Blocking this airline mega-merger is good for travelers

Christopher Parypa /
Christopher Parypa /
The Justice Department’s surprise lawsuit to block the proposed $11 billion consolidation of American Airlines and US Airways appears to doom the latest airline mega-merger, at least in its current form. But for airline passengers, the prospect of two stand-alone airlines is mostly good news.

Stopping the transaction will keep airfares affordable and fees in check by maintaining the present level of competition, according to the federal government. It will also give consumers more choices in air travel. “By challenging this merger, the Department of Justice is saying that the American people deserve better,” said Attorney General Eric Holder in a prepared statement. Six states — including Arizona and Texas, where US Airways and American, respectively, are based — and the District of Columbia joined the DOJ in the antitrust lawsuit.

In a joint response, American and US Airways called the regulators “wrong” in their assessment of the merger and promised to mount a vigorous defense of their plans. “Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together,” they insisted.

Just a few weeks ago, few thought that the government would challenge the merger. The proposed coupling had already been cleared for takeoff by European Union regulators and American Airlines’ shareholders and creditors. But a separate lawsuit filed in San Francisco federal district court challenging the airline deal, a slew of news reports questioning the wisdom of the merger, and congressional testimony from passenger representatives appeared to turn the tide on what most observers believed was an inevitable deal.

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“This merger would have had the potential to clobber competition,” says Charlie Leocha, director of the Consumer Travel Alliance. “The consequences would have been dramatic.” (Disclosure: As the co-founder of the CTA and as a consumer advocate, I also asked the DOJ to take a careful look at the merger.)

The government objected to the transaction for several reasons. It says that American and US Airways compete directly on more than 1,000 routes where one or both offer connecting service — more than 30 percent more routes than the United Airlines merger with Continental Airlines affected. Those routes represent “tens of billions of dollars” in annual revenue, according to regulators. American and US Airways “engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual routewide revenue,” according to the Justice Department. Removing that competition “would give the new airline the incentive and ability to raise airfares.”

A particular area of concern was Washington’s Reagan National Airport, where the new airline would control 69 percent of the takeoff and landing slots. That would translate into higher prices and fewer choices, the government claims.

Some experts think that the deal is still possible, but not as it’s currently proposed and probably not this year. Both airlines will have to come up with a Plan B — perhaps an offer to divest themselves of certain gates or landing slots — in order to secure the government’s permission. This assumes that the DOJ is in a bargaining mood, which is unlikely. “We think a full-stop injunction is the right outcome for consumers,” Assistant Attorney General William Baer said at a news conference after filing the antitrust lawsuit.

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“They’re in a holding pattern, legally speaking,” says Henry Harteveldt, a travel industry analyst with Hudson Crossing.

In the near term, passengers are unlikely to notice any meaningful differences in the way they fly, since both airlines will continue operating as separate companies. Harteveldt says that US Airways may reconsider leaving the Star Alliance, a global airline alliance, which it had planned to do by the end of the year. If it does, this would affect flights with which the airline has codesharing agreements, as well as passengers’ ability to earn and redeem frequent-flier miles.

And, for at least the next few months, air travelers shouldn’t expect any dramatic fare increases, according to Seth Kaplan, editor of the trade publication Airline Weekly. “Airfares will be lower than they would otherwise be if these two airlines remain competitors,” he says. “It’s just difficult to say by how much.”

Passengers seem as confounded as the experts by the DOJ’s actions. Some criticized them as interference with a free market, while others say that regulators are finally trying to protect passengers after a string of large airline mergers that failed to benefit consumers.

“With the number of airlines dwindling, keeping any competition alive can only help consumers,” says Ron Goltsch, an engineer from West Caldwell, N.J.

The DOJ’s actions are far more interesting in the long term. Many observers see a fundamental shift in the way regulators view airline mergers and airline competition, from a laissez-faire approach that allowed airlines to charge passengers whatever the market would bear, to a more pro-consumer view. The antitrust lawsuit could be a cautionary tale for any airline that tries to initiate a merger in coming years.

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But no one — not the analysts, not passengers, not even the two airlines that want to merge — knows what the future will bring. Only that the merger, which American and US Airways intended to finalize next month, won’t take off on schedule.

Would a merger between American Airlines and US Airways be good for air travelers?

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Christopher Elliott

Christopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or check out his adventures on his family adventure travel site. Contact him at Read more of Christopher's articles here.

  • ProfessorSabena

    Elliott. There is another way. Rather than trying to derail the specific merger – the issue should be to challenge the current industry structure under the Sherman Act.

    i dont agree that this specific merger is any worse than the other 2 mega mergers. The thesis of the DoT in allowing these prior 2 mergers was based on adequate competition. With high hopes pinned on Southwest as the champion. Where both the DoT and the DoJ failed in their prior assessments was that the “Southwest effect” was a temporary phenomena and that after WN entered a market and achieved market maker status – its rates per pax actually rose and to this day – the RASM/RASK numbers for WN are among the highest in the industry.

    For clarity purposes – I want to be clear that I dont think the Government should interfere specifically in this case as it is doing. The better way is to examine the whole behaviour. In my view there is adequate regulatory framework through Clayton and Sherman that should be used. The current “hold” process hinges on DCA. That is not a real basis for derailing the merger – particularly since the DoT and the DoJ agreed the slot swap between DL and US. Its yet another example of poor government regulation in a complex industry.


  • jim6555

    I think that RASM has to do with Revenue per seat per mile. Don’t know what RASK is? When you look at Southwest’s revenue vs. legacy and super discount carriers (Spirit, Allegiant, etc.), are you allowing for the fact that WN does not charge for many things that other carriers charge for. Sure, Spirit’s base fares are much lower than WN’s, but after you get through paying a fee to buy a ticket at their web site, a fee for checked bags, a fee to place a bag in the overhead compartment and fees for snacks and soft drinks, flying on WN is usually a much better deal for the consumer than Spirit.

  • MarkKelling

    And there was much rejoicing …

    Only time will tell, and only if the merger does not go through, if this rejoicing is appropriate.

    I can state from first hand experience that the UA/CO merger was NOT good for the customer. I have seen fares go up as much as double on specific routes from what they were when those airlines were separate and competing. I have seen service on the combined airline drop to whatever airline had the lowest in that specific category. I have seen my top level frequent flyer status on one airline become the middle tier on the combined airline along with disappearing perks associated with that level. You could argue that all this would have happened anyway even if UA/CO had not merged. Maybe so, maybe not. We will never know. All I can say is that any merger on the scale of UA/CO and now US/AA is never for the benefit of the customer. It is always so the resulting corporation can make a better profit, and if anything benefits the customer well that is just a convenient side effect.

  • AJPeabody

    I voted “no” but I also realize that not merging will also be bad. Instead of a 3 giant oligopoly, there will be a duopoly of the 2 biggies, with US Airways and American subject to python-like squeezing between the biggies at the top and the low cost gaggle from the bottom. American will not tolerate a third bankruptcy, and will get squeezed to death, leaving Continental to join the oligopoly. Merger or no merger, the result will be the same.

  • SoBeSparky

    Fares are going up everywhere, before and after mergers. Even the low-cost carriers are not so low-cost anymore.

    That is not the real reason this merger has a dubious foundation. It was born of hubris by a CEO who wants at any price to run the world’s largest airline. He has told unions whatever they want to hear. That is in spite of eight years or more of continuing labor unrest at his current job.

    The same man was caught in so many contradictions about this specific merger that it crassly defied any lawyer’s admonishment to exercise discretion. Whether it is true or not, he bragged on the potential ability to lower capacity and increases revenues, while, of course, maintaining his long-held belief that labor costs could never be too low for his tastes. All those not-so-private pronouncements meant good news for the new stockholders and bad news for consumers.

    In an old Lone Ranger serial episode, Tonto would say, “He speaks with forked tongue.”

    So the question is not really whether the merger would result in a better or worse consumer environment. The question revolves around the the future CEO’s complete lack of credibility. All the lawyering in the world cannot make sense of this merger because the CEO has no one but himself at heart–not the employees, not the public (remember his legacy carrier is the ranked lowest year after year in customer satisfaction), and not the communities the airline serves.

    As the measure of the man, he has been guilty of Driving Under the Influence three times and involved in another alcohol-related arrest while in college. This is a tell-tale sign about possible addiction and certainly lack of self-control.

    The whole merger episode is an ego trip pure and simple. Just study his record at America West and USAirways. It speaks for itself. He thinks he is the best airline industry CEO, but the question remains, best for whom? Or best for anyone but himself?

  • Judy Serie Nagy

    Seems obvious that air fares will go up and customer service will be worse when there’s less competition.

  • JayPHX

    Continental? That airline ceased to exist on March 3, 2012

  • JayPHX

    If US were to leave the Star Alliance and join oneworld, couldn’t they then begin code shares etc with AA and possibly take advantage of some benefits that way? As a PHX based flyer , amazingly my travel patterns are actually met best by AA, and their superior level of customer service has made me a rabid fan of theirs for about 2 years. While I would love for the merger to go through to combine my lifetime status on these airlines, even US joining oneworld would have a greatly positive impact for me.

  • AJPeabody

    Ooops, brain freeze! Corrected!

  • Taylor Michie

    Alright, serious question here Chris (not meant to be inflammatory).

    If the merger does not go through, United and Delta will be essentially a duopoly in the United States legacy market. American will be a distant third, size-wize. If American wants to continue to grow, they will likely have to cut fares in order to attract fliers. While that will be good for the consumer in the short term, it will eventually lead to thinner margins and lesser service. There’s no doubt that UA/CO dirtied the proverbial customer service well with their merger. DL/NW did a better job with theirs. Only time would tell how AA/US would do.

    While AA/US would have been the largest domestic airline had they merged (no argument there), the big three legacy airlines would have been able to compete fairly evenly. Now, you’ll have UA + DL leading the pack, and the remaining airlines competing for what’s left. Is that really better?

    I’m of the personal opinion that the DOJ complaint has some holes in it. Having read through the entire thing, the DOJ is introducing metrics that they’ve never used before, and they’ve twisted some facts to fit their agenda. I’m not saying US/AA is any better, but the DOJ lawsuit is hardly a shining pinnacle of truth.

  • AUSSIEtraveller

    typical dodgy government, inconsistent as hell. Obviously corrupt.
    Allowed other similar mergers.
    AA is still in chapter 11 if I’m correct, so not allowing the merger, will put them at a disadvantage, which may mean their demise, which would probably mean less competition.

    USA where $$$ can buy anything & ,mean anything.

    You guys really need to sort out your 3rd world government !!!

  • BMG4ME

    This is not good for customers. Fares (and as a result customer service) are at an all time low. The worse thing that could happen if fares went up is that the airlines actually might be profitable, and after all we all need our businesses to be profitable in order to feed our families and ourselves – and the fares would still be lower than they ever have been before.

  • bodega3

    Actually, fares are not at an all time low. I have sold airline tickets for 3 decades and they have been lower in years past. Now airfares have not kept up with inflation like other items for purchase so in that sense, they are low, but not at an all time low….that has come and gone! Oh how I remember the $19 fares of the 1990’s. Those actually kept us in business when the Persian War started up. We market those with hotel and car and kept afloat!

  • jwenze

    This lawsuit by the government is a joke. Neither AA or US can compete as they are today and if not allowed to merge one or both may very well disappear all together. Keeping them separate will do nothing to keep fares down. They are a better competitor together than alone and will do better at keeping fares down when merged.

  • Really?

    AMR’s best second quarter in company history, per the headline. Seems they are doing well ….

    And not sure what school of economics you subscribe to, but I was always under the impression that the more competition, the lower the price. And since mergers create less competition…well, the results should be obvious.

  • Daddydo

    Please tell me why the last 3 mergers were allowed and this one denied? It is part of the system. Delta – yes, United – yes, Southwest – yes,, American – no! It’s too late to stop the increases. The government is so %^#$#$ stupid that it is trying to correct something ten years too late. I have been in this industry for 50 years and Dad told me back in the early 70’s “we will be reduced to 3 airlines”. He was correct almost there will be 4………………for now.

  • John Baker

    @geoffreymillstone:disqus Each one of the mergers, except SW, had hurdles to overcome. DL I know had to make promises, that they subsequently broke, in order to get their deal approved.

    Maybe, just possibly, the government may have learned something from the last three debacles and is trying to prevent #4? Oh, by the way, I regret supporting the last three when I actually believed what the CEOs were saying. Fool me once….

    Under your thought process, we might as well go to one since the DOJ should be able to stop any of them in the future…

  • Laura616

    An ex Continental traveler I have seen the changes which have taken place since the United merger. Back then I had the option of using my Continental miles to travel on Virgin from Miami to London. That went away with the merger. Currently I have the option of American or BA using BA miles from Miami and this merger would certainly put an end to that. I do use United but changing planes is a pain and makes the return journey longer and more tiring.

    So no, the merger would be a bad idea, it would reduce my options even further.

  • BMG4ME

    You are right they are not at an all time, low, I was a little careless with my words. Nevertheless they are lower than they were in the 70s and 80s. Anyway the point is that the airlines need to and are entitled to make money, just like we are.

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