How Much Did US Airways and American Airlines Really Have to Give Up?
The stalled merger between US Airways (NYSE:LCC) and AMR Corp.’s (AAMRQ.PK) American Airlines will finally be going through, as the airlines reached a settlement with the U.S. Department of Justice, which had sued to block the merger, on Tuesday. And according to a report from Bloomberg, it doesn’t look as if the airlines are giving up very much at all in the settlement; the two will move forward with their merger more or less as planned.
At the end of the summer, the Justice Department sued to block the merger on the grounds that it would cut down too much on competition in the U.S. airline industry and raise the price of airfare for consumers. At that time, the DoJ’s antitrust chief, Bill Baer, looked like he was ready to lead the agency to fight the merger with all he had.
Then, last week, reports began coming out that the DoJ and the airlines were in negotiations with a goal of reaching a settlement before their trial was due to start on November 25. It was also reported that both Southwest Airlines (NYSE:LUV) and JetBlue (NASDAQ:JBLU) were interested in purchasing some of the slots that US Airways and American would be forced to give up.
On Tuesday, the Justice Department said that the settlement reached — in which American and US Airways have to give up slots at airports around the country and give them to low-cost carriers — would help stimulate competition like never before and improve overall consumer choice.
“The extensive slot and gate divestitures at these key airports are groundbreaking and they will dramatically enhance the ability of [low-cost carriers] to compete system-wide,” Baer said in the DoJ’s statement. “This settlement will disrupt the cozy relationships among the incumbent legacy carriers, increase access to key congested airports and provide consumers with more choices and more competitive airfares on flights all across the country.”
But according to Bloomberg, the airlines really aren’t giving up much at all in the settlement; the news service reports that they’re essentially moving forward with the merger as planned. The airlines have said that their revenue goals and plan for $1 billion in savings will remain the same, and the carriers will still control more than half the slots at Ronald Reagan National Airport after divestitures are made. While some of the slots around the country are being given to low-cost airlines like JetBlue, some will also be sold to already huge companies like Delta Air Lines (NYSE:DAL).
“Why mince words?” Jamie Baker, a New York-based analyst for JPMorgan, said in a note to clients seen by Bloomberg. “‘A win for the airlines’ is how we view the negotiated settlement.”
Mike Boyd, a former airline executive who has run his Evergreen, Colorado-based consulting firm Boyd Group International Inc. since 1984, echoed similar sentiments to the news service. “You just wasted a lot of our tax money on a bad lawsuit. The airlines didn’t give up much of anything,” he said.
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