US Airways, AA merger challenged
WASHINGTON, USA
THE US government is challenging the proposed merger of American Airlines and US Airways to create the world’s largest airline, saying it would cause “substantial harm” to consumers by leading to higher fares and fees.
The US Justice Department, joined by the attorneys general of six US states, filed a lawsuit to block the merger in federal court in Washington, DC yesterday.
The government’s challenge threatens to quash a deal that would create the world’s largest airline by passenger miles. The airlines could challenge the government in court, or possibly agree to concessions that would convince regulators to approve the merger.
The lawsuit caught many observers by surprise. In the last five years, antitrust regulators had allowed three other major airline mergers to go ahead, leaving five airlines in control of about 80 per cent of domestic market. But the government argued that this merger would hurt consumers around America by eliminating a competitor on more than 1,000 routes.
If the merger leads to even small increases in ticket prices or airline fees, it would cost American consumers hundreds of millions of dollars each year, the department said.
As examples, the government cited round-trip fares for travel this month between Miami and Cincinnati and between Houston and New York in which US Airways’ fares are far lower than American and other competitors.
Shares of both airlines plunged on news of the lawsuit. US Airways Group Inc. shares fell US$1.66, or 8.8 per cent, to US$17.16 in midday trading. AMR shares were taken off the New York Stock Exchange shortly after the company filed for bankruptcy protection in late 2011 but still trade over the counter; they were down US$2.43, or 41.8 per cent, to US$3.38.
In making its case against the merger, the government relies heavily on an airlines executives own words.
Throughout the 56-page lawsuit, Department of Justice lawyers quote internal emails, investor presentations and public comments by the two airlines’ top executives noting how past mergers have allowed for increased fares and rising fees for checking a bag or changing flights.