August 14, 2013
The move by the United States Department of Justice (DOJ) to block the US Airways-American Airlines merger caught everyone by surprise.
In fact, the Justice Department hasn’t tried to block a proposed airline merger since 2001, when United and US Airways tried to get together. The DOJ was essentially silent when Delta merged with Northwest, and again in 2010 when United merged with Continental.
Why American-US Airways now? For starters, we have all watched as mergers created the largest airlines in the world, and then those airlines started cutting capacity and flights, cities and routes — and in the process raising fares.
Cincinnati, which once had more than 800 flights a day, is now under 200. Memphis just got cut back. Officials in Cleveland are worried they may face a similar fate. And don’t ask the folks in St. Louis if they were happy when American bought TWA back in 2000. Lambert Field is now one of America’s more underutilized commercial airports. One of their runways is now hardly used!
It all gets down to the numbers. When US Airways and American announced their plans to merge, the public relations spin was that the carriers only overlapped on 12 routes, so a merger wouldn’t be competitive or result in higher fares. But a later study done by the Government Accountability Office came up with drastically different numbers — more than 1,500 city pairs and connecting flights that WOULD be affected by the merger, with an almost inevitable result of higher fares if service was reduced or dropped. (With very little — or no — competition.)
So what does this mean for travelers? For the moment…nothing. In the short term, both airlines will continue to operate as separate entities.
What does that mean for airfares? Again, nothing. Fares will not be impacted until the merger takes place.
The lawsuit almost surely means that even if the merger goes through, it won’t happen in 2013.
In addition, it also means there’s about to be a lot of attempted horsetrading between the airlines and the DOJ — with each airline offering to give up some routes, slots, and frequencies in order to allow at least the semblance (or the actual opportunity) of competition.
What happened yesterday is akin to the minister at a wedding asking the congregation to speak now or forever hold their peace. The DOJ spoke…
Don’t miss my CBS This Morning report on the DOJ’s actions and its impact on the upcoming merger.
Photo: Bloomberg via Getty Images
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Posted by:Peter Greenberg