Tuesday, August 13, 2013

DOJ Sues to Block US-American Merger

The U.S. Department of Justice announced this morning that it will attempt to prohibit the US Airways-American Airlines merger because it believes the deal violates U.S. antitrust law. The move comes as a surprise, if not shock, to many industry observers who believed the proposed merger was on solid footing. We'll have more commentary on the decision later in the day. The DOJ's press release is available here. Key excerpts are below:

According to the department’s complaint, the vast majority of 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 percent of the United States commercial air travel market. 

The merger would also entrench the merged airline as the dominant carrier at Washington Reagan National Airport, with control of 69 percent of the take-off and landing slots.   The merged airline would have a monopoly on 63 percent of the nonstop routes served out of Reagan National airport.   As a result, Washington, D.C., area passengers would likely see higher prices and fewer choices if the merger is allowed, the department said in its complaint.   Blocking the merger will preserve current competition and service, including flights that US Airways currently offers from Washington’s Reagan National Airport.

The DOJ appears particularly concerned about the probable elimination of US Airways' Advantage Fares program as a constraint on the fares offered by other legacy carriers:

Today, US Airways competes vigorously for price-conscious travelers by offering discounts of up to 40 percent for connecting flights on other airlines’ nonstop routes under its Advantage Fares program. The other legacy airlines – American, Delta and United – routinely match the nonstop fares where they offer connecting service in order to avoid inciting costly fare wars.   The Advantage Fares strategy has been successful for US Airways because its network is different from the networks of the larger carriers. 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.


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