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Justice Department challenges American US Airways merger

10:37 AM, Aug 13, 2013   |    comments
Photo by the Associated Press
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The Justice Department and several states have filed a lawsuit to halt the proposed merger of American Airlines and US Airways.

The airlines had anticipated merging within months to create the world's largest airline to compete against United and Delta airlines. But the lawsuit will hinder those plans.

The Justice Department filed the case in U.S. District Court for the District of Columbia with states of Arizona, Florida, Pennsylvania, Tennessee, Texas and the District of Columbia.

The lawsuit contends that the merger would hurt 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, of flight change fees would cause hundreds of millions of dollars of harm to American consumers annually," the lawsuit says.

"Millions of passengers benefit each year from head-to-head competition that this merger would eliminate."

Spokesman for US Airways and American didn't immediately respond to requests for comment. But in defending the merger plans before congressional hearings, US Airways CEO Doug Parker, who would lead the new company, said few routes overlap between the carriers so that a merger wouldn't hurt competition.

The airlines sought to merge because of recent mergers of Southwest and AirTran, United and Continental and Delta and Northwest airlines. US Airways and American officials had been optimistic about their plans because the Justice Department approved each of those previous mergers.

But the Justice Department said US Airways Advantage Fares are significantly lower than American Airlines. For a trip from Miami to Cincinnati on Aug. 13 and returning Aug. 14, the US Airways Advantage Fare was $471 for one stop compared to $740 on a non-stop American flight, according to the Justice Department.

"By further reducing the number of legacy airlines and aligning the economic incentives of those that remain, the merger of US Airways and American would make it easier for the remaining airlines to cooperate rather than compete on price on service," the 56-page lawsuit said.

As examples of the benefits of competition, the Justice Department noted that US Airways tickets from Washington Reagan National Airport to Boston Logan Airport dropped significantly after the entry of JetBlue competition. Average US Airways tickets dropped from $366 in October 2010 to $236 in December 2010, or 36%, according to the Justice Department. The price of a walkup ticket dropped from $1,222 to $488, or 60%, according to the Justice Department.

Justice noted that the merged airline would control 69% of the slots at Reagan, which would be six times more than the closest competitor

"This would eliminate head to head competition at the airport between American and US Airways," the lawsuit said.


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