DOJ, States Sue to Block Airline Merger
(CN) - The $11 billion planned merger of US Airways and American Airlines would likely mean higher ticket prices, fewer seats and more fees for passengers, the Justice Department and six states claimTuesday in a federal antitrust action.
In the lawsuit filed in Washington, D.C., the Justice Department and the attorneys general of six states and the District of Columbia sued US Airways Group and American's parent company, AMR Corp., to block the proposed merger.
The merger announcement in February came a little over a year after AMR filed for Chapter 11 bankruptcy in November 2011. It would create the world's largest airline that would operate under the American name but run by US Airways executives. AMR shareholders would own 72 percent of the new company, and US Airways shareholders would own the remaining 28 percent.
The deal would also cut the number of major domestic airlines from five to four, and reduce the number of "legacy" airlines -- Delta, United, American and US Airways -- from four to three.
"In so doing, it threatens substantial harm to consumers," the Justice Department and states claim. "Because of the size of the industry, if this merger were approved, even a small increase in the price of airline tickets, checked bags, or flight change fees would cause hundreds of millions of dollars of harm to American consumers annually."
Years of consolidation and fewer airlines in the industry have not been a "good thing," as US Airways CEO Doug Parker stated in 2011, according to the lawsuit.
"In essence, industry consolidation has left fewer, more-similar airlines, making it easier for remaining airlines to raise prices, impose new and higher baggage and other ancillary fees, and reduce capacity and service," the lawsuit states.
"This merger will leave three very similar legacy airlines -- Delta, United and the new American -- that past experience shows increasingly prefer tacit coordination over full-throated competition," government officials say.
They say the merger "would make it easier for the remaining airlines to cooperate, rather than compete, on price and service."
"That enhanced cooperation is unlikely to be significantly disrupted by Southwest and JetBlue, which, while offering important competition on the routes they fly, have less extensive domestic and international route networks than the legacy airlines," the lawsuit states.
Federal and state officials say consumers are better off with American's standalone plan to emerge from bankruptcy.
"There is no reason to accept the likely anticompetitive consequences of this merger," they claim. "Both airlines are confident they can and will compete effectively as standalone companies. A revitalized American is fully capable of emerging from bankruptcy proceedings on its own with a competitive cost structure, profitable existing business, and plans for growth."
Attorney General Eric Holder said the Justice Department's lawsuit "is saying that the American people deserve better."
"This transaction would result in consumers paying the price -- in higher airfares, higher fees and fewer choices," he said in a statement Tuesday.
The federal government and states say the proposed merger creates a monopoly in violation of federal antitrust law. They seek an order permanently blocking the two airlines from combining.
The six plaintiff states are Arizona, Florida, Pennsylvania, Tennessee, Texas and Virginia.