American Airlines and US Airways jets at Philadelphia airport. (AP)
Aug. 13: The justice department, along with the attorneys -general of six states and the District of Columbia, filed a lawsuit today seeking to block the proposed merger of American Airlines and US Airways.
Dealing an unexpected blow to a year-long effort to create the world’s biggest airline, the justice department said the merger between the two airlines would substantially reduce competition, increase air fares and cut service.
After approving a series of mergers between the nation’s airlines in recent years, the justice department’s decision came as a surprise to both carriers, who had expressed confidence the deal would go through with only a few changes. Anti-trust regulators had not challenged an airline merger since the planned tie-up between United Airlines and US Airways in 2001.
Since then, Delta Air Lines merged with Northwest Airlines, United merged with Continental, and Southwest merged with AirTran.
In recent years, however, consumer groups and some economists have warned that the wave of consolidation in the airline sector had contributed to higher airfares and less choice for consumers.
“Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace,” said Eric H. Holder Jr., the US attorney general.
The civil anti-trust lawsuit was filed in the US District Court for the District of Columbia to challenge the planned deal.
The justice department said the vast majority of domestic airline routes were already highly concentrated. A merger of American and US Airways, it said, would result in four airlines controlling more than 80 per cent of the US market for commercial air travel.
It also found that the planned merger would have created a dominant carrier at Ronald Reagan National Airport near Washington, where it would control 69 per cent of the takeoff and landing slots and have a monopoly on 63 per cent of the non-stop routes served from there.
According to the complaint, “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 and service.”
The announcement is a significant setback for American’s plans to exit bankruptcy. American had racked up losses of about $12 billion since 2001 and filed for bankruptcy two years ago to reduce it labor costs and restructure it business. It was the last major airline to file for bankruptcy.
While American sought to complete its bankruptcy as a stand-alone carrier, US Airways persuaded its rival’s union groups as well as creditors to back a merger while still under court protection. In February, the two carriers agreed to the deal valued at $11 billion.
The merger was expected to bolster American’s domestic footprint, strengthen its presence in northeastern US and give it a bigger network to attract business travellers and corporate accounts.