The U.S. Department of Justice has announced it has joined with state officials in filing suit in federal court in Washington, D.C., to block the merger of American Airlines and US Airways.
DOJ: Merger Will Raise Airfare Prices
According to the DOJ press release, the action was taken because the merger “would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service.”
Analyst: Not a Death Blow for Merger
Air travel analyst Rick Seaney called the move unexpected, but added “I do not expect this will kill the merger but it will probably delay it,” said Seaney. “It’s not a death blow, but it is a solid punch in the first round.” Seaney added that he expects ultimately there will be some kind of settlement including concessions made by the airlines before the $11 billion merger is allowed to go through.
UPDATE: The Airlines Respond
The following is from a press release issued by the airlines in which they announce plans to fight the Justice Dept. action:
“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this procompetitive merger will deny customers access to a broader airline network that gives them more choices.”
Only a Few Cities Win with Mergers
The two legacy airlines announced they would merge back in February of this year, and have been moving toward operating as a single carrier under American brand ever since – what the Dept. of Justice notes would be the world’s largest airline.
This has been a trend in recent years – carriers merging to create mega-airlines – including the unions between United/Continental, Delta/Northwest and Southwest/AirTran. And with mergers, as Seaney points out, come changes. “When it comes to mergers, a handful of big cities typically come out as winners, while often smaller cities take it on the chin as they have no leverage with limited competition and capacity.” Presumably, Justice Department officials have taken note of this as well. “Those other mergers sailed through,” noted Seaney, “so for American and US Airways, being last to merge was probably not an advantage,” noted Seaney.
We will update with more information when it becomes available.