US airline merger likely to unravel as justice department takes case

Plans to create the world’s largest airline by sales looked close to collapse yesterday after the US’s justice department sued to block the $11 billion merger of US Airways and the bankrupt parent of American Airlines.

The department’s move looks likely to force the unpicking of the complex merger, which US Airways and AMR Corporation have been planning for more than a year.

Consumers pay price
Eric Holder, attorney-general, said his department was seeking to block the merger because the American people deserved better. "This transaction would result in consumers paying the price – in higher airfares, higher fees and fewer choices," he said. "Today's action proves our determination to fight for the best interests of consumers by ensuring robust competition . . ."

The news sent shares in US Airways – which was due to take 28 per cent of the new merged airline – down 8 per cent in New York to $17.30.

AMR Corporation has been in bankruptcy protection since November 2011, weighed down by costs well above the industry average.

The department said airlines in recent years had raised ticket prices and other fees, while reducing service.

Bill Baer, assistant attorney-general for the department’s antitrust division, said a merger would have put consumers at risk of higher prices and reduced service.

“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,” he said.

“Both airlines have stated they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.”

The department focused on how the merger would affect travellers from Washington’s Reagan National Airport, from which the merged airlines would have controlled 63 per cent of nonstop flights.

Four airlines would have controlled 80 per cent of US commercial flights, the department said.– (Copyright The Financial Times Limited 2013)