AAI Objects to Airline Merger Settlement

Feb 10 2014
Testimony and Interventions

The AAI, joined by several consumer groups, including AirlinePassengers.org, Association for Airline Passenger Rights, Business Travel Coalition, Consumer Travel Alliance, and FlyersRights.org, has filed comments with the Department of Justice (DOJ) arguing that the DOJ's settlement of its case against the merger of U.S. Airways and American Airlines is not in the public interest, and urging DOJ to renegotiate or take the case to trial.
 
After joining with six states in seeking to enjoin the merger, the government settled the case in November 2013, allowing the deal to go forward subject to divestitures of 104 air carrier slots at Reagan National Airport in Washington D.C., 34 slots at LaGuardia Airport in New York, and two gates at each of five other airports.  Although the parties have already consummated the merger, the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16 (the Tunney Act), institutes a review period before a final judgment may be entered and the settlement may take effect.  During the Tunney Act period, the government must accept, consider, and respond to public comments on the settlement, and a court must determine whether the settlement is in the public interest.  If the court, or the government upon further reflection, determines the settlement is not in the public interest, the settlement may be terminated at any time prior to entry of final judgment.
 
In their comments, the AAI and the consumer groups argued that the settlement is not in the public interest because it does not prevent or even address the bulk of the anticompetitive effects detailed in the government's complaint.  The government's complaint alleged that reducing the number of major domestic "legacy" airlines from four to three would harm consumers by (1) entrenching US Airways' dominance at Reagan National Airport; (2) increasing concentration in over 1,000 highly concentrated city-pair markets; (3) eliminating head-to-head competition between US Airways and American on 17 nonstop routes; (4) increasing the likelihood of coordinated interaction among the three remaining legacy airlines; (5) eliminating US Airways' Advantage Fares program; (6) reducing capacity and growth; (7) increasing baggage and ancillary fees and reducing quality and variety of ancillary services; and (8) thwarting American's aggressive standalone expansion plans.
 
Although the settlement resolves the narrow competitive harm in the local market for slots at Reagan National Airport, the comments emphasize that it does little to resolve the harm to the approximately 1,000 highly concentrated city-pair routes set forth as relevant markets in the complaint.  While the government's remedy is no doubt well intentioned, the comments argue that it is implausible that the modest divestitures at a few airports will offset the adverse national impact of the merger as described in the complaint.   In particular, the government has not explained how divesting slots and gates to low cost carriers (LCCs), which tend to operate in local markets, will address the problem of increased coordinated effects among the remaining three legacy airlines nationwide.  At bottom, the comments conclude, the Department's settlement sacrifices the ever-dwindling national legacy-airline competition in favor of improved LCC local competition on routes at a handful of airports, a tradeoff that on its face makes no sense for consumers overall, let alone for those who benefited from head-to-head competition.