US Airways-American Possible Merger Questioned on Antitrust Grounds
By James Shillinglaw
August 08, 2012 6:15 AM
The American Antitrust Institute (AAI) and Business Travel Coalition (BTC) have issued a new report raising antitrust questions about a possible merger between US Airways and American Airlines. In their new White Paper, Diana Moss, vice president of AAI, and Kevin Mitchell, chairman of BTC, also question whether such a merger, if it were to occur, would be good for the traveling public because it might reduce the number cities served by the two carriers, substantially reduce competition on a number of routes, and create regional strongholds at key airports around the country.
In a joint White Paper, officially released for distribution on Aug. 8, AAI and BTC examine the competitive issues raised by a possible merger of US Airways and American Airlines (for a copy of the 28-page report, click on AAI-BTC White Paper). The study, which has been sent to the U.S. Department of Justice (DOJ), maintains that a US Airways-American combination poses potential concerns for competition and consumers. That position is in stark contrast to that of many airline financial analysts, who have championed the proposed merger with US Airways as essential if American Airlines is to survive.
At the same time, US Airways has not yet made a bid for American, and American’s executive team seems adamant that it will try to emerge from bankruptcy protection on its own without such a merger. Meanwhile, International Airlines Group (IAC), the parent company of British Airways, a partner with American in the oneworld alliance, has said it might buy a stake in American (it is prevented from buying more than 25 percent of the airline by law). IAC also has stated that it would like to see US Airways-American merger.
The White Paper notes that the proposed merger would combine American, the fourth largest carrier in the U.S., with US Airways, the fifth largest in the U.S., making the combined airline the largest U.S. carrier with a combined share of over 20 percent. BTC’s Mitchell said the mega-merger of the two legacy carriers would complete a troubling transformation of the domestic U.S. industry to four powerful, closed airline systems (American, Southwest, United and Delta) that would control over 70 percent of the U.S. market.
The White Paper also states that a US Airways-American combination would occur against an industry backdrop marked by a dwindling group of low-cost carriers and increasing questions about whether Southwest still exerts significant competitive discipline on the market because of its low fares. It notes that a DOJ investigation into the proposed merger would have to take into account lessons from the effects of previous mergers of legacy carriers (such as Delta-Northwest and United-Continental) on fares, service, and choice.
The study also points out a number of key issues raised by the possible merger that the DOJ could investigate, including the potential effect of the combination enhancing the buying power of US Airways-American and the effect on the oneworld alliance to which the combined airline would most likely belong. Mitchell said the DOJ might also focus on the potential adverse effect of the proposed merger on the two carriers’ incentives to disclose ancillary service fee information, an issue that is currently a hot button among corporate travelers. The report recommends that any claimed cost savings from the merger be carefully scrutinized. “The pandemic of integration problems in other mergers is a warning sign for this transaction,” said AAI’s Moss.
While AAI and BTC do not make a final judgment as to the legality of the proposed merger, they say their White Paper raises important questions that deserve investigation before a final decision is made by the DOJ. AAI and BTC provide nine major policy recommendations regarding a US Airways-American merger, noting that their analysis indicates US Airways and American “bear a heavy burden in demonstrating that their merger would not be harmful to competition and consumers.”
AAI is an independent Washington-based non-profit education, research, and advocacy organization whose stated mission is to increase the role of competition, assure that competition works in the interests of consumers, and challenge abuses of concentrated economic power in the American and world economy. BTC is an advocacy organization dedicated to interpreting industry and government policies and practices and providing a platform for the managed-travel community to influence issues of strategic importance to their organizations.