DOJ halts US/AA merger

From CNN

The Justice Department and attorneys general from six states and the District of Columbia filed a lawsuit Tuesday challenging the $11 billion merger of American Airlines and US Airways, saying the combination would lead to higher prices and less service for consumers.

Hmm…Just when it started to seem like everything was getting dates for implementation here comes a wrench.  Apparently the DL/NW, UA/CO, WN/FL mergers were fine, but we must have hit the tipping point for mergers or the economy.  So even though AA is in Chapter 11 the airline industry is still apparently making too much money these days.

The lawsuit comes as somewhat of a surprise. In recent years the Justice Department has allowed other big airline mergers — Delta gobbled up Northwest, and United absorbed Continental — in part because the airline industry was losing so much money and the mergers were seen as necessary for survival.

But airlines are now making billions of dollars, not only from higher fares but also from $6 billion in fees they collected in 2012 alone, for baggage and seat selection and other things that used to be included in fares.

So it sounds like US/AA are a couple years too late…at least until a couple politicians get their palms greased or something.

As a US Airways hub captive I’m very worried about the uncertainty.  Cleveland, Memphis, Cincinnati, and Pittsburgh are all proof that no airport will always be a hub.  Charlotte could very well go by the wayside and then I might as well move to Atlanta.

Higher airfare is indeed a concern since airfares are pretty high in Charlotte as it is.  It ranks 25th most expensive as of 1Q 2013 by the Bureau of Transportation Statistics with the AA hub at DFW coming in right behind it at 26, but otherwise most of the airports that are more expensive are not US or AA hubs which means the merged airline has some wiggle room to raise fares with Delta focus city CVG at #2, UA hub IAH at #3, IAD at #4, and EWR at #6 it looks like UA is leading the high fare hub cities.

To a certain extent all of this is supply and demand so logically anything that cuts capacity while demand stays constant will increase prices.  Will the combined airline cut capacity?  Most likely.  Will it decrease competition?  Yes.  Is it any different than the mergers that already happened?  Not really.  Each one subsequently became the biggest airline.

Comments

  1. I live in Charlotte too. The only upside of the merger for us, is the ability to use Avios on any flight within a 600 mile radius. At least while the hub lasts.

    Eventually, Charlotte and Philly are both gonna be toast. East coast hubs will probably be JFK, DCA, and MIA.

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