WASHINGTON, D.C. — (Mealey’s) The U.S. Department of Justice on Aug. 13 filed a lawsuit against US Airways Group Inc. and AMR Corp., the parent company of American Airlines Inc., seeking a full injunction to prevent the proposed merger of the two airlines on grounds that it violates federal antitrust law and that “consumers will get the shaft” (United States of America, et al. v. US Airways Group, et al., No. 13-01236, D. D.C.).
AMR filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York in 2011.
As part of AMR’s reorganization plan, the company proposed a merger with US Airways that would create the world’s largest airline, valued at $11 billion.
The U.S. government, through the U.S. attorney general, along with the attorneys general for the States of Arizona, Florida, Tennessee and Texas, the Commonwealths of Pennsylvania and Virginia and the District of Columbia, sued the airlines in the U.S. District Court for the District of Columbia under Section 7 of the Clayton Act, 15 U.S. Code Section 18.
Specifically, the plaintiffs argue that the merger “threatens substantial harm to customers.” Because of the size of the airline industry, the merger would increase the price of airline tickets, checked bags and flight change fees, which would cause hundreds of millions of dollars of harm to American consumers, the plaintiffs say.
In a conference call with reporters, Assistant Attorney General for Antitrust William J. Baer said US Airways executives have been proponents of consolidation as a way to eliminate competition. He said those executives also see consolidation as a way to reduce capacity that will “enable” it to raise fares.
“If this merger goes through, consumers will get the shaft,” Baer said.
Moreover, Baer said American Airlines has publicly stated that it does not need the merger in order to “thrive” in the airline market because it will emerge from bankruptcy strong enough to compete on its own.
According to the plaintiffs, if the merger were approved, US Airways would no longer need to offer low-fare options for certain travelers. For example, US Airways employs “Advantage Fares,” an aggressive discounting strategy aimed at undercutting other legacy carriers’ nonstop fares with cheaper connecting service, the plaintiffs say.
Moreover, the plaintiffs contend that if the merger were approved, US Airways’ economic rationale for offering “Advantage Fares” would likely “go away.”
Furthermore, the plaintiffs insist that the proposed merger would likely lead to increased industry-wide “capacity discipline,” resulting in higher fares and less service. Specifically, “capacity discipline” has meant restraining growth or reducing established service, they say.
“In theory, reducing unused capacity can be an efficient decision that allows a firm to reduce its costs,” the plaintiffs argue. “In the airline industry, however, recent experience has shown that ‘capacity discipline’ has resulted in fewer flights and higher fares.”
“The merger would also eliminate head-to-head competition in hundreds of relevant markets and entrench US Airways’ dominance at Reagan National Airport,” the plaintiffs add.
The government is represented by Bauer; Deputy Assistant Attorney General Renata B. Hesse; Director of Civil Enforcement Patricia A. Brink; Director of Litigation Mark W. Ryan; Chief of the Transportation, Energy and Agriculture Division of the U.S. Department of Justice, William Stallings; Assistant Chief of the Transportation, Energy and Agriculture Division of the U.S. Department of Justice Kathleen S. O’Neill; Ryan J. Danks of the Antitrust Division of the U.S. Department of Justice; and Michael D. Billiel, Katherine A. Celeste, J. Richard Doidge, Tracy J. Fisher, David Z. Gringer, Amanda D. Klovers, Caroline E. Laise, John M. Lynch, William M. Martin, Joseph Chandra Mazumdar and Robert D. Young of the U.S. Department of Justice. All are in Washington.
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