Government settles suit, clearing way for US Airways-American Airlines merger

By Brandon Brown         

Cronkite News

WASHINGTON – The Justice Department said Tuesday it has settled its lawsuit to block the merger of American Airlines and Tempe-based US Airways, after the carriers agreed to concessions aimed at preserving competition in the industry.

Under the agreement, the merged airline will give up slots at major airports across the country and make them available to low-cost carriers like Southwest Airlines and JetBlue Airways.

Justice said it agreed to drop the lawsuit – which was backed by several state attorneys general, including Arizona Attorney General Tom Horne – because the settlement will create more competition in the airline industry.

“Arizona consumers will be able to travel to more places with nonstop or connecting routes than they had before” as a result of the settlement, Horne said in a prepared statement.

The agreement also requires the newly merged carrier, which will be called American Airlines, to keep operations at Phoenix Sky Harbor and other US Airways hubs at the current levels for three years.

The new American Airlines will also have to continue daily service to the airports currently served by either American or US Airways. Between them, the airlines now offer daily service to four airports in Arizona – Phoenix, Tucson, Flagstaff and Yuma.

Officers of both airlines welcomed the settlement Tuesday.

“This is very good news and we are grateful to all who have made it happen,” US Airways CEO Doug Parker said in a statement. Tom Horton, the CEO of American’s parent company, AMR, said the deal lets the two carriers “take the final steps in creating the new American Airlines.”

Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division said Tuesday that he cannot forecast how the settlement will affect prices, but that the terms of the deal change the atmosphere in the industry.

“All we know is, we created a very competitive dynamic,” Baer said. “This settlement provides real opportunity for more competition.”

The deal calls for the two airlines to hand over slots they currently hold at Washington Reagan National, New York’s LaGuardia, Boston Logan, Chicago O’Hare, Dallas Love Field, Los Angeles International and Miami International.

Baer told told reporters Tuesday that the department will have to approve which airlines gets these slots that are divested by US Airways and America, but not where any carriers can fly.

“We are not regulating outcomes here and telling people where they can and cannot fly,” Baer said. “That is for the market to take care of.”

He said that when low-cost carriers got gates at major airports in the past, it increased ridership and reduced prices.

In a prepared statement, U.S. Attorney General Eric Holder said the department’s goal was to ensure vigorous competition in airline travel. He said the deal “has the potential to shift the landscape of the airline industry.”

Charlie Leocha, director of the Consumer Travel Alliance, agreed that the settlement is groundbreaking.

“What the Department of Justice has done is basically unprecedented,” Leocha said. “They are forcing airlines to give up gates and space at non-slot-controlled airports.”

The settlement is not perfect for consumers, Leocha said, but it does create more competition for airlines.

“The best outcome for consumers would have had the entire merger denied,” Leocha said. “But these remedies that the Department of Justice has come up with are really a significant improvement to what would have happened.”

American Airlines and US Airways in February announced the $11 billion merger, which would create the largest air carrier in the U.S. But opponents had expressed concerns that this deal, following mergers of other large U.S. airlines in recent years, would have left only a handful of heavyweight carriers and crushed competition.

In August, the Justice Department, seven states and the District of Columbia filed an antitrust suit to block the merger.

That case was scheduled to be heard by a U.S. district judge in Washington beginning on Nov. 25. Instead,

the two sides will present the proposed settlement.

“We believe our case got stronger as we got closer to trial,” Baer said, “and the other side knew that.”

The airlines said they hope to finalize the merger next month. Because American Airlines is still in bankruptcy proceedings, the settlement deal must still be approved by the U.S. Bankruptcy Court.