Adios AA/US Airways merger — DOJ got it right


A view of two US Airways Express planes next to an American Airlines plane at the Ronald Reagan Washington National Airport
Thank you to the Department of Justice (DOJ) for standing on the side of consumers and not getting swept up in the Romance of the Deal mentality as America’s media did. Any reader of this website knows that the Consumer Travel Alliance and I have been at the forefront of the anti-merger activists since Valentine’s Day, when AA and US Air announced their love affair.

Today we received the best news we could have hoped for — DOJ rejected the merger. They didn’t offer any remedies, they didn’t hold out any hope for the airlines involved. They simply said, “No.” And, they said it emphatically.

Both management teams claimed that they plan on fighting the findings of the DOJ as well as those of seven different State Attorneys General, but their efforts really have no hope of survival. This merger is dead. The wooden stake has been driven into the heart of the New American Airlines monster that threatened airline competition.

The competition threat was so great that when the General Accountability Office report noted 1,665 overlapping connecting routes that were going to lose competition, there was a collective groan from the merger proponents. The Aviation Subcommittee hearing where I testified last June was a relatively somber occasion. Mr. Parker, the once-to-be-CEO of the once-to-be-largest-airline-in-the world could sense that his task of convincing DOJ that his merger was a good idea and good for consumers was slipping away.

In discussions after the hearings with airline folk, I noted that Mr. Parker was not in top form and that he was not prepared for the Consumer Travel Alliance claim that competition from overlapping connecting routes wreak havoc with competition. He kept repeating the merger mantra, “Only 12 overlapping non-stop routes.” It was as if he didn’t realize that the game had changed.

After the GAO report backed up the earlier findings of the Consumer Travel Alliance with an even more damning report that included overlapping connecting routes with more than one connection, his only response was to again mutter, “Only 12 overlapping non-stop routes.” That wasn’t the answer that DOJ was anticipating, but it made their job clear.

The simple act of forcing the merged carrier to divest Washington-Reagan Airport slots would not solve the endemic problem of competition loss across the country, touching 38 out of the 50 states. There were no remedies for the loss of competition between Seattle and Austin or Bradly and Albuquerque or Fresno to Dulles.

For a hub-and-spoke carrier that depends on connecting traffic to make their system work, to repeat 12 non-stop connecting flights over and over again was not an effective strategy to counter the 1,665 overlapping connecting routes noted by GAO.

Plus, airlines across the board did themselves no favors in courting favor with Congress and DOJ when they decided to move in virtual concert with an increase in their change fees and cancellation fees. Worse, after making the changes and being challenged by me at a media meeting in Phoenix, the wannabee American Airlines executives never came up with a rationale for increasing the change fee.

Even when asked directly during the Aviation Subcommittee hearings, Mr. Parker has no answer months after he was questioned in Phoenix. The brute force that the airlines demonstrated when they raised the not-so-insignificant $150 fee to $200 with no justification did not sit well with congressional leaders or, I can guarantee, with DOJ investigators.

It was not hard for consumers to claim that the writing was on the wall. If the airlines, while petitioning for permission to merge, were so callous that they would raise significant fees with no justification, what would they do when lawyers, legislators and regulators were not focused on their activities? It was a bad miscalculation on their part.

Today, by virtue of the DOJ and the State’s Attorneys General actions, consumers are far better off than if this merger had been approved. US Airways and American Airlines will have to regroup, but they are both in good financial shape and masters of their own destiny. I expect them to be strong and able competitors in the battle with the other airlines, both large and small, for airline consumers.