Left Unchallenged, Travelers Would Likely Suffer from Less Competition Resulting in Higher Airfares
Phoenix, AZ (Tuesday, August 13, 2013) -- Attorney General Tom Horne today joined five states, the District of Columbia, and the U.S. Department of Justice in filing suit to block the pending merger between U.S. Airways and American Airlines.
Left unchallenged, the merger would create the largest world-wide air carrier, reduce the current number of “legacy” airlines (carriers that existed prior to the Airline Deregulation Act) in the U.S. from four to three, and reduce the number of major airlines from to five to four. If the merger in fact happens, the three remaining legacy airlines -- the combined U.S. Airways/American, United and Delta -- and low cost carrier Southwest Airlines, would account for more than 80 percent of domestic air travel, making fare and fee increases easier to achieve.
American and U.S. Airways compete directly on thousands of heavily traveled nonstop and connecting routes. If this merger is completed, consumers will likely see less competition and higher airfares because airlines will be able to cut service and raise prices with less fear of competitive responses from rivals.
US Airways has long been problematic for other legacy carriers’, including American’s, with its Advantage Fares program. Under that program, U.S. Airways aggressively reduces last-minute ticket prices on connecting routes that compete with other legacy airlines’ non-stop routes. The proposed merger would likely bring an end to that pricing strategy and increase nationwide ticket prices by hundreds of millions of dollars. The merged airline would also be inclined to adopt American’s higher ancillary fee schedules (such as checked bag fees and ticket change fees), potentially costing consumers an additional $280 million each year.
“Competition is crucial for a vital economy” said Horne. “As the state’s chief legal officer, it is my duty to maintain competitive markets in Arizona for the benefit of our citizens. This merger is anticompetitive and Arizona consumers will be forced to pay millions of dollars more each year in increased airfare if it goes through as planned.”
History has shown that when competition shrinks in the airline industry, coordination by the remaining airlines becomes easier. Before 2008, there were six legacy airlines. Although the proponents of the last few airline mergers promised they would cut costs for passengers, those savings never materialized. Instead, the major airlines have followed each other in raising fares, imposing new fees on travelers, reducing services, and downgrading amenities.
American Airlines entered bankruptcy with plans to restructure and remain independent, adopting a standalone business plan designed to “restore American to industry leadership, profitability, and growth.” The airline, which is still in bankruptcy, is claiming the merger is necessary for survival, when it is not. In fact, American is now on a path to compete independently as a profitable airline; with its most recent quarterly results showing a record-high $5.6 billion in revenues, with $357 million in profits.
The other states joining in the lawsuit include Florida, Pennsylvania, Tennessee, Texas and Virginia. The District of Columbia has also joined the suit.