The government's surprising move to block the planned merger of American Airlines and US Airways might be an effort to kill the deal because it harms consumers. But it could also be an 11th-hour power play to gain negotiating leverage — an effort to force the combined airline to give up certain routes and preserve competition in some markets, experts say.
On Tuesday, the Justice Department sued to block the $11 billion merger, which would create the world's largest airline.
The hookup of American and US Airways had been viewed by many as a foregone conclusion and the culmination to a wave of major-carrier consolidation that has helped put major U.S. airlines on more sound financial footing. But the Justice Department sees problems with four airlines controlling what it said would be more than 80 percent of the U.S. commercial air travel market.
"This transaction would result in consumers paying the price — in higher airfares, higher fees and fewer choices," Attorney General Eric Holder said a statement.
The department recently allowed other combinations, including Chicago-based United Airlines' merger with Continental in 2010.
If the latest merger is squashed, it would especially hamstring American, the second-largest carrier in Chicago, said George Hamlin, an aviation consultant in Fairfax, Va.
"Could American emerge as an independent? Yes. I think they could," Hamlin said. "But it would be trying to run a race with one arm tied behind your back — and to your ankle."
After the industry's years of serial bankruptcies and billions of dollars in losses, the megamerger has been one tool — along with reducing the number of aircraft seats available, and raising fees and implementing new ones — that has allowed major network carriers to achieve profits in recent years.
Travel industry analyst Henry Harteveldt called the lawsuit "unprecedented." He couldn't recall a time when the Justice Department had sued to block an airline merger. Typically, the Department of Transportation raises objections that are worked out between the government and the airlines.
"The time for the DOJ to act was five or six years ago when this wave of mergers started," he added.
This merger might be a casualty of being late to the party.
"When you (merge) earlier, you're reducing competition, but there are more players remaining," said Brett Snyder, president of Cranky Concierge air travel assistance and writer of the Cranky Flier blog. "They've decided this is where they draw the line."
Airline consolidation, spurred by a weak economy and billions in industry losses, started in 2005 with US Airways and America West, followed by Delta/Northwest, United/Continental and Southwest/AirTran. The number of major airlines during that time dropped to five from nine.
Those mergers hurt consumers, the lawsuit contends.
"The major airlines have copied each other in raising fares, imposing new fees on travelers, reducing or eliminating service on a number of city pairs and downgrading amenities," it said.
Airline industry promoters often point out that fares, adjusted for inflation, have not changed much during that time. In early 2006, the average fare was $378. Early this year, it was $379, according to the Department of Transportation.
Consumer advocate Charlie Leocha, director of Consumer Travel Alliance and a vocal opponent of the merger, said he was elated that the Justice Department had filed suit.
"This is a stake in the heart of the merger. I don't see this moving forward," Leocha said. "This is the best possible and the only good consumer outcome that we could have gotten."
Others speculated that the merger will eventually happen and that the lawsuit is a ploy to gain negotiating leverage to force the combined airline to reduce its combined presence in some markets and preserve competition in others.
"The endgame of the Justice Department is not to derail the merger, but to obtain concessions via divestitures. It's that simple," said antitrust law expert Anthony Michael Sabino, a professor at St. John's University.
0 comments:
Post a Comment