NEW YORK (The Deal) -- The Department of Justice is urging a federal judge to disregard critics of an agency settlement with US Airways Group that allowed the carrier's $11 billion takeover of American Airlines (AAL) to win antitrust approval.
The DOJ's Antitrust Division on Monday filed its response to more than a dozen comments filed with the U.S. District Court in Washington regarding the November 2013 settlement that obligated US Airways to give up all of American's 104 air carrier slots at Reagan National Airport in Washington, 34 slots at LaGuardia International in New York City as well as gates at Boston Logan International, Chicago O'Hare International, Dallas Love Field, Los Angeles International and Miami International to mitigate harm the DOJ said that the merger would otherwise cause to flying consumers. The divested assets must be sold to low-cost carriers such as Southwest Airlines (LUV), JetBlue Airways (JBLU) and others.
The DOJ countered complaints from several parties that the settlement failed to address the harm caused by reducing the number of major domestic airlines from five to four and the number of "legacy airlines" with a truly nationwide footprint from four to three.
"The competitive significance of the remedy is reflected in the value being paid for the divested Reagan National and LaGuardia slots - over $425 million - which is unprecedented in the airline industry and among the most substantial merger remedies in any industry," the DOJ said in a filing.
The federal Tunney Act requires that DOJ antitrust remedies be vetted in public comments and approved by a federal judge before being finalized. Judge Colleen Kollar-Kotelly is presiding over the review.
DOJ characterized the settlement as a "major victory" for consumers in the U.S. because it will enable low-cost carriers to millions of passengers on new routes each year. "It fully addresses the harm that would have resulted from [the merged airlines'] control of nearly 70% of the limited takeoff and landing slots" at Reagan National, the DOJ said.
By ensuring that low cost carriers are able to acquire the otherwise unobtainable slots at Reagan National and LaGuardia, the DOJ said the merger addresses the government's primary concern - that the merger as it was proposed would have made it easier for the remaining legacy carriers - the merged US Airways/American, United and Delta - to cooperate on the prices and services they offer rather than competing with each other.
"The structure of the airline industry was already conducive to coordinated behavior among the legacy carriers," the DOJ said. US Airways tempered the industry's structural flaws by offering discounted "Advantage Fares," for connecting flights that competed with other airlines'. The DOJ argued that post-merger the combined carrier would be less inclined to offer advantage fairs.
The American Antitrust Institute, a public advocacy group devoted to strong antitrust enforcement, questioned the long-term benefit of divestitures to Southwest and other low cost carriers.
But the DOJ noted that the divestiture of slots at Reagan National and LaGuardia has already begun and the acquirers will begin operating the slots later this year. The process for divesting gates at the remaining airports is expected to occur in the "near future." The divestitures will increase the scope of the low cost carriers' networks and "bring the consumer-friendly policies of the low cost carriers to more travelers across the country," DOJ said.
Those policies include Southwest and JetBlue's policies of allowing travelers' first bag to be stowed free of charge as well as overall lower ticket prices. The DOJ again cited the lower fares out of Newark Liberty International Airport when Southwest acquired 36 slots at the New Jersey airport in 2010, evidence of the lower prices ushered in when a low cost carrier gains flights out of a new airport.
The DOJ also dismissed Delta Air Lines' plea for the right to bid on the divested slots. "Delta argues that it should not be precluded" from acquiring divested slots and gates at Reagan National and Dallas Love Field," the Justice Department noted. But Delta's assertion that the low cost carriers do not offer meaningful service to business travelers and do not provide adequate competition to United, the new American and Delta are wrong, the DOJ said.
Southwest, for instance, reports that roughly 35% of its passengers are traveling on business. What's more, the legacy carriers are more likely to fly high-volume routes and neglect medium and small communities that low cost carriers are willing to serve.