Virginia joins states, U.S. in challenging American-US Airways merger

August 13, 2013 12:33 pmBy: 

American-USAir_merger_mediumVirginia today joined the U.S. Justice Department, five other states and the District of Columbia in challenging the $11 billion merger of American Airlines and US Airways. The department said that the merger, which would result in the creation of the world’s largest airline, 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.

“Airline travel is vital to millions of American consumers who fly regularly for either business or pleasure,” said Attorney General Eric Holder. “By challenging this merger, the Department of Justice is saying that the American people deserve better. This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices. Today’s action proves our determination to fight for the best interests of consumers by ensuring robust competition in the marketplace.”

The Department of Justice’s Antitrust Division, along with the attorneys general, filed a lawsuit in the U.S. District Court for the District of Columbia, which seeks to prevent the companies from merging and to preserve the existing head-to-head competition between the firms that the transaction would eliminate. The participating attorneys general are: Texas, where American Airlines is headquartered; Arizona, where US Airways is headquartered; Florida; the District of Columbia; Pennsylvania; Tennessee; and Virginia, site of Washington Reagan National Airport, which the lawsuit said would be among the airports most affected by the merger.

The merger would entrench the merged airline as the dominant carrier at Washington Reagan, with control of 69 percent of the take-off and landing slots. The merged airline would have a monopoly on 63 percent of the nonstop routes served out of Reagan National airport.

As a result, Washington, D.C., area passengers would likely see higher prices and fewer choices if the merger is allowed, the department said in its complaint. Blocking the merger will preserve current competition and service, including flights that US Airways currently offers from Washington’s Reagan National Airport.

“The merger, as proposed, significantly reduces competition and poses too big a threat of higher fares for Virginia consumers at Reagan National, Richmond International, Norfolk International, and Charlottesville-Albemarle airports.  This is especially true at Reagan National Airport, where the combined airline would hold 69 percent of the takeoff and landing slots - almost six times more than its closest competitor,” said Virginia Attorney General Ken Cuccinelli.

Eliminate competition

reagan-nationalLast year, business and leisure airline travelers spent more than $70 billion on airfare for travel throughout the United States. In recent years, major airlines have, in tandem, raised fares, imposed new and higher fees and reduced service, the department said.

“The department sued to block this merger because it would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers. Both airlines have stated they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.”

American and US Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual route-wide revenues. Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares, the department said in its complaint.

According to the department’s complaint, the vast majority of domestic airline routes are already highly concentrated. The merger would create the largest airline in the world and result in four airlines controlling more than 80 percent of the United States commercial air travel market.

The complaint also describes how, in recent years, the major airlines have succeeded in raising prices, imposing new fees and reducing service. The complaint quotes several public statements by senior US Airways executives directly attributing this trend to a reduction in the number of competitors in the U.S. market:

· President Scott Kirby said, “Three successful fare increases – [we are] able to pass along to customers because of consolidation.”
· At an industry conference in 2012, Kirby said, “Consolidation has also…allowed the industry to do things like ancillary revenues…. That is a structural permanent change to the industry and one that’s impossible to overstate the benefit from it.”
· As US Airways CEO Parker stated in February 2013, combining US Airways and American would be “ the last major piece needed to fully rationalize the industry.”
· A US Airways document said that capacity reductions have “enabled” fare increases.

“The merger of these two important competitors will just make things worse –exacerbating current airline industry trends toward reduced service, increasing fares and increasing passenger fees,” added Baer.

As the complaint describes, absent the merger, US Airways and American will continue to provide important competitive constraints on each other and on other airlines. Today, US Airways competes vigorously for price-conscious travelers by offering discounts of up to 40 percent for connecting flights on other airlines’ nonstop routes under its Advantage Fares program. The other legacy airlines – American, Delta and United – routinely match the nonstop fares where they offer connecting service in order to avoid inciting costly fare wars.

The Advantage Fares strategy has been successful for US Airways because its network is different from the networks of the larger carriers. If the proposed merger is completed, the combined airline’s network will look more like the existing American, Delta and United networks, and as a result, the Advantage Fares program will likely be eliminated, resulting in higher prices and less services for consumers. An internal analysis at American in October 2012, concluded, “The [Advantage Fares] program would have to be eliminated in a merger with American, as American’s large, nonstop markets would now be susceptible to reactionary pricing from Delta and United.” And, another American executive said that same month, “The industry will force alignment to a single approach–one that aligns with the large legacy carriers as it is revenue maximizing.” By ending the Advantage Fares program, the merger would eliminate lower fares for millions of consumers, the department said.

The complaint also alleges that the merger is likely to result in higher ancillary fees, such as fees charged for checked bags and flight changes.

The department also said that the merger will make coordination easier among the legacy carriers. Although low-cost carriers such as Southwest and JetBlue offer consumers many benefits, they fly to fewer locations and are unlikely to be able to constrain the coordinated behavior among those carriers.

American Airlines is currently operating in bankruptcy. Absent the merger, American is likely to exit bankruptcy as a vigorous competitor, with strong incentives to grow to better compete with Delta and United, the department said. American recently made the largest aircraft order in industry history, and its post-bankruptcy standalone plan called for increasing both the number of flights and the number of destinations served by those flights at each of its hubs.

GD Star Rating
loading...
GD Star Rating
loading...

Comments

More Top Stories

  • Politics Top Stories McAuliffe up by 4 points as Governor’s race remains close; turn-out will be crucial

    McAuliffe up by 4 points as Governor’s race remains close; turn-out will be crucial

    The Virginia governor’s race is going down to the wire with Democrat Terry McAuliffe clinging to a slight 45-41 percent likely voter lead over Republican State Attorney General Ken Cuccinelli, and 9 percent for Libertarian Party candidate Robert Sarvis, according to a Quinnipiac University poll released today. This compares to the results of an October 23 survey by the independent Quinnipiac (KWIN-uh-pe-ack) University, showing McAuliffe up 46-39 percent, with Sarvis at 10 percent. Today’s survey shows that if Sarvis were […]

    Read more →
  • Alexandria Education Top Stories TJ student-built satellite set to launch in November

    TJ student-built satellite set to launch in November

    A satellite developed and built by about 50 students from Thomas Jefferson High School for Science and Technology over the past eight years -— the first ever built by high school students -— is scheduled to be launched into orbit by NASA November 19, weather permitting. The satellite, known as TJ3Sat (pronounced TJ-cube-sat), is one of 20 satellites selected by NASA as part of its CubeSat Launch Initiative, which includes cube-shaped research satellites that weigh approximately three pounds, also known […]

    Read more →
  • Oakton Police & Crime Top Stories 9-1-1 problems sending police on wild goose chases

    9-1-1 problems sending police on wild goose chases

    Fairfax County has had its share of problems with the 9-1-1 system managed by Verizon, including lengthy and widespread outages after the derecho that swept through the area in June 2012. But what’s happening now is even odder, and so far unexplained.  In several incidents, police have shown up at homes in the Oakton area, pounding on the door in response to a 9-1-1 hang-up call. “The VZ copper lines coming into our neighborhood are damaged and the dial tones […]

    Read more →
  • Entertainment & Events Military Top Stories Transportation Many street closings for the Marine Corps Marathon

    Many street closings for the Marine Corps Marathon

    A group of Marine and Army veterans will parachute from a fixed wing aircraft immediately before the start of the 38th Marine Corps Marathon — and they’ll be among the few not facing street closures and traffic congestion as the annual affairs kicks off. The 11-member skydiving team will carry a 7,800 square foot American flag, the largest flag to be included in a performance jump. In addition, they will carry smaller U.S. flags and the five flags of each military service […]

    Read more →
  • Entertainment & Events Floods & Natural Disasters Top Stories “Citizen hearing” on carbon pollution set for Oct. 29

    “Citizen hearing” on carbon pollution set for Oct. 29

    On the one-year anniversary of Hurricane Sandy, witnesses including health experts, elected leaders and environmental advocates will testify before a “citizen hearing” in Arlington on Tuesday, October 29th in support of the recently-unveiled EPA carbon pollution standards for future power plants. The hearing comes after President Obama took action in June on climate change by announcing the nation’s first-ever limits on carbon pollution from future power plants, as well as infrastructure improvements to deal with the effects of climate change, and new […]

    Read more →
  • Alexandria Floods & Natural Disasters Politics Top Stories Moran announces $25 million for Dyke Marsh restoration

    Moran announces $25 million for Dyke Marsh restoration

    Congressman Jim Moran, Northern Virginia Democrat, announced a nearly $25 million investment to restore Dyke Marsh in Alexandria. The funds, which were awarded as part of the Disaster Relief Appropriations Act, will go towards the immediate restoration and long term preservation of the marsh. “Dyke Marsh is the largest freshwater tidal wetlands in this area – its 485 acres offer us a truly unique window to an earlier time,” said Rep. Moran.  “Decimated by years of commercial dredging and naturally occurring […]

    Read more →
  • Business Top Stories Cygnus spacecraft finishes its mission

    Cygnus spacecraft finishes its mission

    It’s been a short but successful mission and it will end not in ice but in fire. Orbital Science Corporation’s Cygnus spacecraft returns to earth today after a mission to the International Space Station. Launched from NASA’s Wallops Island, Va., facility Sept. 18, Cygnus made its way to the space station, carrying 1,300 pounds of food, clothing and other supplies for the astronauts, as well as several student experiments that will be conducted on the station. Before it left the […]

    Read more →
  • Education Top Stories Fairfax schools face cutbacks, $140 million deficit next year

    Fairfax schools face cutbacks, $140 million deficit next year

    Although the budget development process has barely started for next school year’s funding, Fairfax County Public Schools (FCPS) is facing a bottom-line budget deficit of $140.7 million in FY 2015, due to revenues that have not kept pace with growing enrollment and increasing mandatory costs, school officials say. The warning comes as the annual budget preparation process gets underway. The exercise is never pleasant but Superintendent Karen Garza says this year’s situation is more dire than normal. “This is the most […]

    Read more →

Weather forecast by WP Wunderground & Denver Snow Plowing