The Deal: Justice Department vs. U.S. Airways-AMR Merger

By Bill McConnell

Washington, D.C. -- The Justice Department Tuesday filed a civil antitrust lawsuit challenging the proposed $11 billion merger of U.S. Airways Group ( LCC) and the parent of American Airlines, AMR Corp ( AMR).

The Justice Department was joined in its lawsuit by attorneys general from six states and the District of Columbia. The Justice Department said the merger, which would result in the creation of the world's largest airline, would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher airfares and receiving less service.

Additionally, the Justice Department said American and U.S. Airways compete directly on more than a thousand routes where one or both offer connecting service, representing tens of billions of dollars in annual revenues. They engage in head-to-head competition with nonstop service on routes worth about $2 billion in annual route-wide revenues. Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares, the department said.

The Justice Department also said that the vast majority of domestic airline routes are already highly concentrated and the merger would result in four airlines controlling more than 80% of the United States commercial air travel market.

The merger would also entrench the merged airline as the dominant carrier at Washington Reagan National Airport, with control of 69% of the take-off and landing slots. The merged airline would have a monopoly on 63% of the nonstop routes served out of Reagan National airport. As a result, Washington, D.C., area passengers would likely see higher prices and fewer choices if the merger is allowed, the department said in its complaint.

The complaint also describes how, in recent years, the major airlines have succeeded in raising prices, imposing new fees and reducing service. The complaint quotes several public statements by senior U.S. Airways executives, including company President Scott Kirby directly attributing this trend to a reduction in the number of competitors in the U.S. market.

U.S. Airways was down 11.80% to $16.60 per share by late morning on the news.

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