US sues in bid to stop mammoth airlines merger

By Paul Handley, AFP

WASHINGTON — The U.S. Justice Department and several states sued Tuesday to block the US$11 billion merger between American Airlines and U.S. Airways, saying it would reduce competition and push up fares. Justice officials said U.S. Airways was pushing the merger specifically to reduce competition and boost returns. And they insisted that — contrary to arguments that the long-gestating merger is key to American’s bankruptcy restructuring program — both airlines could stand on their own profitably without merging. “The lawsuit gives consumers the best possible chance for continued competition,” Assistant U.S. Attorney General Bill Baer told reporters. If the merger goes through, consumers “will pay more for less service,” he said, estimating the added bill for passengers at “hundreds of millions of dollars.” “Neither airline needs this merger to succeed,” he added.

The move effectively halted operations already under way to begin combining the operations of the two companies, which after the merger would fly under the American Airlines brand but be run by current U.S. Airways executives. They had expected to complete the merger during the current quarter, after garnering the approval of shareholders, creditors and European regulators. U.S. Airways and AMR Corp., the parent of American Airlines, said they “intend to mount a vigorous and strong defense” of the merger, rejecting the assessment that it reduces competition. “Integrating the complementary networks of American and U.S. Airways to benefit passengers is the motivation for bringing these airlines together,” they said in a statement. “Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.” The federal lawsuit, filed together with six states and Washington, argues that the merger would “substantially” reduce competition and consumer choice, as well as raise fares. After the merger, four airlines — which it said have a history of “tacit coordination” instead of competition — would control more than 80 percent of the U.S. commercial air travel market. U.S. Airways and American alone compete directly on more than 1,000 routes, it said. “Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares.” The lawsuit extensively quoted U.S. Airways executives and documents to try to show that the airline wanted the deal expressly in order to reduce competition. “High-level executives at U.S. Airways have talked about how consolidation allows for capacity reductions that ‘enable’ fare increases,” said Baer. “They don’t want to compete.” The suit also rejects arguments that the merger is necessary to complete AMR’s emergence from bankruptcy restructuring. It points out that American has had a viable standalone plan for the future, adding numerous new routes and aircraft as it rebounds. “There is no reason to accept the likely anticompetitive consequences of this merger. Both airlines are confident they can and will compete effectively as standalone companies,” the suit said. Baer said the Justice Department was not seeking to have the two companies give up landing rights and routes to get approval for the tie-up.

In recent cases — such as the combination of giant beer brewer-distributors AB Inbev and Modelo — divestments of monopoly-like positions in specific markets were required before the mergers earned Justice Department approval. Baer insisted that, while the department is “always prepared to listen” to alternative ideas, “The better idea right now is to enjoin (stop) the merger.”