From Tom Parsons - Department Of Justice Blocks American US Air Merger
Aug-16-2013

The Justice Department files suit to block the merger between American Airlines and US Airways.

On Tuesday, August 13, 2013, the US Department of Justice filed a lawsuit stating this merger would violate antitrust laws. Six states have also joined the suit to keep the merger from happening.

The six states are Texas, Arizona, Pennsylvania, Florida, Tennessee, and Virginia. We think the primary reason behind this suit is that Southwest Airlines want more landing slots at Washington DC's National Reagan Airport. As well as because the current world's largest airline, United, has a major hub in Washington DC and Houston, Texas.

Arizona is a no brainier here; as the Phoenix area will lose many jobs because the current US Airways headquarters located in Phoenix will be closed, once the merger deal goes through with American.

For the state of Pennsylvania, their issue with this merger is again a job issue, in that a major airplane repair facility will close.

As far as Florida and Tennessee are concerned, we really can't see what their issues would be with this merger going through. Virginia and the District of Columbia make sense, and also why the Department of Justice is taking such as stance. Currently, Washington DC's Reagan is a slot control airport. In other words, airlines that want to operate from this airport must purchase gate slots. If the airline doesn't want to pay the premium required the US government puts them up for auction, and the highest bidder will now occupy the gate that has opened up.

This is very different from other US airports, where if you want to start flying from their airport, you can without having to go through the process of buying gate slot positions.

If this merger goes through the new American / US Airways Corporation would control almost 70% off all flights in and out of Washington DC's Reagan Airport. We know that both JetBlue and Southwest have made statements objecting that the new American should give up slots. They are saying this because they want those slots in order to stay competitive.

However, we here in the south have a terminology called 'hogwash'. Southwest Airlines has a hub within 50 miles in Baltimore. United has a hub within the same distance at Dulles. Therefore, neither airline would be losing business in this area by having US Air/ American come to town.

We think US Airways is one of the best airlines for connecting people into smaller cities along the East Coast. Some destinations they serve are Hayden, Elmira, Binghamton, Roanoke, Salisbury, Williamsport, and Augusta just to name a few of the dozens and dozens of smaller airports they service. US Airways would have dropped these routes by now if they didn't make a profit form them, so we see no reason why they would stop now.

Below is a statement made by the Department of Justice to defend their lawsuit:

Millions of passengers depend on the airline industry to travel quickly, efficiently, and safely between various cities in the United States and throughout the world. Since 1978, the nation has relied on competition among airlines to promote affordability, innovation, and service and quality improvements.

In recent years, however, the major airlines have, in tandem, raised fares, imposed new and higher fees, and reduced service. Competition has diminished and consumers have paid a heavy price.

This merger-by creating the world's largest airline- would, in the words of US Airways' management, "finish[ ] industry evolution." It would reduce the number of major domestic airlines from five to four, and the number of "legacy" airlines-today, Delta, United, American, and US Airways-from four to three. In so doing, it threatens substantial harm to consumers.

Because of the size of the airline 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.

American and US Airways comment today was this "We will vigorously defend the merger in court."

In conclusion, these suits will probably not deter this merger; it is a bump in the road, a big one, but still just a bump. What is means is that it will be some time before all parties wade through the red tape and approve the merger.

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Posted by Ken at 6:49 PM - Link to this entry  |  Share this entry  |  Print