Tuesday, April 28, 2015

US fights airline deal: 'This is big' (UDPATE)

Rutgers Law prof Michael Carrier explains why Obama's trustbusters are taking a stand vs. USAir-American deal

US fights airline deal: 'This is big' (UDPATE)

Rutgers Law School Prof. Michael Carrier's take on Obama's Justice Department lawsuit to block the planned American-US Airways merger on anticompetitive grounds:

  "This is big. Joe. It shows that the Obama administration will file suit in the largest cases where they think there has been an antitrust violation and consumers will pay the price.

  "It came as a surprise because not a lot of mergers are challenged and American [Airlines] is coming out of bankruptcy." But USDJ has listed key reasons for trying to shoot the union down. Carrier lists them:

   "H
igher airfares, higher fees and fewer choices" at Washington's own Reagan National and other key airports;

   "Competition in 1,000 [city-to-city routes] would be presumptively illegal," with no obvious improvements in service to compensate for the loss of choice.

   The deal "would eliminate US Air’s 40% discount from Advantage Fares program, [which reduces] fares to encourage passengers to fly through hubs in less-desirable areas and imposing constraint on other airlines"

   It would cause "even higher 'ancillary fees' on checked bags and flight changes"
   
   "Each airline [would otherwise grow] independently, with US Air reporting record 2012 profits and American making 'largest aircraft order in history' and reporting record-high profits post-bankruptcy"

   "US Air executives conceded that it was able to pass along 'three successful fare increases . . . because of consolidation' and that the US Air/American combination would be 'the last major piece needed to fully rationalize the industry.'"

EARLIER: Shares of US Airways tumbled (Delta and United also fell sharply) after the US Department of Justice sued to block USAir's planned merger with American Airlines this morning, citing fears the combination could boost airfares, especially to Washington, D.C., where all those would-be trust-busters live. See Wall St Journal report here, Bloomberg report here. 

The Obama administration's action to prevent the combination -- an effort by cash-strapped U.S. airlines to join forces and cut costs -- is based on fears fewer big airlines will lead to less competition and higher rates. The European Union had already approved the deal, after the combined airlines agreed to give up one Philadelphia-to-London route so another carrier can compete.


About this blog

PhillyDeals posts raw drafts and updates of Joseph N. DiStefano's columns and stories about Philly-area finance, investment, commercial real estate, tech, hiring and public spending, which he's been writing since 1989, mostly for the Philadelphia Inquirer.

DiStefano studied economics, history and a little engineering at Penn, taught writing at St. Joe's, and has written the book Comcasted, more than a thousand columns, and thousands of articles, and raised six children with his wife, who is a saint.

Reach Joseph N. at JoeD@phillynews.com or 215 854 5194.

Joseph N. DiStefano
Business Videos:
Also on Philly.com:
Stay Connected