The federal government has a long history of making life hard for airlines wanting to merge, so today's filing of an antitrust lawsuit seeking to block the US Air-American consolidation is not a shock. Still, the Justice Department did sign off on recent blockbuster air mergers, and the joining of these two legacy carriers had been moving along for many months (years really), which made it seem as if it were basically a done deal. It probably still is, though the two airlines will now have to work out a settlement with the Department of Justice. Judging by the lawsuit, which takes aim at how the new entity will dominate several markets - and potentially raise fares - look for air slots to be given up at Washington National, Philadelphia, and several other locations. Actually, US Air and American could be paying the price for those other mergers, which in some cases has resulted in higher fares. One other complication: American is still in bankruptcy protection, and there's no telling how the lawsuit might delay the exit plan. CEO Doug Parker is still hoping to close the deal by the end of the year. From the suit:
Passengers to and from the Washington, D.C. area are likely to be particularly hurt. Toserve Ronald Reagan Washington National Airport ("Reagan National"), a carrier must have"slots," which are government-issued rights to take off and land. US Airways currently holds55% of the slots at Reagan National and the merger would increase the percentage of slots held by the combined firm to 69%. The combined airline would have a monopoly on 63% of thenonstop routes served out of the airport. Competition at Reagan National cannot flourish whereone airline increasingly controls an essential ingredient to competition. Without slots, other airlines cannot enter or expand the number of flights that they offer on other routes. As a result,Washington, D.C. area passengers would likely see higher prices and fewer choices if the merger were approved.
The relevant question is less about current slots and more about future plans. In the past, mergers that resulted in flight consolidations typically led to higher fares. But if service stayed steady or even expanded, airfares usually remained about the same. (Keep in mind that average fares have been dropping in recent years, though a lot depends on the route.) American and US Airways have said they intend to expand operations - and that's clearly the case at LAX, where additional service already has been announced. But LAX is different from many other big airports in that it doesn't have a single dominant carrier. For the first six months of 2013, United had a slight edge in market share over American, with Delta (also expanding in L.A.) several percentage points behind. If anything, the merger might be a good thing for L.A. In a place like Phoenix, however, it could be a different story. Phoenix is currently a US Air hub, but it's quite close to Dallas, which is American's major center. From the WSJ:
Airlines have shrunk or closed hubs after past mergers. American eliminated its St. Louis hub, which came with its 2001 acquisition of Trans World Airlines. Delta Air Lines Inc. sharply cut back its hub in Cincinnati after its 2008 merger with Northwest Airlines. That experience worries many frequent fliers. Mitch Miller, a retired industrial-supply executive who has homes near Philadelphia and Phoenix, said he prefers flying between them with Southwest Airlines Co. "because they're so much more flexible" and charge fewer fees. Even so, he fears an impact from the American-US Airways merger. "I could see them reducing in Phoenix," he said, predicting Southwest would then raise its fares from that market.