Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Senate Antitrust Subcommittee Hearing Planned to Consider American Airlines/US Airways Combination, (Feb 15, 2013)

By Jeffrey May, J.D.

Senator Amy Klobuchar (D, Minnesota), chair of the Senate Judiciary Committee's Antitrust Subcommittee, announced yesterday that she would convene a hearing to examine the American Airlines-US Airways merger. The combination, which was formally announced yesterday, would create the world's largest airline.

“During my time in the Senate I have worked hard to keep the airline industry competitive to make sure companies retain jobs, maintain service levels and keep prices low for travelers,” said Klobuchar. “As chair of the Senate Antitrust Subcommittee, I plan to hold a hearing to thoroughly review the proposed merger and examine its impact on competition and consumers.”

The Antitrust Subcommittee's ranking member, Mike Lee (R, Utah), also weighed in on the transaction. Senator Lee said that the proposed merger "has potential to benefit the air travel industry as well as consumers." However, he noted that "a transaction of this size, which will result in the nation’s largest carrier, poses potential risks for the market."

“I look forward to joining Senator Klobuchar in a thorough review of this transaction and providing oversight of antitrust regulators as they do the same,” Senator Lee added.

A merger of American Airlines and US Airways would continue a trend of consolidation in the U.S. airline industry. The most recent merger of U.S. “legacy” carriers occurred in 2010 with the combination of United Airlines and Continental Airlines. The Antitrust Subcommittee held a hearing regarding that transaction. Then-Subcommittee Chairman Herb Kohl, noting that the transaction would reduce the number of national networked airlines to four, asked “at what point do we reach a tipping point for competition?”

The Department of Justice Antitrust Division will review the merger of American Airlines and US Airways to determine whether it will harm competition. The Antitrust Division has reviewed and approved a number of airline mergers in recent years, without a challenge.

In 2008, the merger of Delta Air Lines and Northwest Airlines combined the nation’s third and fifth largest carriers. The Justice Department unconditionally approved the deal after a six-month investigation.

The Justice Department signed off on the 2010 United/Continental merger after the carriers offered to transfer takeoff and landing slots and other assets at Newark Liberty Airport to Southwest Airlines. The Justice Department’s investigation determined that the carriers had largely complementary networks, resulting in overlap on a limited number of routes where they offered competing nonstop service. The largest of those routes were between United’s hub airports and Continental’s hub at Newark Airport.

More recently, the Justice Department closed its investigation into the combination of low-cost carriers Southwest Airlines and AirTran Airways in 2011, without taking action. The Antitrust Division noted that while there were overlaps on certain nonstop routes, the airports affected by those overlaps were not subject to restrictions on slots or gate availability.

This is not to say that the Justice Department has not blocked airline mergers in the past. Back in 2001, United Airlines and US Airways terminated their merger agreement following the Justice Department's threat to challenge the transaction. Since that time, US Airways acquired America West in 2005 and unsuccessfully attempted a hostile takeover bid of Delta in 2007.

The combined American Airlines and US Airways would operate under the American Airlines name, offering more than 6,700 daily flights to 336 destinations in 56 countries. The parties expect the merger to be completed in the third quarter of 2013.

The carriers said that they intend to maintain all hubs currently served by both airlines. These include Chicago, Dallas-Fort Worth, Los Angeles, Miami, New York, Philadelphia, Washington, D.C., Phoenix, and Charlotte. The Justice Department’s investigation will most likely focus on routes involving these cities.

Companies: American Airlines; US Airways

News: Antitrust