Smart SpendingSmart Spending

Why feds sued to block US Airways-American merger

The DOJ shoots down attempt to create world's largest airline, saying yet another merger is bad for consumers' wallets.

By Mitch Lipka Aug 13, 2013 6:20PM
A US Airways airplane sits between two American Airlines jets at Dallas Fort Worth Airport, on February 14, 2013 (© Mike Fuentes/Bloomberg via Getty Images)When you consider how many airlines have been allowed to merge, it might not make a lot of sense that the U.S. Department of Justice (and six states) decided this was the one where the line needed to be drawn.

But the gauntlet has been thrown and the proposed US Airways merger with American Airlines is the target. Forget United joining with Continental, Delta pairing with Northwest or Southwest consuming AirTran. Some consumer advocates -- and now the federal government -- thought this one just had too much downside for consumers to allow to go forward.

Consumer advocate Christopher Elliott, who serves as ombudsman for National Geographic Explorer and is co-founder of the Consumer Travel Alliance, was glad to see the government step in and sue to stop the merger. He believes putting US Airways together with American was a bad idea that was going to result in less choice for consumers and higher prices.

"The Justice Department did its job," he said. "This is good for passengers. It means airfares will remain competitive and the relentless drive to squeeze every penny of ancillary revenue out of passengers will remain in check -- at least for now."

One of the big problems in this particular merger plan was just how many markets the two airlines were competing with each other. In Washington, D.C., for example the combined airline would end up with nearly 70% of all flights at Reagan National Airport. That domination, and concerns about how much airfares could go up where the competition would drop off, fueled both consumer advocates' concerns and those of the Justice Department.
Perhaps the biggest challenge that US Airways and American faced were all the mergers that had come before. Increasingly, the bulk of flights Americans have to choose from are concentrated among but a handful of airlines, and seeing what could happen if two more carriers were united as one seemed like something worth stopping -- for consumers' sake.

"I think it's clear that airline mergers have been bad for consumers," said Pauline Frommer, editorial director of the Frommer travel guides. "In some cities, flyers have seen their hub status eliminated -- and with it a large number of flight options. In many markets, mergers have led to an increase in pricing. Just as in any market, when you have less competition, you're going to have higher prices. It's Economics 101."

More from MSN Money:
Aug 13, 2013 8:01PM
Hooray!  This is my first time seeing the government do some thing right to help the people and the country.  American Airline charges double the price of US Airway and they are still in the verge of bankruptcy.  I wonder what did they do with all those money they sucked - must have gone to the execs.

Another thing I want to see government do is outsource prison, since they outsource a lot of things in America.

Aug 13, 2013 8:27PM
NoLaw-LifeisHell, The money went to the execs.  Remember when Don Carty (CEO) blatantly lied about executive retirement plans and when he got caught he was fired (but the execs kept their bonuses and retirement).  Then along comes Arpey (his father was a great bud of Lorenzo) who did absolutely nothing for God knows how many years and then came Horton (world class scum bag) who was the CFO but ran away to AT&T immediately after September 11th because he saw his bonus disappearing.  Then magically comes back and instantly files for bankruptcy.  Did I mention he ask for $20 million for saving the company. Let me help you out with the airline philosophy, rather than run a quality service, lets make our margins from our employees.  Remember, why should we give you any service, we already have your money.
Aug 14, 2013 7:38AM
All in all, sometimes mergers create opportunity and the DOJ under obama creates destruction of jobs. Efficiency and improvement does not always cost jobs it sometimes creates improvements, so the naysayers should look at growth instead of destruction. without the merger you can say goodbye to two giants and thousands of jobs. So it looks as if the obama administration is on track top destroy more American jobs.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.