Business
4:23 pm
Tue August 13, 2013

Explainer: Justice Department Sues To Block US Airways Merger

Credit USAirways.com

Attorney General Eric Holder announced Tuesday that the Justice Department is suing to block the merger of American Airlines and US Airways, because of antitrust concerns. That merger would create the nation’s largest airline, and has been in the works since February. WFAE’s Ben Bradford joined All Things Considered host Mark Rumsey for an overview of what it means

RUMSEY: Ben, lay out what the suit is about.

BRADFORD: The Department of Justice says the merger would put four airlines in control of 80 percent of commercial air travel in the US. Six state Attorneys General, and Washington, D.C. are also part of the suit. And basically, they’re arguing the merger would lessen already limited competition between them. The lawsuit lists over a thousand routes it says would become anticompetitive -- by the way, 38 of those routes, by my count, are to or from Charlotte.

RUMSEY: And Charlotte’s the largest hub for US Airways, of course.

BRADFORD: That’s right. The suit also says having fewer airlines would make it easier for airlines to charge more ancillary fees—like they’ve done for baggage and in-flight meals—which we’ve seen crop up over the last decade. Holder says the fewer the airlines, the easier it becomes to raise fees.

RUMSEY: Was this lawsuit a surprise?

BRADFORD: I just spoke with one airline consultant who called it a huge surprise. Airline stocks also dropped across the board—American’s by 45 percent and US Airways by 10, and that indicates how much of a surprise it was to investors. Proponents of the merger say the Justice Department changed the game—it’s never considered baggage or those kinds of fees in its analysis of airline mergers before.

RUMSEY: There have been several high-profile airline mergers that have gone through in the past decade. Do we have a sense as to why the Justice Department has decided to challenge this one, while the others went through?

BRADFORD: For one, the other mergers took place when airlines were in financial trouble, whereas now it’s become a profitable business again. It’s also possible it’s using the suit to win some concessions from the airlines before they merge. In Washington, there’s a lot of concern that the new airline would have too much control on flights in-and-out of Reagan National Airport, so this might be a maneuver for the airlines to give up some slots.

RUMSEY: Have US Airways and American responded to the suit yet?

BRADFORD: Yes. They released a statement that I can sum up in five words: unhappy and going to fight it.