Tuesday, August 13, 2013

US DOJ sues to block American-US Airways merger

Imagine two airlines, one going through bankrupcy and the other having successfully reinvented itself after a series of acquisitions.  The airlines could economize on overhead expenses.  They would still face competition on virtually every route from airlines of comparable size.  Also they would still have to worry about market entry from low cost startups and corporate aviation. 

One would think that this is a case where a merger would serve both customers and shareholders.  But think again.  Today the Antitrust Division of the US Dept of Justice filed a suit to stop the proposed merger between American Airlines and US Airways.  DOJ claims that the merger would reduce competition in too many markets, increase fares and reduce availability. 

The irony is that the same Obama-administration DOJ has approved mergers between United and Continental and between AirTran and Southwest.  This is consistent with policy under the Bush administration DOJ which approved the Delta-Northwest merger.  Now customers, employees, and shareholders will have to wait and see what the courts have to say.  The stock market already has spoken -- US Airways is down 8%.

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