American Airlines US Airways merger faces consumer challenge
04 July 2013
The proposed merger of American Airlines and US Airways has hit a roadblock with a lawsuit brought the deal by opponents Tuesday, who claim it would drive up airfares and hit consumers (See: American Airlines, US Airways boards said to approve merger)
Antitrust lawyer Joseph Alioto, filed the suit on behalf of nearly 40 consumers in federal district court in San Francisco.
Alioto claims the merger would lead to fewer flights, reduced service to small cities, and a lower quality of service overall, adding that the merger would leave four airlines -- United, Delta, Southwest and the post-merger American -- controlling about 90 per cent of the domestic airline industry, leading to higher prices.
American Airlines spokesman Mike Trevino terming the lawsuit "baseless'' said, the merger would combine two airlines with little overlap in their routes, give customers more destinations, and was not expected to lead to the closure of hub airports currently operated by American and US Airways.
US Airways spokesman Ed Stewart said the lawsuit lacked merit, as was often the case with high-profile mergers, lawsuits containing baseless allegations such as these are filed and were successfully defended.
Alioto's law firm had filed lawsuits to block previous airline mergers, including Southwest Airlines Co's acquisition of AirTran Airways, which saw a federal appeals court this year order Alioto's firm to pay $67,495 of the carriers' court costs, noting that the lawsuit was filed the day after the completion of the deal.
Meanwhile, the airline industry is on a trajectory for higher altitude this year, with economic recovery fuelling demand for travel among newly confident consumers.
Last year, the industry notched up $637 billion revenue and earnings of $6.7 billion. These gains apart, stocks of the strongest carriers have been trading at attractive valuations.
Delta, the world's second-largest airline, with its dominant domestic and international presence, is looking to expand cost-effectively, buying a refinery in the process as it moves to further its plans.
The bold move follows another of the kind when on 24 May, the carrier threw open a new $1.2-billion terminal in New York City's JFK International Airport that would provide a launching pad for wider service to emerging markets.
In December Delta announced it would pay $360 million for a 49 per cent stake in Sir Richard Branson's Virgin Atlantic.
For the first quarter of 2013, the carrier reported earnings at $85 million, the first profitable start of the year for the airline since 2000 in a clear indication of the robustness of the company's strategic initiatives.