and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about USD2 billion in annual route-wide revenues. Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise fares;
  • The vast majority of US domestic airline routes are already highly concentrated. The merger would create the largest airline in the world and result in four airlines controlling more than 80% of the US commercial aviation market;
  • DoJ identified 1043 US domestic city pairs where it said the merger is "presumptively illegal." The most prominent included Charlotte-Dallas and Dallas-Philadelphia;
  • The merger would also entrench the merged airline as the dominant carrier at Washington Reagan National Airport, with control of 69% of the take-off and landing slots. The merged airline would have a monopoly on 63% of the nonstop routes served out of Reagan National airport. Washington-area passengers would likely see higher prices and fewer choices as a result;
  • US Airways competes vigorously for price-conscious travellers by offering discounts of up to 40% for connecting flights on other airlines’ nonstop routes under its 'Advantage Fares' programme. If the proposed merger is completed, the combined airline’s network will look more like the existing American, Delta and United networks, and as a result, the 'Advantage Fares' program will likely be eliminated, resulting in higher prices and less services for consumers;
  • The merger is likely to result in higher ancillary fees. By reducing the number of airlines, the merger will likely make it easier for the remaining carriers to coordinate fee increases, resulting in higher fees for consumers;
  • The merger will make coordination easier among the legacy carriers;
  • American Airlines is currently operating in bankruptcy. Absent the merger, American is likely to exit bankruptcy as a vigorous competitor, with strong incentives to grow to better compete with Delta Air Lines and United Airlines.

US attorney general Eric Holder stated: "By challenging this merger, the Department of Justice is saying that the American people deserve better. This transaction would result in consumers paying the price, in higher airfares, higher fees and fewer choices. Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.” DoJ assistant attorney general for the antitrust division Bill Baer added: "The department sued to block this merger because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service. If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers. Both airlines have stated they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.” DoJ said absent the merger, US Airways and American will continue to provide important competitive constraints on each other and on other airlines. Mr Baer said: "The merger of these two important competitors will just make things worse, exacerbating current airline industry trends toward reduced service, increasing fares and increasing passenger fees." [more - original PR - DoJ - I] [more - original PR - DoJ - II] [more - original PR - DoJ - III] [more - original PR - AZ] [more - original PR - DC] [more - original PR - FL] [more - original PR - PA - I] [more - original PR - PA - II] [more - original PR - TN] [more - original PR - TX]

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