Many people are expressing surprise today that the US Department of Justice, six states and the District of Columbia have filed a suit seeking to halt the merger between American Airlines and US Airways. I’m not all that surprised and I don’t think others should be, either. I’m also not so convinced it is going to derail the merger, so there’s that.
The suit was filed today but the DoJ, Arizona, Florida, Tennessee, Virginia, Pennsylvania, Texas and the District of Columbia. Notice anything interesting about those states? They all represent areas where AA or US either have a headquarters, a major hub or other major operations. In other words, any loss of service by the airlines threatens the worker base in those jurisdictions. And, conversely, loss of competition in those markets threatens the residents and other businesses there with higher fares and reduced options. It is, in short, a no-win situation for the two airlines. Sortof.
Yeah, the European authorities mostly rubber-stamped the deal, requiring just one slot to be ceded. But that’s a very different competitive landscape. AA and US are decidedly numbers 3 & 4 in terms of service between Europe and the USA and their combination probably actually is good for competition in Europe. Within the USA is a completely different story. Sure, the two airlines only overlap on 12 routes with point-to-point service but the markets are no longer defined in point-to-point terms. When you take single connecting markets into play the numbers are somewhat crazy: 80% of passengers will be back in to one of the majors at that point.
What is really interesting about this is that when AA initially wanted to start a JV/ATI with oneworld partner British Airways they were not permitted to do so. Then Star Alliance and SkyTeam set up their operations, leaving AA/BA at a huge disadvantage. Only some years later did the governments approve that deal. This time around seems very much to be a similar thing, with the others (DL/NW & UA/CO) being permitted basically exactly what they wanted and, once again, AA facing more scrutiny from the feds.
It is not clear whether the lawsuit is simply a negotiating move by the authorities to extract compromises from the airlines in the form of slot swap or service commitments or if they truly intend to halt the merger. Either way, it doesn’t really come as a surprise to me.
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You’re really not surprised? Why now would the DOJ fret for the consumer after other large mergers (I sorta get the specific municipalities crying foul, but the U.S. government)? Is it the impact Memphis has experienced by “losing” Delta? Or perhaps that United had to “allow” Southwest to serve a handful of routes out of Newark? Meh… I don’t get it. And so what about O&D connecting markets… aren’t 80% of travelers on those routes already flying one of the majors on at least one leg (and probably at a higher overall cost than if it were one airline)?
I’m also not surprised, just like ATT/TMobile, they are not talking about divesting spectrum then, like they are not talking about divesting routes now. This is being taken as a whole that this is bad for consumers and I don’t see a change coming to this.
AA should have focused on a merger w/ Alaska which would have been allowed over this.
@Darren, the competitive landscape was different when the other three mergers were proposed. AA/US is late to the game, if US/AA did theirs in 2010 and UA/CO tries to do their merger now, I am sure it will be the same thing.
I am personally thrilled the DOJ filed the lawsuit. Airfares have gone up considerably, and whilst it is still less than the 90s, you still have to add in the ancillary revenue and the obnoxious fees. With all of those combined, dare I say, we have reached the 90s level.
The DOJ should use the average fare and use the combined ancillary revenue [earned from standby fees, baggage fees, charging for seats, charging for certain on board services, phone charges, etc] then average it across # of passengers transported by both airlines then add that average with the airfare. Using 1995 airfare vs 2013 airfare is a skewed way to look at it and the airlines know it.
What AA/US major operation is in TN?
Nashville?
Alaska doesn’t want to merge so it woul have to be hostile and AA doesn’t have near enough money for that.
“When you take single connecting markets into play the numbers are somewhat crazy: 80% of passengers will be back in to one of the majors at that point.”
Could you please restate that sentence. I don’t understand.
The theory – at least per the DoT – is that with the merger the 4 majors (AA, DL, UA, WN) would between them own 80% of the domestic market. That’s a pretty high number. I don’t personally think that’s enough to justify blocking the merger, but I think it is significant.
Your forgetting the consolidation that started the take-offs, AA/TW. Ask how that went for TW emps or customers in STL?
I suspect many are surprised because deep down we pretty much know that our government is in the pocket of big business like American and US Airways. It surprises us when we see evidence to the contrary. A government for the People and by the People…I mean big corporations.
The antitrust division doesn’t typically file lawsuits as a negotiating tactic – the fact that this was filed indicates that a months-long process of attempted conciliation between the government(s) and the merging parties has utterly broken down. DOJ has a pretty good track record on these cases in court.
Pretty sure AA has a decent sized maintenance operation in Tennessee. Could be wrong on that, though.
Thanks Seth, Was wondering how Tennessee played into this… Didn’t think there was a hub (I thought WN used Nashville as hub though)..