Interesting article by David Ingram from Reuters who offers a very different opinion from the majority of the talking heads on cable news proclaiming that the DoJ’s actions yesterday were solely a negotiating ploy to gain concessions from AA and US at DCA as well as at other airports where the combined carrier would control the majority of take-off and landing slots.

One sign that government lawyers are dead set on blocking the deal can be found in an appendix to its lawsuit, said Mark Ostrau, an antitrust lawyer in Mountain View, California. The appendix lists 1,043 airline routes between cities where, according to the Justice Department, the combined company would have a presumptively illegal monopoly or near monopoly. There may be too many troublesome pairs for AMR and US Airways to resolve in a settlement, and that is something government lawyers must have known when they put the list in their suit, Ostrau said. “If you wanted something to resolve, you would not have listed more than 1,000 problematic city pairs,” he said. “If there were going to be a settlement, it probably would have happened already.”

Another article by Ingram along with Karen Jacobs notes that the DoJ “made it clear that it is out to block the $11 billion deal entirely rather than seeking concessions from AMR and US Airways. “We think the right solution here is a full-stop injunction,” Bill Baer, head of the Justice Department Antitrust Division, told reporters on a conference call. “The (DOJ) complaint tells a compelling story of how the airlines acted together to increase fees and reduce service, and how US Airways and American had a blueprint to increase prices through the merger.”

What do you think?  With the current landscape in the wake of the DL/NW, UA/CO, and WN/FL deals, is the DoJ actually looking to block this deal and are they right in doing so regardless of the unions and post bankruptcy plan?

Posted by Adam | 7 Comments

7 Responses to “Sincere Intention to Block AA/US Deal, Not A Negotiating Ploy?”

  1. timmer1001 says:

    I hope so… No merger… more competition

  2. Kris says:

    @timmer1001
    You must not understand how the industry works. A merger AA/US will be able to expand capacity, offering more choice to consumers and increasing competition on many routes. If they stay apart, in the long term, both will shrink or fail, both of which will decrease competition.

    The merger will go through, not because the DoJ uses it as a bargaining chip, but because AA/US will stomp the DoJ in court. I don’t even know what to think of the 1,000+ city pairs that they say will have an illegal increase in HHI, but they are almost entirely complete garbage. OGG-OMA? Hardly anyone flies that, and regardless, US, AA, UA, and DL all have their prices for the route within a few dozen dollars. There are hundreds of obscure routes nobody flies, the DoJ just picked them so they could get the HHI increase to be the greatest.

  3. DJ says:

    I know little about airline industry business, how was UA & DL able to merge? didn’t the same reasoning apply there? maybe the economic condition which is worse now than before?

  4. Just because someone say it .. it isn’t true. Thanks to the DOJ to standing up for the consumer!

  5. eds says:

    @Kris
    Go look at the DOJ’s record of being able to block merger in the last 10 years. 84-1 they win. The suit has be carefully crafted to use the US/AA executives statements against them that they are fabulous ongoing concerns, and that the merger is great because they will be able to raise fares and fees. This is going to be litigated in the DC circuit by Judge Kollar-Kotelly, appointed by Clinton who oversaw the Microsoft antitrust case. The US/AA team can have fun storming the castle.

    • srptraveller says:

      @kris I have to disagree

      The city pairs is all about the sum-total. The fact that some pairs may be low impact does not detract from that.

      I find arguing that fewer competitors promotes competition a frequently appealed to and deeply disengenous argument. Are you George Orwell?

  6. DFW Steve says:

    There is also a political element at play here. The Obama administration has a history of punitive behavior towards Texas business and institutions (initial refusal of FEMA help for West, TX; refusal to place a retired space shuttle at NASA HQ, etc). Also, this is pure political posturing in advance of mid-term elections. If this merger fails it will have a negative effect in Dallas, as AMR employs a lot of people. For the record, I am an independent small business owner that pays my own airfare.

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