Justice Dept. challenges US Airways, American merge

Charlotte ObserverAugust 13, 2013 

The U.S. Justice Department and six state attorneys general on Tuesday challenged US Airways’ proposed $11 billion merger with American Airlines, saying the combined company would reduce competition for consumers.

The federal government and the state attorneys general filed a lawsuit in federal court in Washington, D.C., seeking to prevent the companies from making the deal, which would create the world’s largest airline. North Carolina and South Carolina are not part of the suit.

“By challenging this merger, the Department of Justice is saying that the American people deserve better,” Attorney General Eric Holder said in a statement. “This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices.”

Under the merger, Charlotte Douglas International Airport would become the combined airline’s second-busiest hub, behind only Dallas/Fort Worth International Airport. US Airways operates almost 650 daily flights from Charlotte Douglas.

Antitrust approval from the U.S. Department of Justice had been one of the last steps needed to close the deal after US Airways shareholders approved the merger last month. US Airways CEO Doug Parker had said the deal was on track to close in the third quarter of this year.

A spokesman for US Airways had no immediate comment. American Airlines did not immediately return a call seeking comment.

In February, the companies disclosed their plans to create a company with 6,700 daily flights and annual revenue of roughly $40 billion.

Were the deal to be approved, the four biggest U.S. airlines – American, United, Delta and Southwest – would all be the products of mergers that began in 2008. Those deals have helped the industry control seats, push fares higher and return to profitability.

As the largest US Airways hub, Charlotte figures prominently in the Justice Department’s suit. The merger would illegally eliminate competition for flights between Charlotte and 38 other cities, according to the lawsuit.

The suit cites city pairs like Charlotte and Dallas, in which US Airways and American currently compete. After the merger, there would be virtually no competition for airfares in those markets, the government argues.

The merger would be “presumptively illegal” in more than three dozen other city pairs as well.

According to the department’s complaint, the merger would result in four airlines controlling more than 80 percent of the U.S. commercial air travel market. The complaint also outlines how airlines have been able to raise prices, impose new fees and reduce service in recent years. The complaint includes statements from US Airways executives on how industry consolidation has allowed fare increases to take hold.

In one statement, Parker calls the US Airways-American merger “the last major piece needed to fully rationalize the industry.”

Last year, business and leisure airline travelers spent more than $70 billion on airfare for travel throughout the United States.

American parent AMR Corp. has cut costs and debt since it filed for bankruptcy protection in late 2011. Pilots from both airlines have agreed on steps that should make it easier to combine their groups under a single labor contract, a big hurdle in many airline mergers.

The attorneys general were from Arizona, Florida, the District of Columbia, Pennsylvania, Tennessee, Texas and Virginia. The District of Columbia also joined the suit.

N.C. Attorney General Roy Cooper is monitoring the Justice Department action and “is concerned about the potential for harm to consumers but is also considering the outcome for the City of Charlotte and surrounding communities,” his office said in a statement.

Tuesday’s suit is US Airways’ latest run-in with the Justice Department. In 2001, the department rejected United Airlines’ planned $12.3 billion takeover of US Airways, killing that deal.\

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