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US government sues to prevent merger of AA and US Airways

, August 14, 2013, 0 Comments

The US government has challenged the merger of American Airlines and US Airways, saying it would cause “substantial harm” to consumers. The carriers could launch their own legal challenge or agree to concessions.

On Tuesday, the US Justice Department (DOJ) filed a lawsuit in federal court in Washington, DC, to block the merger, which would create the world’s largest airline in termans of passenger miles. Six attorneys general joined the suit: from Texas, home to American Airlines (AA), US Airways’ base of Arizona, Florida, Virginia, Pennsylvania, Tennessee and the District of Columbia.

In a letter, AA CEO Tom Horton told employees that both companies had tried to convince the department that the deal would represent a fair shake for their customers and for the competition.

“Since the DOJ has formed a contrary view, the matter will now be settled by the courts,” the letter said.

In February, AA and US Airways announced that they planned to merge into a carrier with 6,700 daily flights and annual revenue of roughly $40 billion (30 billion euros). By passenger traffic, the combined airline would slightly eclipse the more dominant carriers United and Delta.

With Southwest, four airlines would dominate the US market after the deal. They would control 80 percent of the US market. At Reagan National Airport in Arlington, Virginia, just outside of the US capital, Washington, DC, the combined airline would control 69 percent of takeoff and landing slots, according to the Justice Department.

The airlines announced plans to defend the $11 billion merger, which had gained the support of shareholders, creditors and European antitrust regulators.

“We will mount a vigorous defense and pursue all legal options in order to achieve this merger and deliver the benefits of the new American to our customers and communities as soon as possible,” the airlines announced in a statement. “We believe that the DOJ is wrong in its assessment of our merger,” they announced.

‘The best news’

In the past five years, antitrust regulators had allowed three other major mergers to go ahead. The government has argued that this merger in particular would hurt US consumers by eliminating a competitor on more than 1,000 routes.

“Consumers deserve the benefit of that continuing competitive dynamic,” Bill Baer, head of the DOJ Antitrust Division, said in a statement, and later dampened expectations that the lawsuit could result in a settlement. “We think the right solution here is a full-stop injunction,” he added.

Should the merger lead to increased prices or fees, it would cost consumers hundreds of millions of dollars each year, according to the DOJ. Last year, business and leisure travelers spent more than $70 billion on airfare in the United States.

“This is the best news that consumers could have possibly gotten,” said Charlie Leocha, director of the Consumer Travel Alliance. He added that recent mergers had led to higher fares and fewer flight choices and this one would have the same result.

The airlines had already announced the management team at the combined company, which would take the name American Airlines Group Inc., led by US Airways CEO Doug Parker. Management has put those plans on hold.

Source: Deutsche Welle |