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Airline Merger: DOJ Wins Big at National, Loses on Connecting Routes

Stocks in this article: AAMRQ LCC

CHARLOTTE, N.C. (TheStreet) -- It's puzzling to hear all the pronouncements that the Justice Department failed to get anything in return for settling its lawsuit opposing the merger of US Airways (LCC) and American (AAMRQ) .

At Washington Reagan National Airport, the key battleground in the DOJ's struggle for merger concessions, the DOJ seems to have gotten nearly everything it wanted. On the 1,000 network connections that were at the heart of the complaint it filed in August, DOJ seems to have gotten very little. But there a solution, in the words of aviation consultant Bob Mann, "was all ephemeral stuff -- it's not even manageable."

Start with the assumptions that while the key for DOJ was to get every one of the slots used by American before the merger, US Airways didn't want to give up any slots at all, which is what CEO Doug Parker argued in appearances before Senate subcommittees reviewing the merger bid in Marchand in June.

Asked Tuesday during a media conference what was the toughest concession in the settlement package, Parker responded: "The most painful is the slots at Reagan."

Today, US Airways operates 243 daily departures at National, while American operates 51. After the merger, the new American will operate 250 daily departures at National, according to a US Airways employee newsletter published Thursday. So if Justice asked for all of the American slots at Reagan, it got enough to enable 44 daily departures. Those slots can now turn over to competitors.

It is assumed those competitors will exert downward pressure on the fares at National, especially because the Justice Department has specifically declared that carriers with low-fare models can bid for them, while Delta (DAL) and United (UAL) cannot.

"It seems to me DOJ got a good settlement for a lawsuit that airline apologists said had no basis in fact," online travel commentator Joe Brancatelli tweeted. "Of course, no merger would have been better."

The settlement "opens 138 slots for low-cost carriers at Reagan National and LaGuardia as well as gates at five other major airports, which the Justice Department views as transformational for consumers," said Jack Butler, a Skadden Arps partner who represents American's official creditors committee and has been involved in the merger and settlement effort.

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