WASHINGTON (AFP) – The U.S. Justice Department and several states sued Tuesday to block the $11 billion merger between American Airlines and U.S. Airways, saying it would cut competition and push fares significantly higher.
It said the two could well stand on their own in the business and that combining them would hike ticket prices in an industry already rife with quiet cooperation on fares.
The move effectively dragged to a halt the long-pending merger to create the world’s largest airline, as American Airlines and its parent AMR Corp. exit bankruptcy restructuring.
The merger “would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service,” the Justice Department said in a statement.
“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” 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.”
The suit was joined by attorney generals of six states and Washington DC.
It said the two airlines compete directly on more than 1,000 routes, and the merger would remove that competition.
“Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares,” the department said.
It also said that the US airline industry was already “highly concentrated” and that after the merger four airlines would control more than 80 percent of the commercial air travel market.
The merger, the suit said, would leave three “legacy” airlines — Delta, United and the new American Airlines — “that past experience shows increasingly prefer tacit coordination over full-throated competition.”
That would likely not be affected by competition from the smaller JetBlue and Southwest, it said.
The suit argued that U.S. Airways’ own executives have publicly favored industry consolidation as a way to drive up fares.
The department also argued that the merger is unnecessary for American: that the carrier had a viable standalone plan, adding new routs and aircraft, as it emerged from bankruptcy reorganization.
“American’s standalone plan would have bucked current industry trends toward capacity reductions and less competition,” the suit said.
It quotes U.S. Airways as calling American’s expansion plan “industry destabilizing”.
“There is no reason to accept the likely anticompetitive consequences of this merger. Both airlines are confident they can and will compete effectively as standalone companies,” the suit said.
The suit came just a week after the European Union’s competition regulator approved the merger, which would mainly affect transatlantic services and not domestic European services.
The EU set the condition that the merged company open up for competition the Philadelphia-London route, because otherwise the merged airlines would gain a de facto monopoly through a joint venture with British Airways and Iberia.
Copyright 2013 The National Memo