The Justice Department has reached a settlement with American Airlines and US Airways regarding the merger of their airlines. The remedies extracted by the Department of Justice (DOJ) are stronger than any previously demanded of merging airlines and should help ameliorate the anticompetitive thrust of this merger. Unfortunately, consumers, competition and the free market, the entire reason for antitrust rules and regulations, took a hit.
The Consumer Travel Alliance is disappointed that this merger has been allowed to go through; however, it is pleased that the groundbreaking remedy imposed by DOJ will provide for additional competition across the merged airlines’ network and in some of the nation’s largest and most tightly controlled airports.
“This agreement has the potential to shift the landscape of the airline industry. By guaranteeing a bigger foothold for low-cost carriers at key U.S. airports, this settlement ensures airline passengers will see more competition on nonstop and connecting routes throughout the country,” said Attorney General Eric Holder. “The department’s ultimate goal has remained steadfast throughout this process — to ensure vigorous competition in airline travel. This is vital to millions of consumers who will benefit from both more competitive prices and enhanced travel options.”
“The extensive slot and gate divestitures at these key airports are groundbreaking and they will dramatically enhance the ability of LCCs [low cost carriers] to compete system-wide,” said Assistant Attorney General Bill Baer of the Department of Justice’s Antitrust Division. “This settlement will disrupt the cozy relationships among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices and more competitive airfares on flights all across the country.”
Here are the remedies as reported in a “New American” release.
Under the terms of the settlement, the airlines will divest 52 slot pairs at Washington Reagan National Airport (DCA) and 17 slot pairs at New York LaGuardia Airport (LGA), as well as certain gates and related facilities to support service at those airports. The airlines also will divest two gates and related support facilities at each of Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, and Miami International Airport. The divestitures will occur through a DOJ approved process following the completion of the merger. Despite the divestitures, the new American is still expected to generate more than $1 billion in annual net synergies beginning in 2015, as was estimated when the merger was announced in February.
After completion of the required divestitures, the combined company expects to operate 44 fewer daily departures at DCA and 12 fewer daily departures at LGA than the approximately 290 daily DCA departures and 175 daily LGA departures that American and US Airways operate today. The divestitures required by the settlement are not expected to impact total employment at the new American.
To ensure much of the service currently operated by the carriers to small- and medium-sized markets from DCA is maintained, the new American has agreed with the DOT to use all of its DCA commuter slot pairs for service to these communities. The new American intends to announce the service changes that will result from the divestitures in advance of the sale of the DCA and LGA slots, so that the airlines acquiring those slots have the opportunity to maintain service to those impacted communities.
In the settlement agreement with the state Attorneys General, the new American has agreed to maintain its hubs in Charlotte, New York (Kennedy), Los Angeles, Miami, Chicago (O’Hare), Philadelphia, and Phoenix consistent with historical operations for a period of three years. In addition, with limited exceptions, for a period of five years, the new American will continue to provide daily scheduled service from one or more of its hubs to each plaintiff state airport that has scheduled daily service from either American or US Airways. A previous settlement agreement with the state of Texas will be amended to make it consistent with today’s settlement.
Completion of the merger remains subject to the approval of the settlements by the U.S. Bankruptcy Court, and certain other conditions. The companies now expect to complete the merger in December 2013.