Bugger Off DOJ, Allow the American Airlines-US Airways Merger

As you’ve undoubtedly heard, the U.S. Department of Justice, several states and the District of Columbia have filed litigation to stop the proposed merger between American Airlines and US Airways.

Almost no one saw this coming so late in the process, especially since other major airlines have successfully merged recently, including Delta-Northwest, United-Continental and Southwest-AirTran.

Overcapacity and the inability to cover costs have been common themes for years in the U.S. airline industry, so consolidation has been instrumental for airlines to eek out a very small profit (based on overall capital expenditures) in recent financial quarters. Why is the DOJ suddenly so concerned?

According to their filing:

“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,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “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.”

Airlines are in business to make a return for their shareholders, and the major carriers have just recently started to do so. Sure, a lot of it comes from the unbundling of previously “free” services, such as checking bags and onboard meals, but can any of us really blame them? Airfares remain an incredible bargain when you look at them from an inflation standpoint.

And I’m sorry DOJ, but airfares will increase and ancillary fees will rise regardless of another mega-merger. Why do you think they shouldn’t?

As far as American and US Airways being able to “standalone” and survive separately, isn’t it more beneficial for stakeholders to reap a greater return on their investment with a stronger, combined airline realizing greater synergies than they could do alone? Just sayin…

Another main concern over the merger has been the monopolistic position a combined airline would enjoy in – yeah, you guessed it – Washington D.C.:

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.

So United’s 70-percent-plus dominance in Newark now that it’s merged with Continental isn’t any big deal?

And then the DOJ’s claim simply gets ridiculous:

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.

Yes, you can go from any origin to any destination on ANY series of airlines by connecting. That’s a news flash to you? There would still be plenty of competition on these “thousands” of routes. Ugh.

I’m just disappointed that the DOJ suddenly has a closely vested interest in potentially destroying two more companies that can barely survive independently (with realistic returns to investors) in an industry that has hemorrhaged for years.

Yes, yes… I’ve posted previously about my own worries should American and US Airways merge, but they were completely selfish “mileage-junkie” concerns over my precious elite status and benefits. I’ve grown up a bit since then.

I don’t think the DOJ fully appreciates how complex the airline industry is, nor how idiotic it is for them to suddenly question the industry in such a strong manner by attempting to block this merger.

What do you think? Are the Justice Department’s concerns warranted?

– Follow Darren Booth on Twitter, @FrequentlyFlyin, for more airline, hotel and travel industry news, reviews and opinions.

Related:

Why an American-US Airways Merger Worries Me

What the New American AAdvantage Program Might Look Like

United Airlines Adds Spend Requirement for Elite Status Beginning in 2014

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Comments

  1. I’m amazed that there were ppl that didn’t see this coming. All anyone had to do was look at the rejected telecom merger to see the DOJs stance on a competitive market place and 3 majors was not what they considered competitive. This was doomed from the start.

    That said, look at decisions United has made w/ their freq flyer programme, only made because they figured only 1 airline had to follow, now it’s 2 and they could be in for yet another rough year.

  2. What do I think? I think there are a lot of bloggers who are in way over their heads in their attempts to evaluate the ramifications of the merger.

  3. I don’t think UA’s concentration at EWR was increased by the UA-CO merger. UA was forced to give up slots and it has given up the pmUA gates. I think the merged airline has roughly the share that pmCO had.

    On hundreds of connecting itinerary pairs, where there isn’t meaningful LCC competition, this merger will eliminate a competitor, perhaps going from 3 offerings to 2, or from 4 to 3. Today often US is cheapest on connecting itineraries (rarely on non-stop!). That would likely disappear with the merger. So there are some anti-competitive aspects. If DL-NW or UA-CO hadn’t already happened, perhaps AA-US would be approved, and that other merger prohibited.

    I’m not saying it’s the right decision, but I can certainly see an argument that this final merger would have a much more significant impact at this time, given all the mergers that have already occurred.

  4. Another case of a myopic blogger filling the airwaves with his own, selfish point of view, far removed from the interests of the flying public at large.

    If ever any proof was needed that this merger was oligopolistic, consider the facts: With the merger shot down a logical conclusion would have been that United & Delta would benefit. But apart from the huge decline in US & AA stock prices yesterday, the stocks of UA & DL also saw large declines; trend continues today, 8/14. Why? Because, UA & DL cannot raise prices / fees in collusion with the ‘new AA’. The DOJ rests its case.

  5. Kudos to the DOJ for trying to shaft airlines yet again. This administration has been the most hostile toward the airline industry in recent memory. Further, I don’t get why every merger has to favor the consumer, which this ultimately does anyway. Companies are in business to make money and provide a return to shareholders, before the recent consolidation, airlines were losing money like no industry before. Consolidation has brought rationality to the market. I would hardly call 4 companies holding 80% of a market anti competitive.

    AA and US will merge, likely without the blessing of the DoJ, but it will happen.

  6. The job of the airline management is to make $$ for the shareholders, and the job of the DOJ antitrust division is to protect consumers. All antitrust cases are judged upon current market conditions, past approvals or injunctions have next to no bearing. This goes to trial, the merger is toast. The DOJ is 84-1 in the since 2003 in blocking mergers at trial.

  7. So.. According to the current administration, flying is a right. A right that is to be preserved at the expense of tha airlines and their stockholders.

    If the government feels so strongly that poor people should be able to fly, perhaps they could start a voucher program similar to food stamps.

  8. The merger of Delta and Northwest was a necessity to prevent the loss of two major airlines, which would have been a disaster for consumers.

    The merger of United and Continental should have been blocked by DOJ – both airlines were viable competitors on their own. Somebody pulled some strings to allow this merger.

    Now that we have two mega-airlines, Delta/Northwest & United/Continental, the merger of American and US Air will restore competitive balance. In the short run this may hurt some consumers at a few airports & on a few direct routes but those things adjust over time. In the long run, three competitors on a level playing field will provide the greatest competition and benefit to consumers.

    The time to block a merger was United/Continental, not now.

  9. @kris how is it that one person can fit so much nonsense in one post? If the current administration was so hostile to the industry, they wouldn’t have allowed 2 other mergers to go through. Get a clue or go to Fox News.

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