Will World’s Largest Airline Merger Actually Lift Off?

August 14, 2013

What a difference a week makes. Eight days ago American Airlines and U.S. Airways officials were basking in the European Commission’s approval of an $11 billion deal that would create the planet’s largest airline. Today, they’re intent on “vigorously” fighting a decision by the United States Department of Justice that challenges that merger.

In a prepared release, DOJ says it filed suit August 13 on antitrust grounds. Attorney General Eric Holder contends, “The American people deserve better. This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices.”

Bill Baer, DOJ’s Assistant Attorney General in charge of the Antitrust Division, echoes Holder’s position. Baer believes should the AA/US deal go through it would produce “hundreds of millions of dollars harm to American consumers.”

In a prepared statement, American and US Airways fired back: “Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.” The “New American” would loft some 6,700 flights daily – this to more than 336 destinations in 56 countries arrayed around the world.

Ah, routes and rates. That’s the essence of it. DOJ says, “American 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.” The Justice Department goes on to say, “They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual world-wide revenue.” Here’s the heart of it contends the department: “Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares.”

In the wake of the suit, Business Travel Coalition Chairman Kevin Mitchell said, “So much for a quiet August…I think that DOJ is doing the right thing. They’re stepping up and protecting consumers from a transaction that would change the competitive structure of the US airline industry for the worse.”

Mike Boyd, president of Boyd Group International, has a bit of a different take on all this. He tells AirlineRatings.com, “Frankly, [DOJ is] playing politics,” saying objections the Department of Justice has with an American/US Airways amalgam were not raised when United merged with Continental, Southwest with AirTran, or Delta with Northwest. Boyd does not believe an AA/US combo will give the New American the ability to “gouge the market.”

The Department of Justice filed the suit in conjunction with state attorneys general in Texas (American’s headquarters), Florida, the District of Columbia, Pennsylvania, Tennessee and Virginia. DOJ brought the action to block the merger in the U.S. District Court for the District of Columbia.