US battle for the sky

Published On 07/11/2013 | By Kim de Kock | Litigation, Mergers

The US Department of Justice (DoJ) is ready to do battle with American Airlines and US Airways to block their mega-merger, but the airlines have the option of agreeing divestments in order to settle legal proceedings and clear their deal.

The DoJ launched legal proceedings in August this year to block the merger because of concerns that the merger would reduce consumer choice on certain non-stop and connecting flights or could result in higher prices for consumers.  This is because, together, the airlines would control a majority of take-off and landing slots at a number of already-congested airports – this would reduce the ability for other airlines to gain access to slots at those congested airports in order to compete with the merged entity if it were to increase prices or reduce flights.  The DoJ considers that the merger will remove any existing incentive for US Airways to continue to offer discounted fares, which would likely result in carriers such as Delta and United similarly increasing their fares.

The DoJ’s concerns relate to over 1000 city pairings which will be jointly dominated by the carriers.  Of particular concern is the potential future conduct at Ronald Reagan National Airport in Washington, where the airlines will jointly control 69% of take-off and landing slots – six times more than its closest competitor.  This airport is the gateway for the majority of members of congress who commute to and from other states and districts.

The European Commission (EC) cleared the merger on 5 August 2013, subject to conditions which included the release by the parties of one daily slot at London’s Heathrow airport.  This commitment was sufficient to address the EC’s concern that the merger would result in a monopoly on the London-Philadelphia route where the parties (through joint venture arrangements) are the only two carriers operating non-stop flights.  The EC was satisfied that other trans-Atlantic routes were sufficiently competitive.

While there seems to be some way to go in negotiations, reaching a settlement before the anticipated trial at the end of November will pave the way to creating the world’s largest commercial airline.

About The Author

is a Senior Associate in the Sydney office of King & Wood Mallesons where she specialises in anti-trust law, with a focus on mergers and acquisitions, access matters as well as general competition issues. Outside of the office, Kim has recently taken up surfing... but is probably not going to be appearing on the ASP tour any time soon.

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