Justice Department Blocks Merger Between US Air and American Airlines

The Justice Department, five states, and Washington DC have joined to file an antitrust lawsuit in an attempt to prevent the proposed merger between US Airways and American Airlines.  The two airline companies were on the verge of completing a merger that would create the world’s largest airline when the lawsuit was filed.   Representatives from US Air and American intend to challenge the lawsuit, but in the meant time the potential merger will be on hold.

US Air and American Merger Could Raise Airfare

In a statement from Attorney General Eric Holder, the Justice Department claims that the merger “would result in consumers paying the price – in higher airfares, higher fees and fewer choices.”  The Justice Department’s concern is that the US Air / American merger would leave only four airlines to control America’s air travel: Delta, Southwest, United / Continental, and the newly created US Air / American.  With so few competitors, it becomes easier for the airline companies to agree, rather than compete, on pricing – leaving consumers with little option other than to pay high airfare.

In a 56-page complaint, the Justice Department cited emails from high level executives in both airlines that point to other airline mergers resulting in higher prices – an indication that US Air and American are looking for the same benefits.  Although American’s CEO has attempted to convince the Justice Department that the presence of a large competitor would force United and Delta to drop prices and bag fees, the lawsuit indicates that Attorney General Holder is not sold. 

United States Anti-Trust Law Serves Basis for Lawsuit

The lawsuit and its underlying concerns are, of course, the roots of antitrust law, which was created to prevent uncompetitive markets.  As the number of competitors decreases, the remaining companies can simply agree to fix a price for a good or service.  Antitrust laws are designed to protect consumers by allowing the government to pursue legal action that prevents, or dissolves, monopolies that set high prices.  Famously used against Microsoft in the ‘90’s, antitrust laws have attempted to encourage competition in US markets by monitoring mergers that give one company control over a significant portion of the market.

This is the first time antitrust laws have been used against airlines, however, leading many to wonder why the Justice Department chose to act now.  In the past five years, Delta has purchased Northwest, United has merged with Continental, and Southwest has purchased Air-Tran, all without opposition from government regulators.  Apparently, the US Air / American merger is the proverbial straw that broke the regulators back, and the resulting legal battle could alter the landscape of US air travel. 

Although Holder has stated that he preferred an injunction that prevents the merger, he hinted at the possibility of a settlement to close the matter before trial.  As with any high dollar legal case, the outcome is likely months away, but for the moment US consumers will still have five, rather than four, major airlines to choose from.

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