Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Passengers, travel agents seek to block US Airways-American Airlines merger, (Jul 3, 2013)

By Tobias J. Gillett, J.D., LL.M.

Travelers and travel agents who purchased airline tickets from US Airways and/or American Airlines have filed a complaint in the federal district court in San Francisco, seeking to block the planned merger of the two carriers (Fjord v. US Airways Group, Inc., July 2, 2013).

On February 14, 2013, American Airlines, the fourth largest U.S. passenger airline, and US Airways, the fifth largest U.S. passenger airline, announced they had reached an agreement to combine, an action that would create the world’s largest airline. In their complaint, the ticket purchasers allege that “[t]he effect of the announced merger between American and USAir may be to substantially lessen competition, or tend to create a monopoly, in the transportation of airline passengers in the United States and certain submarkets.”

According to the complaint, the actual and potential competition between the airlines restrains the conduct of the airlines in national market for air transportation, “the only relevant market for antitrust purposes.” The complaint observes that the merger would continue a trend toward concentration in the market, and would result in a combined market share between the combined US Airways-American entity and its three largest competitors of 83%. The complaint notes that the Supreme Court has previously considered significantly lower concentrations to indicate highly concentrated markets, and condemned combinations within them.

The complaint alleges that the CEOs of American and US Airways engaged in “secret and private meetings,” in which the executives discussed the merger, airline fares, frequency of flights, the elimination or curtailment of hubs and capacity, the firing of employees, the elimination of types of aircraft, prices to be charged for services previously given to passengers for free, and potential fare increase in submarkets, among other topics.

The merger will allegedly result in a domestic airline industry dominated by four airlines—the combined entity, United, Delta, and Southwest. The merger would also result in lower capacity, reduced service to smaller and mid-sized communities, higher prices for fares and other services, cuts in flights to certain destinations, and job losses. The complaint warns that low cost airlines, such as Southwest, can no longer be expected to constrain the legacy airlines from raising their prices. The complaint notes that Southwest merged with its previous closest competitor, AirTran, and that Southwest has been actively involved in previous fare increases.

The complaint also observes that the merger would increase concentration in particular markets where the combined entity would control especially high shares of departures. Moreover, the merger would allegedly result in higher prices on 12 routes where the airlines currently have overlapping non-stop flights, on seven of which the combined entity would have a monopoly.

The combined entity would “operate in a much more highly concentrated market” than was faced by other airline mergers, with a high risk of collusion between the remaining airlines, the complaint observes. The complaint notes that passenger airlines, including US Airway and American, have previously colluded on prices and terms and conditions of air transportation. Moreover, the passenger airline industry has “substantial and significant barriers to entry,” with “no new viable competitors since 2000.” The complaint asserts that neither airline is failing, and that both airlines are capable of competing independently.

The complaint alleges that US Airways’ agreement to merge with American “constitutes a violation of Section 7 of the Clayton Antirust Act.” The ticket purchasers seek injunctive relief against the merger, costs of suit and attorney fees, and any other relief to which they may be entitled.

The case is No. CV 13 3041.

Attorneys: Joseph M. Alioto (Alioto Law Firm) for Carolyn Fjord.

Companies: US Airways Group, Inc.; American Airlines, Inc.

News: Antitrust