Justice Department Gives the Go Ahead to Airline Merger

Just two weeks before the trial, and several months of delays, the merger of American Airlines and US Airways to create the world’s largest airline became all but guaranteed this week. The deal hands over 80 percent of the domestic air-travel business to only four companies.


The Justice Department said the agreement would foster competition at busy markets like Washington and New York and open opportunities for lower-cost carriers. However, analysts questioned how much competition would be created.


University of Richmond transportation economics professor, George Hoffer, said the merger effectively took one major competitor out of the market. This could result in subtle fare increases in many markets and fewer flights, he said.


Mr. Hoffer added that “the Justice Department was in an indefensible position. Once you created a super-Delta and a super-United, you had to create a super-American. So the outcome was inevitable.”


Investors cheered the deal, sending airline stocks higher after the announcement.


The Federal District Court in the District of Columbia still needs to approve the settlement. It will also need to be signed off on by the judge who is overseeing American’s bankruptcy proceedings. But the airlines are confident they can now close their merger by mid-December.


Airline executives have argued over the years that consolidation and pruning of unprofitable routes was the only way to return a beleaguered industry to health. The process has led to a string of mergers since 2005, including the combination of Delta and Northwest, United and Continental, also more recently, Southwest and AirTran.


Even though those mergers were approved by antitrust regulators, with few or no objections, the planned combination of American and US Airways hit major turbulence this summer when the Justice Department, along with some state attorneys general and the District of Columbia, filed a legal challenge, contending that fares would rise if another merger went through.


Government regulators dropped their suit in exchange for some divestitures in the face of an effective lobbying campaign by the airlines and their employees, particularly with local and state officials, as well as the perceived weakness of their own case.


Under the proposal, American and US Airways agreed to sell 104 takeoff and landing slots at Ronald Reagan National Airport in Washington and 34 slots at LaGuardia Airport in New York to lower-cost carriers. They also agreed to sell the rights to a pair of terminal gates and associated ground assets at five other airports including, Chicago O’Hare International, Los Angeles International, Boston Logan International, Dallas Love Field and Miami International.


The airlines also addressed a concern of the attorneys general that had joined the suit, agreeing to maintain hubs at Kennedy Airport in New York, Charlotte, N.C., Chicago, Los Angeles, Miami, Philadelphia, and Phoenix for a period of three years “consistent with historical operations.” In a separate agreement with the Department of Transportation, the airlines agreed to maintain current service to small and midsize communities from Reagan National.


When the merger is completed, the airline will operate 6,700 flights per day. The sale of slots in New York and Washington, on the other hand, amount to 112 daily flights. “It’s pretty modest,” Mr. Parker said.

When the sale of its assets are complete, the merged airline will operate 44 fewer daily departures from Reagan National Airport and 12 fewer daily departures at LaGuardia than the two airlines put together offer now. American and US Airways have 290 departures every day from Reagan National and 175 from LaGuardia.