Antitrust Experts Raise Warnings over US Air-AA Merger
The American Antitrust Institute (AAI) and Business Travel Coalition (BTC) last week publicly released a jointly produced white paper sent to the U.S. Department of Justice that explains their opposition to the merger between US Airways and American Airlines. The 28-page report concludes that such a merger could substantially reduce competition on a number of routes, create regional strongholds at key airports across the country and starve smaller communities of air service vital to their business interests.
The proposed merger would combine the fourth (American) and fifth (US Airways) largest airlines nationally, making the merged airline the largest U.S. carrier and one that would control more than 20 percent of the market.
“The legacy mega-merger would complete a troubling transformation of the domestic U.S. industry to four powerful, closed airline systems (American, Southwest, United Continental and Delta) that would control more than 70 percent of the U.S. market,” noted report co-author Kevin Mitchell, chairman of the BTC.
The white paper explains that a US Airways-American combination would occur against an industry backdrop marked by a dwindling fringe of low-cost carriers and increasing questions about whether Southwest still exerts significant competitive discipline. The report notes that lessons from the effects of previous legacy mega-mergers (for example, Delta-Northwest and United Continental) on fares, service and choice would effectively inform a DOJ investigation into the proposed merger.
The white paper flags a number of key issues for investigation, including the potential effect of the merger on enhancing the buying power of US Airways-American and the oneworld alliance to which it would likely belong. “The DOJ might also focus on the potential adverse effect of the proposed merger on the carriers’ incentives to disclose ancillary service fee information,” said Mitchell.
The report recommends that the DOJ carefully scrutinize any claimed cost savings from the merger. “The pandemic of integration problems in other mergers is a warning sign for this transaction,” concluded AAI vice president Diana Moss.
While the AAI and BTC do not reach any conclusions about the legality of the proposed merger, the white paper provides nine major policy recommendations, noting that their analysis indicates “enough smoke to indicate a potential fire and that the merging parties bear a heavy burden in demonstrating that their merger would not be harmful to competition and consumers.”