The Obama administration's lawsuit blocking the proposed merger between US Airways and American Airlines' parent company, AMR Corp., has upended the industry – causing job uncertainty for hundreds of thousands of workers, pummeling investors' stock portfolios and jeopardizing AMR's bankruptcy exit.
But all that's of no consequence to President Barack Obama and Attorney General Eric Holder, who view a collapsed deal as a consumer triumph.
The Department of Justice's lawsuit, which stunned the industry last week, alleges the combination will reduce competition in an already condensed marketplace, lead to higher prices and diminished service. Upon further inspection, the suit is anything but a win for the little guy.
A blocked merger would crush the dreams of the 100,000 employees who were promised to receive better compensation, benefits and job security as the result of working for a bigger, more competitive airline. US Airways' current low-fare options are made possible, in large part, because it pays its employees less than its bigger rivals.
"The DOJ's premise is to (seek) cheap airfares on the backs of labor," Dennis Tajer, a spokesman for the Allied Pilots Association, which represents American pilots, told Forbes magazine last week. "The DOJ decision puts at risk our working families' livelihoods."
Some US Airways employees have already moved to the Dallas area, where the merged company would have its headquarters, and workers on both sides who were slated to lose their jobs will need to decide whether to stay on or leave, according to a Wall Street Journal news report.
Not only does the government's suit place unneeded strain on the average, everyday worker, but it's impossible to say that it'll be good thing for the average, everyday flier. The antitrust action won't miraculously make the airline industry more competitive because it's already an oligopoly. Blocking another megamerger from entering the mix won't change this fact.
If the deal is rejected, American would operate as a feeble number three in terms of U.S. traffic, behind United Airlines, which was allowed to swallow Continental by regulators in 2010, and Delta Air Lines, which absorbed Northwest five years ago. US Airways would stay at No. 5 after Southwest Airlines, which recently acquired AirTran.
Despite this marketplace concentration, airfares have remained competitive – and that's not just because of US Airways' low-cost fares, which the DOJ fears will end with the merger. New market entrants armed with smaller fleets, limited options, and aggressive discounts like Spirit and JetBlue Airlines, can police pricing with as little as 5 percent of the seats in the market, according to a Wall Street Journal report.
In many airports where these discount carriers are growing – which has been happening despite industry consolidation – fares have actually fallen since 2008, the study found. New entrants and discount operators will continue to make the marketplace competitive, regardless of whether the US Airways-American deal is approved.
If the deal is blocked, however, the consumer may have fewer options. US Airways and American aren't discount operators, and because of that, may eventually be squeezed out of the marketplace by larger rivals, whose scale of operations and nationwide service capacity gives them a clear advantage.
American is already in bankruptcy proceedings, with creditors concluding a merger with US Airways is better financially for the company than emerging from bankruptcy alone. US Airways shareholders view the deal as a way to bolster its razor-thin margins, buy new aircrafts and provide better service options – all of which seems like a win for the consumer.
The government's lawsuit has rattled the marketplace with merger doubts. US Airways stock has skidded 17 percent since Aug. 12, the day before the DOJ acted, and over-the-counter shares of AMR have been halved. The suit jeopardizes AMR's chances of exiting bankruptcy court as a strong competitor, and may force it to abandon a restructuring plan that has been thoroughly vetted and backed by creditors and employees alike.
But to heck with the opinions of industry CEOs, board members, creditors, shareholders and workers – if there's one thing the Obama administration wants the American public to believe it's that the government knows best. Consumers must trust that the administration understands the complicated and confusing airline industry better than the people who run it every day – even if that trust comes at the expense of free enterprise.