DoJ puts spanner on AA-US Airways merger

The $11-billion merger between US Airways Group Inc and American Airlines' parent corporation, AMR Corp has been blocked by the US Department of Justice (DoJ).

The DoJ, six state attorneys general and the District of Columbia seek to block this merge.

''The merger would eliminate competition between US Airways and American and put consumers at risk of higher prices and reduced service,'' said Bill Baer, Assistant Attorney General in charge of the DoJ's Antitrust Division in a press release.

Moreover, if this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers, the release pointed out.

In July, the shareholders of US Airways came out in strong support of the proposed merger deal with American Airlines (See: US Airways shareholders support American Airlines merger deal).

Last year, business and leisure airline travellers spent more than $70 billion on airfare for travel throughout the United States. In recent years, major airlines have, in tandem, raised fares, imposed new and higher fees and reduced service, the department said.

Both airlines have stated they can succeed on a stand-alone basis and consumers deserve the benefit of that continuing competitive dynamic.

Along with the fall of stock prices of other airlines, the shares in these two companies fell due to anti-trust case which hit the markets on Tuesday.

The lawsuit also cites direct competition between the airlines on nonstop routes worth about $2 billion in annual revenues. Combined together they would have 6,700 daily flights with annual revenue roughly about $40 billion.

American Airlines had filed for bankruptcy protection in 2011 (See: American Airlines flies into bankruptcy)

Eliminating this head-to-head competition would give the merged airline the incentive and ability to raise airfares, the department said in its complaint

Today, US Airways competes vigorously for price-conscious travelers by offering discounts of up to 40 percent for connecting flights on other airlines' nonstop routes under its Advantage Fares program. The other legacy airlines - American, Delta Airlines Inc and United Airlines - routinely match the nonstop fares where they offer connecting service in order to avoid inciting costly fare wars, the statement added.  

American recently made the largest aircraft order in industry history, and its post-bankruptcy standalone plan called for increasing both the number of flights and the number of destinations served by those flights at each of its hubs, the department of justice cites.

The suit came just a week after the European Union's competition regulator approved the merger, which would mainly affect transatlantic services and not domestic European services.

The EU set the condition that the merged company should open up for competition the Philadelphia-London route, because otherwise the merged airlines would gain a de facto monopoly through a joint venture with British Airways and Iberia.