Many people are expressing surprise today that the US Department of Justice, six states and the District of Columbia have filed a suit seeking to halt the merger between American Airlines and US Airways. I’m not all that surprised and I don’t think others should be, either. I’m also not so convinced it is going to derail the merger, so there’s that.
The suit was filed today but the DoJ, Arizona, Florida, Tennessee, Virginia, Pennsylvania, Texas and the District of Columbia. Notice anything interesting about those states? They all represent areas where AA or US either have a headquarters, a major hub or other major operations. In other words, any loss of service by the airlines threatens the worker base in those jurisdictions. And, conversely, loss of competition in those markets threatens the residents and other businesses there with higher fares and reduced options. It is, in short, a no-win situation for the two airlines. Sortof.
Yeah, the European authorities mostly rubber-stamped the deal, requiring just one slot to be ceded. But that’s a very different competitive landscape. AA and US are decidedly numbers 3 & 4 in terms of service between Europe and the USA and their combination probably actually is good for competition in Europe. Within the USA is a completely different story. Sure, the two airlines only overlap on 12 routes with point-to-point service but the markets are no longer defined in point-to-point terms. When you take single connecting markets into play the numbers are somewhat crazy: 80% of passengers will be back in to one of the majors at that point.
What is really interesting about this is that when AA initially wanted to start a JV/ATI with oneworld partner British Airways they were not permitted to do so. Then Star Alliance and SkyTeam set up their operations, leaving AA/BA at a huge disadvantage. Only some years later did the governments approve that deal. This time around seems very much to be a similar thing, with the others (DL/NW & UA/CO) being permitted basically exactly what they wanted and, once again, AA facing more scrutiny from the feds.
It is not clear whether the lawsuit is simply a negotiating move by the authorities to extract compromises from the airlines in the form of slot swap or service commitments or if they truly intend to halt the merger. Either way, it doesn’t really come as a surprise to me.
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