AA and USAir lawyers flail in wake of Justice suit against merger

by Charlie Leocha on August 16, 2013

A view of two US Airways Express planes next to an American Airlines plane at the Ronald Reagan Washington National Airport
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.

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  • FF

    From your comments I gather you believe that, over and above any merger, it ought to be illegal for any airline to move from an alliance with more partners to one with less partners (since that airlines’ frequent fliers would suffer from having less choice of flights and destinations). But will that position not eventually reduce the number of alliances (or at least make the smaller ones less able to grow), which in itself acts to reduce competition, albeit in a different way?

  • Chris

    I hardly think the airline lawyers are flailing in preparing their defense. The DOJ action is so ridiculously uninformed and ill prepared that a first year law student could adequately defend against the allegations. This has to be the most ridiculous and ill informed slop of lies and ignorance to come out of the DOJ in relation to the industry. That Consumer Travel is actually supporting the DOJ case in defense of consumers is almost as surprising and jaw dropping. If one reads the allegations and understands the facts of the industry in relation to the consumer one can only come to the conclusion that Consumer Travel is advocating for higher fares and less competition. This is a truly amazing and sad turn of affairs for this organization.

  • pauletteb

    Which airline do you work for, Chris? American or USAir?

  • Rick

    In one breath, you say that the merger of two airlines, thus creating the world’s largest airline, is bad for consumers. As you exhale, you then say, USAir leaving the Star Alliance, which is bigger than OneWorld, is bad for consumers. Which is it? You contradict yourself at every turn. Big is good, big is bad. You then go on to say that an airline must be “failing or flailing” to allow a merger and that neither airline is in danger of failing. Last time I actually CHECKED my FACTS, American was in mired in Chapter 11 Bankruptcy protection. Hardly a ringing endorsement or Poster Child for a company not failing. In it’s current form, it can not operate as a viable carrier. That is why it filed Chapter 11. The employees will no longer subsidize the airline. Management knows that. A merger is the only way that AA survives long term. You know it, Wall Street knows it, and most importantly, AA.USAir know it.

  • aliya

    I think the DOJ will be the ones doing the flailing…..especially since they didn’t get 160 more days to prepare for their misguided case as they had hoped. Shouldn’t the party filing the suit be the ones already prepared?

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