Introduction
The proposed merger of the bankrupt AMR Corporation (parent company of American Airlines – hereinafter American) with US Airways Group, Inc. (parent company of US Airways – hereinafter US Airways) to create the new American Airlines was announced in February 2013. Despite the European Commission’s (EC) August 5 clearance of the merger with minimal commitments, the Antitrust Division of the U.S. Department of Justice (DOJ), joined by seven states and the District of Columbia, brought suit to permanently enjoin the merger on August 13. United States v. US Airways Group, Inc., 1:13-cv-01236 (D.D.C. Filed Aug. 13, 2013). The content of the DOJ’s complaint (Complaint) demonstrate the DOJ’s modus operandi for litigating a merger.
A private suit to enjoin the merger was filed immediately before the DOJ’s action and remains pending.
DOJ Sues to Enjoin the Merger
The DOJ seeks to enjoin a merger between the smaller two of the four remaining “legacy” airlines – the other two being United Airlines and Delta Airlines. If the merger went forward, the combined airline (Combined Firm) would become the largest airline in the world. Compl. ¶ 1. The Complaint alleges that the merger: (i) “would make it easier for the remaining airlines to cooperate, rather than compete, on price and service”; (ii) “continue the trend” of price increases, new fees, and capacity and service reductions; and (iii) eliminates existing disciplining mechanisms like US Airways’ “aggressive discounting strategy” leading to higher fares. Compl. ¶¶ 3-7. The DOJ also alleges that neither airline needs the merger to continue to be an effective competitor. Compl. ¶ 12.
The Complaint identifies two markets of concerns: (1) “scheduled air passenger service between cities” and (2) “takeoff and landing slots at Reagan National Airport.” Scheduled air passenger service between cities treats each city pair as the relevant geographic market, alleging that non-stop and one-stop service are competing products, though city pairs are non-substitutable. Compl. ¶¶ 27-28. According to the DOJ, the Reagan National Airport (DCA) slots market involves the limited number of takeoff and landing slots at the airport, a desirable location with difficult to obtain, expensive slots. Compl. ¶¶ 30-31. Sufficient market power in either market would purportedly allow a “hypothetical monopolist” to raise prices.
Click here to read the entire article.