The Justice Department has made a stunningly bad decision to block the merger of American Airlines and US Airways. The feds say the lawsuit filed Tuesday alleging antitrust violations is intended to preserve competition in the airline industry. It is more likely to crush one or both airlines and stagger the industry.
Justice, joined by the attorneys general of six states, filed the suit just two days before U.S. Bankruptcy Judge Sean Lane was scheduled to consider American parent AMR’s restructuring plan, with the merger deal as its centerpiece.
As a result, the $11 billion deal that would have taken American out of bankruptcy and created the nation’s biggest airline is in real jeopardy.
The discussions between American and US Airways started more than a year ago. Yet the government stayed silent until now. That is extremely disruptive to the airlines and their employees.
And to what end? The Justice Department hasn’t blocked an airline merger since United and US Airways tried to get together more than a decade ago. It has since then approved several deals — including the game-changing mergers of United/Continental and Delta/Northwest.
Both those megadeals raised as many concerns about competition as the American/US Airways transaction. Both of those deals created huge airlines that put more competitive pressure on American and US Airways. There is no consistency in the actions taken by the Justice Department.
This deal is necessary for the long-term survival of the airlines involved. Neither American nor US Airways has sufficient scale as a stand-alone company to compete effectively against United Continental and Delta. American has lost billions of dollars in the past few years, even as conditions have improved for most U.S. airlines. It was shedding thousands of jobs and driven into bankruptcy court. Undersized US Airways reasoned that it needed the merger to compete, and offered workers the promise of saving many of the jobs at American.
The industry as a whole has a history of brutal economics: Between 2001 and 2009, major carriers reported at least $58 billion in losses.
The legal challengers to the merger raise the fear that it will result in higher fares and reduced service across the country. It’s true that the battle to be cost-effective tends to push airline traffic to larger hubs such as Chicago’s O’Hare International Airport at the expense of the smallest markets. Sometimes, big markets can lose out too. The lawsuit cites concerns about the merger’s effect on service to Washington, D.C., for instance.
But remember, this merger was a matter of survival. And in that sense, it was a battle to be able to keep serving consumers.
Weak airlines with aging, inefficient fleets do a poor job serving passengers. They don’t invest in technology that improves the flying experience, such as streamlined check-in service. Their frequent-flier programs fall behind the industry standard. They can’t manage their fleets as readily to ensure the right size of aircraft is available to meet passenger demand on a given flight.
If American and US Airways do merge, U.S. aviation will not turn into a monopoly. The new carrier would have a national market share of about 21 percent. United Continental and Delta would be close behind.
Southwest, which operates a different type of airline that flies from point-to-point rather than using hubs, effectively competes with the legacy giants. Its system enables it to make frequent stops in smaller markets. The same goes for Southwest rival JetBlue. Those so-called low-cost carriers are an important source of competitive discipline.
Illinois Attorney General Lisa Madigan has not joined this lawsuit. We hope Madigan sticks to that decision. Illinois has a strong interest in saving American Airlines, which is a key airline at O’Hare. But Madigan has reason beyond hometown interests to stay out of this.
The merger is in the nation’s interest. The Justice Department needs to back off.