American Airlines and US Airways may get their merger, but not without a few catches.
US Airways and AMR, American Airlines' parent company, reached a settlement with the Justice Department on Tuesday paving the way to create the world's largest air carrier. In August, the department along with six states and the District of Columbia sued to block the $16 billion merger, alleging such a deal would reduce competition and create higher prices for consumers.
"This is very good news and we are grateful to all who have made it happen," said Doug Parker, the chairman and CEO of US Airways who will become CEO of the merged airline, in a statement in which he also thanked employees, customers, elected officials and the Department of Justice. "We are pleased to have this lawsuit behind us and look forward to building the new American Airlines together."
However, the airlines will not get everything they want out of the marriage. As part of the settlement, American and US Airways will together give up gate slots and takeoffs at major U.S. airports. According to a press release from American Airlines, the two companies will have a combined 44 fewer daily departures from their current 290 at Reagan National Airport, as well as 12 fewer departures than the current 175 from LaGuardia. Other airports affected include Boston's Logan International Airport, Chicago's O'Hare International Airport, Los Angeles International Airport, Miami International Airport, and Dallas Love Field.
In a conference call, Parker said that in these concessions there is "nothing at all that we view as a financial risk to the company, or we wouldn't have done this," though he added that the merged airline would have liked to maintain all of its slots at those airports.
In addition, the airlines agreed to maintain hubs in seven cities for a period of three years, though Parker said that didn't imply those hubs would be temporary.
"The intent is to maintain all of our hubs for forever," he said.
In extracting concessions from these major airlines, the government is proving that it's stepping up its efforts to protect consumers, says one expert.
"The goal of the government is to always look at relative markets and try and look into the future and guess how the merger might affect relative markets," says Brian Quinn, associate law professor at Boston College who formerly practiced in the area of mergers and acquisitions, in an emailed statement. "This is the largest investigation of its type in recent years and a sign of what the government is doing now. They are much more proactive and aggressive in enforcing anti-trust laws."
Though the deal may signal antitrust sentiment in the Obama Administration, that doesn’t mean slashing US Airways and American Airlines’ number of departures will protect consumers from higher prices that will result from fewer major carriers, says another expert.
"The gate divestitures is a good thing. Is it enough? I think not," says Max Huffman, associate professor at Indiana University’s Robert H. McKinney School of Law, who formerly served as a trial attorney in the Justice Department’s Antitrust Division. "Now you're down to three [legacy carriers], and that will have, I think, a very clear price effect. And this remedy does not eliminate that fact."
A U.S. Bankruptcy Court hearing on the merger is set for Nov. 25. If a judge approves the merger, it will likely be completed in the first half of December, American Airlines and US Airways said in a joint press release.
Corrected on : Updated 11/12/13: This article was updated to include additional quotes.