Antitrust officials filed a lawsuit Tuesday blocking the proposed $11… (Larry Downing/Reuters )
It was supposed to be the capstone merger — the culmination of nearly a decade of consolidation that has transformed the airline industry and winnowed a crowded field of players into just a handful.
But on Tuesday, antitrust officials filed a lawsuit blocking the proposed $11 billion merger between US Airways and American Airlines’ parent company, AMR Corp., saying the deal would hurt consumers by leading to higher fare prices and fees.
The action puts the brakes on a union that would have created the world’s largest commercial air carrier and would have put 86 percent of U.S. air travel in the hands of four big airlines.
“By challenging this merger, the Department of Justice is saying that the American people deserve better,” Attorney General Eric H. Holder Jr. said in a statement Tuesday. “This transaction would result in consumers paying the price — in higher airfares, higher fees and fewer choices.”
The civil suit, filed by the Justice Department, six state attorneys general and the District of Columbia, marked a break from the government’s usual rubber-stamping of big airline deals, including Delta’s deal with Northwest in 2008 and United’s merger with Continental in 2010.
Antitrust experts said the deal between US Airways and American Airlines proved to be one too many for the Obama administration.
“If you allow this one, and now you’ve got a new largest airline, how are you going to say no?” said Albert Foer, president of the American Antitrust Institute. “At some point, you’re going to have to say no.”
The Justice Department singled out the effect the merger would have on fliers in the Washington area. The merged airline would become the dominant carrier at Reagan National Airport, officials said, controlling 69 percent of the takeoff and landing slots.
As a result, the complaint said, passengers in the Washington area would probably see higher prices and fewer choices if the merger were to go through as proposed.
Officials said the presence of JetBlue at National Airport — which they said has already caused fares to drop — would also be threatened. In 2010, JetBlue entered into an agreement with American Airlines in which it trades slots at New York’s John F. Kennedy International Airport for American’s slots at National.
AMR and US Airways said they would fight the lawsuit in court rather than seek a compromise that might lead to a settlement. “Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together,” a joint statement from the two airlines said. “Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.”
The federal government concluded that American Airlines and US Airways compete directly on thousands of routes, representing business worth tens of billions of dollars in annual revenue.
The complaint said US Airways helps bring down flying costs because it offers low fares to travelers willing to take connecting flights through the company’s cheaper hubs, such as Charlotte, rather than paying more for nonstop flights run by “legacy” airlines such as United and American. Joining with American, the complaint said, is likely to prompt US Airways to stop offering those low fares.
“If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight-change fees would result in hundreds of millions of dollars of harm to American consumers,” said Bill Baer, the Justice Department’s top antitrust official.
The Justice Department’s view was corroborated in June by the Government Accountability Office, which released a report warning that the new airline would be the only carrier providing nonstop service on seven of the 12 routes where they currently compete.
The merger also would reduce competition on 1,665 other domestic routes, the report said, and create new competition in just 210 routes.
The news hit American Airlines’ stock hard Tuesday, sending it down more than 45 percent in regular trading. US Airways Group’s was down more than 13 percent.
When US Airways began to pursue bankrupt American last year, the merger was seen as a natural fit in an aviation landscape that had evolved and then dramatically consolidated since the industry was deregulated by Congress in 1978.
Long gone were the iconic U.S. carriers at the time of deregulation — Pan American, Eastern and TWA — and an industry beset by high-labor costs and fuel prices took haven in bankruptcy court as it lost more than $20 billion in a decade.
Delta, Northwest, US Airways and United all went through bankruptcy as a means of reducing their costs. Then the legacy carriers began to merge, with Delta absorbing Northwest and United joining Continental.
A newer arrival, Southwest Airlines, accelerated its rapid expansion through a merger with AirTran two years ago.