American Airlines and US Airways announced in February their intended merger, which would create the world’s biggest airline. But the U.S. Department of Justice (DOJ) fears it will be too big: Three weeks ago the DOJ and six states, plus Washington D.C., stepped in with an antitrust lawsuit aimed at blocking the union’s flightpath.
Among the six plaintiff states is Texas, whose attorney general, Greg Abbott, has sued the Obama administration 28 times. He explained in a statement that he joined the DOJ lawsuit over concerns that the merger breaks U.S. antitrust law: “The merger would allow the new company to shed [its] competition and distort the marketplace—while harming competition for nearly 200 Texas [air] routes.”
American, which went through Chapter 11 bankruptcy protection beginning in 2011, claims the merger with US Airways would help them compete with the remaining large U.S. airlines: Delta, United, and Southwest. This is despite American’s profession of standalone strength as late as January, a month before public mention of the merger. This July, American CEO Tom Horton reported a record profit of $292 million—the biggest one-month gain in the company’s history.
The DOJ doubts American needs help to compete: “American had a standalone plan to emerge from bankruptcy poised to grow. To support its plan, American recently made the largest aircraft order in industry history.”
Plaintiffs fear a smaller group of big carriers would tend towards cooperation—on things like price-fixing and higher ancillary fees—rather than competition. The proposed merger’s effects on air service is the crucial issue for the states: Smaller cities as well as big hubs could lose connectivity.
Reduced flight service is probable. Previous mergers, such as that between United and Continental, have resulted in less air service but higher revenue for airlines because of less competition on more routes. A 2013 MIT Study on U.S. airports warns, “[T]he American Airlines/US Airways merger could place further downward pressure on connectivity as schedule and route redundancies are removed from the combined airline’s new network.”
The merger would likely drive up the cost of travel between many city pairs, as only four big airlines, rather than five, will service 80 percent or more of the U.S. travel market, according to the DOJ. AA’s website said the combo would maintain “all hubs currently served by both airlines—Charlotte, Chicago, Dallas-Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix, and Washington D.C.”
The trial begins Nov. 25. The airlines’ internal emails may hold key evidence to confirm whether the merger would be good business in difficult times or a step towards coordinated control of the industry.