AIRLINE MERGER: DoJ Files Lawsuit

American Airlines and US Airways merge

(CNN) — The Justice Department and attorneys general from six states and the District of Columbia filed a lawsuit Tuesday challenging the $11 billion merger of American Airlines and US Airways, saying the combination would lead to higher prices and less service for consumers.

The merger, which would create the world’s largest airline, would “substantially lessen competition” for commercial air travel, contends the complaint, filed in U.S. District Court in Washington.

The carriers said in a joint statement that they would mount a “vigorous and strong defense” of their deal and pursue all legal options to move it forward.

“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this procompetitive merger will deny customers access to a broader airline network that gives them more choices,” the companies said.

US Airways shares slid more than 9 percent on Wall Street. American is operating under Chapter 11 bankruptcy protection.

A top concern is local markets, the Justice Department said. It cited the example of Ronald Reagan Washington National Airport, where the combined airline would control 69% of takeoff and landing slots, and 63% of the outbound nonstop routes.

The Justice Department also said in its complaint that if the two airlines were allowed to merge, there would be higher fees for baggage and flight changes.

The states that joined the antitrust lawsuit are: Texas, where American’s parent company AMR Corp. is based; Arizona, home base for US Airways; Florida; Pennsylvania; Tennessee; and Virginia.

The lawsuit comes as somewhat of a surprise. In recent years the Justice Department has allowed other big airline mergers — Delta gobbled up Northwest, and United absorbed Continental — in part because the airline industry was losing so much money and the mergers were seen as necessary for survival.

But airlines are now making billions of dollars, not only from higher fares but also from $6 billion in fees they collected in 2012 alone, for baggage and seat selection and other things that used to be included in fares.

American and US Airways had touted their combination as one that “joins two highly complementary networks with access to the best destinations around the globe — offering you increased choices, improved efficiency and better options” under American’s Oneworld alliance.

The Justice Department lawsuit cites internal documents from the airlines to show that the merger isn’t needed and in fact would lead to cuts in programs that benefit travelers.

An example is US Airways’ Advantage Fares discount program, which executives said would likely be eliminated after the merger, according to the Justice Department. Without the merger, antitrust officials said, other airlines would be forced to continue to match US Airways’ discounts to compete.

American has been in bankruptcy protection since 2011 and has been working to get approval from antitrust authorities and shareholders for the merger so it can emerge from court protection. The companies had hoped to complete the deal by the end of September.

The European Union this month cleared the merger with the condition that the airline give up slots to allow new competition in the Philadelphia-to-London route.

Follow

Get every new post delivered to your Inbox.

Join 961 other followers