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.
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