Categories
Press Releases

TN Reaches Agreement in Challenge to US Airways-American Airlines Merger

Press release from the Office of Tennessee Attorney General Robert Cooper; November 12, 2013:

Tennessee Attorney General Bob Cooper announced an agreement today in the State’s challenge to the proposed merger of US Airways and American Airlines. The settlement will require the New American Airlines to continue to serve each of Tennessee’s five major airports in Nashville, Memphis, Knoxville, Chattanooga and the Tri-Cities for five years.

Since 2008, several other major airlines have merged including Delta and Northwest, United and Continental and Southwest and Airtran. Each of those mergers has resulted in reductions in seat capacity and in some cases a dramatic reduction of service such as in Memphis following the Delta and Northwest merger. This resulted fewer flying options and higher prices for Tennesseans.

“Today’s agreement should provide Tennesseans more opportunities to buy low-cost airline options,” Attorney General Cooper said. “It also opens the door to increased competition to smaller carriers, benefitting consumers and businesses.”

As part of the agreement, US Airways and American commit to continue to offer service in Tennessee. At issue for Tennesseans was divestiture of airline slots at Reagan National Airport and LaGuardia International Airport. The divestiture of 104 Reagan slots and 34 LaGuardia slots will allow lower-cost carriers such as Jet Blue and Southwest to bid for the slots. Without divestiture, the New American Airlines would have controlled 69 percent of the slots at Reagan.

The U.S. Department of Justice (DOJ) and the States also signed off on a related proposed final judgment that will remain in place for 10 years. That judgment requires the divestiture of flight slots at Reagan National in Washington, DC, LaGuardia in New York City and of gates at Boston, Chicago, Dallas-Love Field and Los Angeles International. The divestitures of flight slots will enable new carriers to enter the Washington and New York markets. Divestitures of gates should enable new carriers to enter the other affected markets.

The States and DOJ filed the action on August 13 this year and a trial was scheduled to begin on November 25. Tennessee was joined by the States of Arizona, the District of Columbia, Florida, Michigan, Pennsylvania and Virginia.

Categories
Press Releases

Tennessee Joins Federal Suit Against Airline Merger

Press release from the Office of Tennessee Attorney General Robert Cooper; August 13, 2013:

Tennessee Attorney General Cooper today joined a coalition of six states in conjunction with the U.S. Department of Justice Antitrust Division and the District of Columbia in a federal court complaint challenging a pending merger that would make a combined U.S. Airways/American Airlines the largest worldwide carrier.

If approved, the merger would reduce the current number of the larger “legacy” airlines from four to three – U.S. Airways/American, United/Continental and Delta/Northwest – and the number of major airlines to five to four. In fact, the three remaining legacy airlines and Southwest would account for over 80% of domestic travel, making fare and fee increases easier to achieve and even more profitable for the airlines than they already are.

American and U.S. Airways compete directly on thousands of heavily traveled nonstop and connecting routes, including many to and from Tennessee.

“Studies show that Tennessee’s four major airports in Nashville, Memphis, Knoxville and Chattanooga will experience fewer flights to certain destinations and travelers will pay more for remaining flights,” Attorney General Cooper said. “If this merger is completed, consumers will face decreased competition and increased prices because airlines can cut service and raise prices with less fear of competitive responses from rivals.”

For example, US Airways and American currently complete for customers with flights between Nashville and Washington Reagan Airport. The merger would eliminate this competition. Service to Chattanooga, Knoxville and Memphis could also suffer from fewer flights to major cities.

History has shown that when competition shrinks, coordination by the remaining airlines becomes easier as similarities in their networks and business models grow. Before 2008, there were six legacy airlines, but various mergers followed, ostensibly to save costs to travelers and offer more options. However, the promised cost-savings from previous mergers never materialized, and the major airlines have followed each other in raising fares, imposing new fees on travelers, reducing service, and downgrading amenities.

American entered bankruptcy with plans to restructure and remain independent, and adopted a standalone business plan designed to “restore American to industry leadership, profitability, and growth.” Now American is on a path to compete independently as a profitable airline; its most recent quarterly results reported a company record-high $5.6 billion in revenues, with $357 million in profits. And earlier this year, American’s management presented plans to emerge from bankruptcy on a standalone basis that would increase the destinations it serves in the U.S. and the frequency of its flights.

In contrast, if this merger goes through U.S. Airways would likely continue to pursue its ‘capacity discipline’ strategy — substantial reductions of service and capacity, a phenomenon that has followed each significant legacy airline merger in recent years. U.S. Airways has said that capacity reductions achieved through capacity discipline enable fare increases, and that pricing power results from reduced industry capacity. As their CEO has said, there is an “inextricable link” between removing seats and raising fares.

See Department of Justice’s release here: http://www.justice.gov/opa/pr/2013/August/13-at-909.html.