Wow. A DOJ anti-trust suit was’t expected.
There has long been the belief that there would need to be some divestiture of takeoff and landing slots at Washington’s National airport for the deal to go through — US Airways is already the dominant carrier there, and had to divest some slots when they did their swap of LaGuardia slots with Delta. So it wasn’t expected they could just combine their National airport position with American’s.
But the DOJ position is apparently based on the overall competitive environment. US Airways and American currently overlap on very few non-stop routes, so it isn’t about specific city pairs that will see reduced competition.
The European Union has already signed off on the deal, seeking only to deal with the Philadelphia – London route.
A DOJ suit clearly puts the deal, and especially the timing of its close (and of US Airways’ exit from Star Alliance and entry into oneworld) in flux.
The suit itself may be a bargaining position, it could still be possible to satisfy the Department of Justice such that it could withdraw its objections. In other words, this could be a tactic for the administration to extract more concessions from the deal.
But the way the suit is being described — related to overall market conditions rather than specific routes — would seem to make this less likely.
The Justice Department sued to block the transaction because it would remove the incentive for US Airways to offer lower prices and lead to higher airfares for consumers, said a person familiar with the matter who asked not to be identified because the matter is private.
Delta and Northwest got their merger. United and Continental got theirs. It was expected that if those went through, including through the current Department of Justice, that the American merger would as well. Though at the same time, the airline revenue environment is stronger than it has been in recent years (although neither Continental nor United could have been seen as failing carriers when they merged in a much weaker environment).
Actually litigating this hardly seems prudent, as it would put off any deal for years and incur significant costs and distractions. That’s why DOJ opposition is so often a deal killer, regardless of the merits of their case under anti-trust law. These things are usually settled in advance through negotiation and lobbying, and once formal suit is filed that seems a big deal.
Did you see this coming? Will the DOJ scuttle the merger? Or will American and US Airways find a way to mollify government concerns?
Update: I should add a brief word about what this means for frequent flyers — if the government were to kill the merger, and I don’t think it’s by any means done just yet.
In the short run it puts off integration of the programs so US Airways folks keep what they like and American folks keep what they like.
In the long term though my sense is that the changes which were going to come and get attributed to the merger are largely/likely changes that would have and will happen anyway. Simple stories like “merger bad/standalone good” probably aren’t really true, and both programs will evolve often in directions that members aren’t all that fond of.
Right now there are sweet spots in the US Airways program that I’d expect to go away, and the American program overall (especially the elite program) is probably “overindexed” to use a term coined by Hilton’s Jeff Diskin to talk about being ‘too rewarding’ (where customers do not adequately reward them in return with sufficient incremental business for that generosity).
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I guess they have to act in the interest of the public, and fares have been rising a lot lately. The lesson being if you want to merge your airline do it during a recession.
Definitely a wow. I did not see this coming, the lobbying effort must have seen this was coming but no hints were even dropped. Definitely puts the whole merger at risk.
someone in the DOJ did not get their kickback from the lobbyists ?
@ Nick,
The lesson being if you want to merge your airline … do it before the others.
Do we, as the frequent flier community in general (leaving aside specifics like how it would be nice to combine our 50k US miles and 50k AA miles), want this to happen or not?
Can’t speak for the community, but I personally would prefer it not to happen – the more competition from more airlines there is, the better off the public (including the FF crowd) are likely to be
Yikes, this would seem VERY bad for US Airways. American would be OK on its own.
Tom Horton may have to actually work for that $20 million!
I think the idea that merging these two airlines would somehow drive up ticket prices is just silly. Together or separate, the legacy airlines move in lock-step with one another, especially in pricing.
However if Southwest decided to merge with a legacy airline with the legacy CEO in charge, then the DOJ would have a point. In the end though, US and AA would follow each other with rates and fees as one company or two. No real anti-competitive action here, especially with the low-cost domestic and government subsidize international airlines as competitors.
On a personal note, I wonder if this is simply saber rattling or CYA by the White House, so they could say they did something visible should the need arise.
I couldnt be more happy that this is happening. Less competition is always bad. Less frequent flyer programs is worse! HAPPY DAY!!!
Oh and long live 90K to Asia!
This is great news. American shows lots of signs of actually becoming a decent airline. USAir is one of the worst of the worst. I was worries that the merged airline would simply be run like USAIr but with AA logos slapped on. As far as I’m concerned, keeping them separate as long as possible suits me fine. More competition is good for us all.
It’s about time the DOJ stopped just rubber-stamping every corporate merger that rolled by. Hope to see more of this from them.
This is awesome! Maybe my wish will be granted and AA will emerge a standalone carrier, rather than marrying the ugly-stepchild of the bunch.
Most excellent news. Personally, I want to see American move forward as a stand alone airline. They are moving in the right direction and don’t need mega ego headed Parker running things.
“A DOJ anti-trust suit was’t expected. ” Why? Only because it didn’t happen the last two times?
@ABC pretty much no industry analyst expected this, lobbyists working with DOJ included, at least based on public reports
The lobbyists were all saying that this merger would go through without any problem. But antitrust economists have been arguing against this merger (or for allowing it, but with lots of concessions by AA/US — more concessions than the DoJ can get without filing suit).
Put simply, filing suit in this case means that the DoJ made a decision on the facts and advice from good economists, rather than just doing what the lobbyists were pushing. Whether that’s a surprise or not depends on who you think calls the shots in DC (and I have to say, I’m pleasantly surprised).
Hmm.
There are several possibilities here.
Perhaps DOJ thinks this is the straw that broke the camel’s back vis a vis competition and the market cannot remain competitive with yet another merger. If this is their thinking, I bet they will go to the mat. I do not buy the premise, however.
Or, this is political and DOJ thinks it will look consumer friendly if they exact some concession while ultimately permitting the merger. Perhaps this could entail giving up some slots at slot controlled airports (maybe DCA?) to SW and Jet Blue.
I just cannot tell if this is a bluff.
Look I support the merger to a point
however fares are a huge concern for most folks and even for business travel
The level of which fares were raised over the past 3 months and last year are of serious concern
Not so much for me but for many friends and family who simply cant afford the wild out of control excessive pricing.
when the average fare to most markets became 400 to 700 dollars round trip for the lowest economy ticket roundtrip?
SFO to SAN 400 dollars for the past two weeks?
San to CHA 700.00 booked months in advance
San Houston 600 dollars
what would it be after the merger for a deeply discounted ticket 2000 roundtrip when there is even less competition ? would fares fall? I doubt it.
The United merger IMHO has been a disaster from many ends. Unhappy passengers, rising fares and horrible increasing fees on their cancelation fees that effect everything right down to their FF program with no more changes allowed and close in ticketing fees for awards
having no competition or vastly reduced gives airlines clearly a license to kill
United has never had lower passenger satisfaction scores in the history of the company. Is there any reason why they should make any effort? MERGER equals disaster for the consumer for the most part no mater what benefits remain from the merged airlines
Mergers are like shooting fish in a barrel when it comes time to benefit consumers on the price of revenue tickets and FF program benefits now and going forward
This is nonsense. The last two mergers weren’t anti-competitive, but somehow this now is? Absolute baloney. Emotions over substance.
I was just musing the other day as I looked over the Mileage Run Deals forum: the mergers sure haven’t hurt cheap fares!
In any case, this is absolutely unfair to US and AA and to consumers. This will make things worse for everyone. Not only in the busy work and wasted paper pushing of the litigation, but also in the end result if they do manage to block it. Consumers are better off with a merged airline. Shoot, these days I’ve been flying Southwest domestically. You also have JetBlue, Alaska, Hawaiian, Allegiant, and Spirit! And that’s not even mentioning the airlines like Air Canada, Copa, Taca/Avianca, and Aeromexico that compete on the shorter haul North/Central America routes. And of course, you have all the EU and Asian carriers competing on those routes. The idea that there’s not enough competition is ABSURD. Route-specific competition is a legit concern; overall competition is not. I hope we get a sensible judge that grants a preliminary motion to dismiss, but I’m afraid that’s about as likely as Kim Jong Un and the Dalai Lama holding hands and singing Kumbaya.
Shoot, I think this merger strengthens the competitive environment. And I think there’s room for two more mergers that would strengthen the competition even more: JetBlue & Alaska, and Spirit & Allegiant.
It just angers me to see these kinds of politics-driven decisions that are so far off of reality.
While I am disappointed that my miles will not combine, looking through a legal perspective, I think the government has a strong position. The argument that the merger would decrease competition and increase prices is strengthened by the fact that the lawsuit seeking to block the merger has led to significant declines today in the stock prices of competitors. Stocks in United/Delta had risen due to a belief that the merger would lead to less pricing pressure.
A merger that strengthens the ability of competitors to raise prices can hardly be seen as one that is really great for consumers. Please note, this is not my personal stance, but rather the one I think the government will take.
http://www.bloomberg.com/news/2013-08-13/airlines-stocks-fall-as-amr-us-airways-merger-challenged.html
Since so many people are throwing around their opinions I figured I’d give my two cents’ worth…
Frankly I’m not sure how I feel personally about this merger. I kind of like the consolidation, but I am a little worried over how the AAdvantage program would change.
As for the industry, I have a bit of a tough time sticking blindly to the “more competition is better” view (as I would to the “less competition is better” view as well). Sounds to me like dogma more than anything else to be honest. IMO competition should be taken with a grain of salt and definitely on a case by case basis.
Example: through the 90’s and early 2000’s it was great that Windows had practically a monopoly over PC OS. Did they charge ludicrous prices for their software? Yes. But as someone who first had a Mac back in the early 90’s, it was hell. I couldn’t share any documents with anyone, and forget about getting a friend to help with computer problems because no one knew anything about it. With Windows however it was easy to share documents, games and technical advice because everyone had it.
In the case of airlines it’s not as clear cut, but a “more competition is better” view implies there shouldn’t really be alliances to begin with for instance. But we all know alliances can be great for consumers and for the airlines as well. Also the pure competition model seems to have failed miserably in the US given all the consolidation over the past few years.
Should we have just one airline? Probably not the best solution either, but the fact is AMR and US Air can’t compete with UA and DL right now.
In the end, the key is aligning the proper incentives that will spur higher quality and lower cost service. More competition is for the most part the most efficient and cleanest way to do that, although that doesn’t hold for every industry, and even within industries this changes depending on the country too.
I suppose in conclusion, AMR and US will have a very tough time staying relevant against UA and DL if the merger is blocked. Also, while a merger would reduce competition in domestic routes, my sense is it would actually increase competition on international routes. I’d suspect the post-merger AMR would look to boosting its Asia presence, and would also add some flights to Africa and Australia…
Too much thinking. All I know is now it looks like I can churn out one more US Airways card for the bonus. Just need a couple more months to let the files clear up a bit. Thanks DOJ for the miles!
I am happily surprised. Like Gary, I don’t think that this is a bargaining chip. The DOJ didn’t need to file suit to get the concessions, they just needed to threaten it. It takes a lot of time and effort to prepare a suit like this, and if they were just looking for DCA slots, they would have just focused the suit on DCA.
The DOJ has thrown down the gauntlet, and I have a feeling that rather than drawing this out for 2 years, both sides will walk away.
This is not saber rattling, if they wanted to do that it would have been leaked to the lobbyists and industry analysts.
Really hope everyone was long puts on US miles.
saw this coming american is showing great profit and revenue and they will do weel without a merger
Wow! 90k to Asia given a reprieve …..
Heres a question…does *A kick US out if the merger falls through? 🙂
I called this back when you said it was a done deal and I used the reasoning behind the blocking of ATT/TMobile that they would not allow them to go from 4 to 3 for competitive reasons; and they’ve done just that.
Remember, in the early 2000s, AA merged TWA and US merged HP. AA also swallowed Reno Air and US took Piedmont. So, technically both airlines had their merger(s). If my memory serves me correct, WN, FL, UA, CO, DL, and NW didn’t have a merger in the 80s-2000s except for DL’s acquisition of Western.
This is not about route overlaps, none of the mergers were really about that, it is about the macro environment impact in the airline industry. Mergers have significant direct impact on level of competition, airfares, employees [merger always results in a smaller workforce than what it was when the workforce was separate], and less choices is always bad for the customers for many reasons.
DL/NW, UA/CO, and WN/FL promised there won’t be any cuts or significant changes, but yet domestically we are seeing quite bit reduction in capacity. US/AA merger will only further the current trend at a steeper pace.
I have a feeling it will go through somehow as all the other airlines will surely lobby on behalf of US/AA [it is good for the industry mumbo jumbo].
Great article on why we as consumers get hurt by airline mergers (hint: it isn’t ticket prices):
http://www.freakonomics.com/2013/07/30/the-price-of-air-travel/
Two minute version: airline route networks are networks like any other, meaning they become increasingly fragile as a result of “optimization” done in the name of “efficiency.” Optimization takes two forms in this case: removal of redundancy (ie load factors at an all-time high) and increased centralization (ie more flights into and out of fewer hubs). Without redundancy, there is no room in the network to pick up the slack when something goes wrong (rebook customers on different flights, etc), and centralization means that adverse events in one place (say, ORD) can take down the whole network. So when delays occur these days, they are longer (how often did you hear about pax waiting on the tarmac for 4 hrs 5-10 yrs ago?), and minor delays in one corner of the network are more likely to ripple through and cause delays throughout the network. To make matters worse, these risks are opaque to consumers (on-time percentage is a bogus statistic as it only takes into account probability, not payoff, etc), so airlines have incentive to hide/ignore them entirely, as it is more profitable to do so.
Count me among those that are happier with fewer airline mergers.
Re-read the key issues raised in the suit. I take back the last paragraph of my previous post. The Merger is not going to happen.
My two cents:
I think this is pure political propaganda. The Obama administration wants to come off as seeming as “for the people.” It’s complete BS. They are so concerned with their image that they’ll use the bully pulpit to make themselves look the part.
The only thing that draws me away from this conclusion a bit is that the states’ attorney generals have joined in on the suit.
Either way, I think the outcome of this is that the airlines work with the DOJ briefly to see if they can come to resolution; if they can’t, they drop the merger altogether. If that happens, I would LOVE to see US join oneworld.
AA and US will walk away from this deal, just like AT&T walked away from the T-Mobile deal and lost $3 Billion
All I want in life is:
1) Ability to use BA Avios on short US routes out of DCA.
2) DCA-BOS route on AA metal.
Don’t care how it happens.
@GolfingBoy Continental had Eastern/Frontier/NYAir/TexasAir…! WN had Morris Air! 😛
Probably “major” concessions coming… Doubt Parker will give up. DCA would be the tip of the iceberg, but what more would DOJ be pushing for? Also — I understand VA (and DC by virtue of DCA), Arizona, Texas, PA and FL, but where does Tennessee play in here?
I see this as good news all around.
As a consumer, more competition is good. Period. Remember when Sirius and XM wanted to merge and swore up and down that its rates would not go up as a combined company? They did. A lot. And the airline industry has consolidated too damn much already. And they players basically collude on prices as much as they can get away with already, too.
As a frequent flyer, more competition is good. Period. Take a look at the last 2 big mergers. DL took all the worst parts of the combined DL/NW programs and then downgraded it all after that. UA/CO did the same (unless you happened to be a CO Infinity Elite). Frequent flyers take it on the chin in mergers.
So way to go, DOJ!
This merger is DEAD. Just look at the airline stock prices today. Clearly there was great expectation that the merger was going to reduce competition and drive up fares. DOJ made the correct call. I’m Life Platinum with AA and remain a loyal flyer of 20+ years. They can go it alone. Headed in the right direction.
too bad the DOJ does not spend more time on real issues, like bank and stock market fraud that cost families their homes and retirement funds
@Matt Wald – I don’t think your case is as strong or universal as you think it is. Should the DOJ have blocked the America West/US Airways merger? Would there even be a US Airways today if they had?
@Chas I don’t agree with that article, network reliability should increase as airlines merge and are able to shed their old fleets and finance new ones. CO’s reliability was better than UA’s and I think in a few years once some of the older UA planes like the 752’s have been shed the reliability will be back to CO levels.
I’m glad but frankly shocked as I’m used to the US govt being the slave to big business. I hope the merger doesn’t go through in any form. Airline mergers are about raising fares and reducing competition. Dougie can go all around and talk about how this is good for consumers and employees but that won’t make it true.
The United and Continental merger was and is a train wreck—the combined airline is the worst of both airlines combined and a heck of a lot more expensive. AA and US just got to the dance last and now that airlines are making money the govt put up the stop sign. Stop the airline merger madness.
Obviously, consolidation has led to increased fares. And that’s on an individual and consumer basis a bad thing. But, consolidation has occurred because nobody could make any money when there were 8 or 9 carriers all competing. Eventually, with a flooded market with a ton of capacity, some players will disappear be it through merger, service reductions, or just ceasing to exist. So, reduced capacity was coming no matter how it came about.
Market forces, I believe, will deal with the rising prices doom and gloom thoughts, at least industry wide. If fares rise, fewer people will travel. If the airlines can make money that way, more power to them. If they can’t, their fares and fees will have to come down so that people want to fly them.
This is GREAT news!!! Hopefully this will kill the merger, and Dougie & his AA union buddies have to go running away withe their tails tucked between their legs!
@Cory — others can correct me if I’m wrong, but we have enjoyed the past 12 years of low prices following 9/11. Leading up to it, load factors were rising, airfares were nearing record highs. 9/11 deflated demand, forced prices down, and airlines spent the ensuing years cutting supply bit by bit, until demand started increasing, but then they started “tweaking” to ensure high load factors by switching out aircraft types to align supply with demand.
There is no doubt, that sort’ve activity would have happened whether or not airlines merged. Furthermore, how many smaller airlines failed in the recession times? Independence Air comes to mind, I’m sure others too. Size has its advantages because you can trim the fat to survive tough times.
Fares and Fees, but what about the taxes? Everyone forgets the taxes…
I’d be more worried than anything else that the employees of AA burn the place down if DOJ succeeds in stopping this merger. Just sayin’.
Gary,
Some pro-consumer lobbyists did expect there was some chance for the DOJ to intervene against the combination and do so in ways that would go well beyond mere slot/route divestitures.
Trevor,
The US economy was headed down even before 9/11. The internet bubble burst was already in swing and business travel demand was not going to grow as the economic bubble was popping.
@GUWonder,
You’re right – Internet bubble did burst before leading to a decline, before 9/11. I just recall very good deals / discounted tickets post 9/11 (heck, traveled more than I should’ve been able to in college because of them).
This creates an issue for those (including myself) who received 40,000 U.S. Air Dividend Miles for getting their credit card, thinking that these miles would at some point be redeemable for or transferred to and from AAvantage miles. While this has cost me nothing since the fee for the card was waived for the first year, if the merger does not go through, I may be left with 40,000 Dividend Miles points, which would not be sufficient for an international business class award. I was not planning to purchase Dividend Miles with the 100% premium incentive (ending 8/31), but now it might make more sense to do so as it would bring my total Dividend Miles account to 100,000 (buying 30,000 miles), which could be a good value for an international award. Thoughts?