American Airlines (AA) and US Airways (US) are flailing as they consider what actions to take in the wake of the announcement by the Department of Justice (DOJ) and six State Attorneys General that they are filing a lawsuit to block the proposed merger of their airlines.
The airlines are going to be flying through severe turbulence if they plan to follow a route contesting the DOJ and Attorneys General lawsuit. The statement released by DOJ made it clear that they saw no way that this merger was moving forward. They offered no remedies or pathway to merger.
Airline lawyers spelled out their arguments in a Wall Street Journal article. Here, we will answer each one of the arguments mentioned in the article. It will be easy to see that fighting DOJ will not be easy.
• Merger would offer consumers more flights to more destinations
This merger actually reduces destination options for US Airways customers. When US Airways leaves the Star Alliance and United Airlines with which they have an extensive long-lived code-sharing agreement, US Airways fliers will lose destinations for redemption of frequent flier benefits. Star Alliance has 28 member airlines, flies to 194 countries with 1,329 destinations. Oneworld has only 13 member airlines in 155 countries and 850 destinations. Overall US Airways fliers will suffer.
• Merger would allow airlines to reduce prices and provide better service
This is impossible to prove or predict. If past mergers are to be considered, according to another WSJ study, “… big-city routes saw price increases of 40 percent to 50 percent or more after mergers reduced competition.
• Merger would allow AA and US to address weaknesses in their route structure
This not the job of antitrust. Antitrust is designed to protect consumers.
• The ability of the carriers to survive on their own is irrelevant in judging the merger.
Yes it is. There must be a reason for a merger. Either one or both of the merger partners are failing or flailing, or there must be some overriding consumer benefit to the merger. With no consumer benefits and neither airline in danger of failing, there is no justifiable reason for the merger that will reduce competition.
• Quotes from executives were taken out of context
Evidently, internal emails to which I do not have access offered plenty of red meat to DOJ for them to bring them into the announcement. However, I personally have heard several of these airline executives talk about their ability to raise airfares and introduce new fees that allow them to charge for increases in fuel costs. In meetings before scores of reporters, executives have made these pronouncements and their actions have shown that they have been taking those actions of raising airfares and increasing fees.
I am sure there is more to come, but these strategies presented by airline lawyers show how difficult their position is vis-a-vis DOJ. If they cannot present some real consumer benefits, some real new and expanded destinations and present answers to the loss of competition on overlapping connecting routes, no one will expect this merger to move forward.
RIP New American.