When it was first announced that the Justice Department was attempting to kill the American Airlines – US Airways merger, many thought it was the government's concern that the reduction to just three legacy carriers was at the root of the issue. One of the first things you learn in Economics 101 is the old “supply & demand” principle. Was this what the government was trying to protect consumers from – less suppliers with a steady or increased demand will drive prices up.
Or, was this a ploy to negotiate out a few of the international routes that the combined carrier would monopolize along with roughly 70% of the gates at Washington Reagan National Airport? Most industry insiders felt the latter was the real reason behind the chess game. Jim Glab of Executive Travel provides us with his thoughts about the ongoing negotiations.
DOJ vs. AA-US Airways: Hints of a settlement?
By Jim Glab of Executive Travel
The Justice Department’s civil antitrust suit seeking to block the American-US Airways merger took a new twist last week as lawyers from both sides hinted that a settlement between the parties might be possible. Meanwhile, American’s bankruptcy judge seems to be looking favorably at the prospect of a merger.
In the U.S. District Court for the District of Columbia, DOJ and the two airlines made a joint filing in which Justice said it was “open to a settlement that addresses the anticompetitive harms posed by the merger,” but it noted that no such proposal has yet been forthcoming from the two airlines.
In the same filing, the two airlines told the court that they had discussed possible ways to meet Justice’s concerns before the antitrust suit was filed — obviously without success — but that they “continue to believe there ought to be a realistic possibility of settlement.”
Previously, many observers had taken Justice’s aggressive legal action against the AA-US Airways combination as a sure sign that it was determined to put a halt to any further consolidation in an industry that has seen three major mergers in the past several years.
In order for a settlement to be reached, Justice and the two airlines would have to reach agreement on how much market presence the carriers would cede in their combined network in order to satisfy the government that a healthy competitive environment would be preserved.