The United States Justice Department has filed an anti-trust lawsuit this morning to block the proposed American Airlines – U.S. Airways mega-merger citing the reduction of competition and higher air fare prices in the industry overall.
Several states have joined in the suit including Texas and Arizona, the headquarters of American and U.S. Airways respectively.
The merger would create the world’s largest airline.
‘”Americans spent more than $70 billion flying around the country last year,” said Assistant Attorney General Bill Baer in announcing the suit. “Increases in the price of airline tickets, checked bags or flight-change fees resulting from this merger would result in hundreds of millions of dollars of harm to American consumers.”
He added that US Air now “competes vigorously” through price discounting, and said such deals are certain to disappear once the deal is done.
“If this merger were to go forward, consumers will lose the benefit of head-to-head competition between US Airways and American on thousands of airline routes across the country — in cities big and small. They will pay more for less service because the remaining three legacy carriers — United, Delta and the new American — will have very little incentive to compete on price.”‘
Rick Seaney, CEO of travel planning website FareCompare, was guardedly enthusiastic about the suit to block the deal. “This was unexpected, and while it isn’t a death blow, it is a solid punch in the first round,” Seaney said. “I don’t expect it will kill the merger but it will delay it. Look for some concessions to be made by the airlines, some settlement to be agreed to.”
But in a conference call with reporters, Baer said that while the Justice Department would be open to proposals from the companies to settle the case, he strongly emphasized that the competitive problems with the deal were too big for individual route concessions to solve the problem.
“If anyone wants to come to us, we’re willing to listen, Baer said. “But we think the right solution is a full-stop injunction.”
Baer said he did not know when there would be hearings on the suit or when it would be finally adjudicated. He added that Justice did not consult with the White House on the suit.
Shares of US Airways plunged on the news, losing more than 9 percent in mid-day trading. Other Airline stocks took the news hard as well. United Continental Holdings (UAL) fell more than 6 percent and Delta (DAL) was down more than 8 percent.