U.S. Justice Department Blocks American Airlines, US Airways Merger

In a move very few analysts predicted, the U.S. Justice Department has filed an antitrust lawsuit to block the planned mega-merger of U.S. Airways with American Airlines.

In its filing in the District of Columbia, on Tuesday, August 13, the Justice Department said:

 “Millions of passengers depend on the airline industry to travel quickly, efficiently, and safely between various cities in the United States and throughout the world. Since 1978, the nation has relied on competition among airlines to promote affordability, innovation, and service and quality improvements.

"In recent years, however, the major airlines have, in tandem, raised fares, imposed new and higher fees, and reduced service. Competition has diminished and consumers have paid a heavy price.

"This merger—by creating the world’s largest airline— would, in the words of US Airways’ management, “finish[ ] industry evolution.” It would reduce the number of major domestic airlines from five to four, and the number of “legacy” airlines—today, Delta, United, American, and US Airways—from four to three. In so doing, it threatens substantial harm to consumers.

"Because of the size of the airline industry, if this merger were approved, even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually."

In expecting an easy approval, experts pointed to the mergers of other major carriers--Delta Air Lines and Northwest Airlines in 2008, United Airlines and Continental Airlines in 2010 and Southwest Airlines and AirTran Airways in 2011--as reasons for a likely OK. The EU had also just approved the merger based on the new merged airline giving up slots on the Philadelphia to Heathrow route. As would be expected, American and US Airways issued a joint statement saying that it would mount a "vigorous defense" of the merger.

“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this procompetitive merger will deny customers access to a broader airline network that gives them more choices," the airlines said in a statement released on August 13.

“Further, this merger provides the best outcome for AMR’s restructuring. The widespread support from the employees and financial stakeholders of both airlines underscores the fact that this is the best path forward for both airlines and the customers and communities we serve," the airlines' said.

American and US Airways promised to "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.”

Some industry experts are now saying that the move might be a ploy to wrest some slot concessions from the airlines prior to approval.  On August 15, U.S. Bankruptcy Judge Sean Lane is expected to hear the case for American Airline’s reorganization plan.  The merger and a $19.9 million dollar payout to departing CEO Tom Horton were major cornerstones of that plan.