Lawsuit Expected To Delay American/US Airways Merger

By Jens Flottau, Darren Shannon
Source: Aviation Week & Space Technology

William Baer, the assistant attorney general in charge of Justice's antitrust division, says his concern stems in part from the result of earlier mergers that have closed hub operations or focus cities.

Baer acknowledges that this opposition is due, in part, to the limited competition that resulted. He notes, however, that this lawsuit “is fully consistent with what we have done in the past.” In 2000, a proposed merger between US Airways and United was rejected by the regulator, he says, noting that similar rejections were considered by the department in 2007 when US Airways made an unsolicited bid for Delta and in 1998 when Northwest Airlines sought a controlling stake in Continental Airlines.

Since then, however, Justice has approved three substantial mergers (Delta/Northwest, United/Continental and Southwest/AirTran Airways), two of which at the time created the world's largest operator.

Justice would still consider a concessions package, but “the degree of competitive overlap” between US Airways and American leaves little option but to seek a full dismissal of the merger agreement, Baer argues. He says if either airline can prove its future is in jeopardy, the objection could be lifted. But he notes that the two airlines are posting record profits, proof alone that both are viable entities and necessary to maintain competition.

Baer also targets US Airways' apparent fervor for ancillary fees—a major contributor to U.S. airline revenues—and that “post-merger, the new American would likely lead to new fee increases.” He also criticizes US Airways' “tendency” to signal price and fee increases to its competitors, and argues that a “tacit coordination” between the few remaining legacy carriers would only increase if US Airways and American merged.

In 1998, the U.S. Justice Department signaled that consolidation of the U.S. defense industry had gone far enough by moving to block Lockheed Martin's planned acquisition of Northrop Grumman. Tap the icon in the digital edition of AW&ST to read Aviation Week's report on that suit, or go to AviationWeek.com/antitrust

Largest Legacy Carriers in Key Markets(by 2012 revenue passenger kilometers)
North America
United288.3 billion
Delta271.5 billion
American203.3 billion
US Airways100,4 billion
Europe
Lufthansa192.7 billion (Lufthansa, Swiss and Austrian)
Air France-KLM222.7 billion
International Airlines Group (IAG)186 billion (British Airways, Iberia and Vueling)
Middle East
Emirates180 billion
Qatar Airways71.9 billion
Etihad47.7 billion
(excludes affiliates such as Air Berlin and Air Seychelles)
China
China Southern135 billion
China Eastern101.5 billion
Air China95.7 billion
Latin America
LATAM Group101.6 billion (LAN Airlines and TAM Brazil)
Gol Airlines33.9 billion
Avianca29.9 billion
Africa
South African Airways22.3 billion
Egyptair18.2 billion
Ethiopian Airlines
16.9 billion
Source: International Air Transport Association

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