During the call, Baer, who was confirmed to his position in January, “candidly” acknowledged that this opposition is due, in part, to the limited competition created by previous airline mergers. He notes, however, that this lawsuit “is fully consistent with what we have done in the past.” A similar decision was issued in 2000 when a proposed merger between US Airways and United Airlines was rejected by the regulator, Baer said, noting that similar rejections were considered by the DOJ in 2007 when US Airways made an unsolicited bid for Delta and in 1998 when Northwest wanted to buy a controlling stake in Continental.
Since then, however, Justice has approved the merger of three significant mergers, two of which at the time created the world’s largest operator.
Baer also noted that while Justice would consider a concessions package, “the degree of competitive overlap” between US Airways and AMR leaves little option but to seek a full dismissal of the merger agreement. “Consumers will get the shaft,” he added.
According to Baer, if either airline can prove its future is in jeopardy, the objection could be lifted, but he notes that the two airlines currently are posting record profits, proof alone that they both are viable entities and necessary to maintain competition. Indeed, Baer says AMR’s pre-merger restructuring plan is favored above consolidation because the operator planned to increase both domestic and international capacity and had placed a record order with Airbus and Boeing to facilitate that growth. In contrast, the merged airline, run by US Airways senior management, plans to cut capacity 10%, he notes.
Baer also targeted US Airways’ apparent fervor for ancillary fees—a major contributor to U.S. airline revenues—and that “[p]ost-merger, the new American would likely lead new fee increases.” He also criticized US Airways’ “tendency” to signal price and fee increases to its competitors, and noted that a “tacit coordination” between the few remaining legacy carriers would only increase if US Airways and AMR merged.
The lawsuit was jointly filed by Justice, six states and the District of Colombia. The states include Texas, where AMR is based, and US Airways’ home state of Arizona.