ATW Editor's Blog

Aviation’s Day in Court

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Here is a preview of the September ATW magazine editorial:

On Feb. 14, US Airways and American Airlines announced their Valentine’s pact to merge. On Aug. 13, two days before a bankruptcy court was expected to clear American’s Chapter 11 exit plan that includes the merger proposal, the US Dept. of Justice made its move with all the drama of a preacher asking, “does anyone here present know of any legal impediment to this marriage?”   

Attorney General Eric Holder stood up and waved a 56-page antitrust lawsuit.

Rich Parker, who will be the lead attorney representing the airlines in court, said DOJ “got this one wrong; they got this one very wrong.” ATW concurs.

From what DOJ has revealed so far about why it is seeking to block this merger, the lawsuit would seem to be based on a scattergun approach. But while many of the issues raised are crowd (and congressional) pleasers, they do not appear to be antitrust matters. Much is made of ancillary fees – which are generally unpopular and which have become much more prominent since the last three major US airline merger deals were approved. But popularity is not an antitrust requirement. Ancillary fees are a business tool used by most airlines these days – necessary to stay out of the red and also providing the flexibility of pay-for options to customers. They would not be unique to a merged American-US Airways, nor would their practice be stopped if this merger is blocked.

Another baffling red herring in the DOJ document is repeated quotes from US Airways executives that are neither dated nor put into context, but seek to paint management as horned predators focused on profit and whose motivation for the merger is “to harm American consumers.” Responsible executives work to ensure their company’s profitability, even if it amounts to a threadbare 1.6% profit margin that IATA expects the world’s airlines to make this year. Without financial health and good service to its customers, airlines, like any other business, disappear and the passenger ends up with less choice and less competition.

DOJ makes much of the merged airline dominating Washington National Airport controlling 69% of the take-off and landing slots at DCA and having a monopoly on 63% of the nonstop routes out of National. This, however, is a negotiating position, not a block. The European Commission approved the merger, saying it did not raise competition concerns after agreement was reached on slot giveups at London Heathrow.

Most perplexing of all, however, is why DOJ wants to slam on the brakes now after sanctioning the mergers of Delta/Northwest, United/Continental, and Southwest/Air Tran. DOJ’s lawsuit contradicts its own policy. Worse, to do a U-turn prevents the only two remaining stand-alone airlines from providing real competition against the other merged mega-carriers. This far down the road of US airline rationalization, it’s anticompetitive not to permit the marketplace to take its natural course. American and US Airways should not be penalized for being last to the altar.

The only logical conclusion that can be drawn from DOJ’s action is that it is having a mea culpa moment about industry rationalization. So if a federal court dismisses the lawsuit, Holder can again hold up his hands and say, “we tried; don’t blame us.”

The airlines’ lawyers say they are looking forward to their day in court and to demonstrating why their merger is pro-competitive and good for consumers.  Even by past US airline merger standards, this one is huge and would create the world’s largest carrier. Which is why, frustrating and costly as it is for American and US Airways to have the merger transaction delayed, a court hearing is ultimately the best way forward. A public airing of the facts will permit them to refute DOJ’s allegations and proceed with business on the basis of case made.

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