The American/US Airways Merger is Far From Over

The big news yesterday was that the Department of Justice filed suit to stop the American – US Airways merger.

Why I Didn’t Expect the Government to File Suit to Stop the Merger

I did not expect the DOJ to file a suit to block the merger, I assumed that some negotiation would generate sign-off on the merger. I speculated that the filing of the suit could be a negotiating tactic, but that my initial sense was this was unlikely — they wouldn’t need to go through the effort just to demonstrate their seriousness, and they laid out a fairly broad and sweeping case against the merger that would be difficult to walk back from with merely the sorts of concessions that American and US Airways could offer.

Blocking the merger is bad for labor at the airlines (who generally get raises), it’s bad for creditors (who are made completely whole through the merger), and it’s bad for American’s equity holders (who were slated to actually get something out of the bankruptcy process).

But the DOJ concern is competition and consumers And I’ll be the first to say that mergers are usually not great for consumers. But that is definitely not always true. One commenter yesterday made the extreme version of the argument and I asked in return in the comments whether he would have objected to the American West – US Airways merger? Indeed, whether US Airways would even exist today if it hadn’t been allowed to merge at the end of its second bankruptcy in the previous decade. That merger clearly created more competition because it created a stronger competitor.

Concerns over competition seemed strange because US Airways and American Airlines compete directly on very few non-stop routes, and that’s traditionally the unit of analysis for evaluating these kinds of deals. There were rumblings about concern over competition in connecting markets, but that’s not the standard that was applied in previous merger cases included by current Justice Department leadership. Those standards would not have allowed United/Continental to merge. I didn’t expect the Department of Justice to change its standards.

It Seemed Like Modest Concessions Would Garner Approval

I had expected from the beginning that the federal government would require divestiture of slots at Washington’s National airport as a condition of approval. Doug Parker made a strong case in congressional testimony that they shouldn’t have to, and that it would be bad for many communities if they did. The airlines’ lobbyists even got a ton of Members of Congress to sign onto a letter arguing that they shouldn’t have to. But this was always going to be an issue.

National airport slots was an issue in the US Airways/Delta National/LaGuardia slot swap deal and that required divestiture of slots. It was an issue in the proposed United-US Airways merger that was eventually killed, and that plan included the pre-emptive divestiture of slots and creation of a new airline to operate them.

The EU required a very minor concession to sign off on the deal, just addressing competition on the Philadelphia – London Heathrow route. Of course the EU competition authorities weren’t concerned with airfare pricing in US domestic markets.

Minor changes to non-stop routes, some modest commitments, and especially divestiture of slots seemed like it would be enough based on historical precedent. One commenter suggested that the past merger approvals mean greater concentration now, and thus more concern over additional concentration. That’s likely right, but greater concentration wouldn’t imply shifting standards of evaluation. And there’s no magic formula for concentration — there would still remain three strong network carriers, and greater competition from the combined American-US Airways (American is, of course, still under bankruptcy protection).

I ultimately expected this would be enough because there are no restrictive practices involved in this merger. There’s nothing that ought to be considered per se illegal. And with remaining strong competitors in the market it’s hard to argue that American will have excessive market power — even on thin routes without substantial current competition, there are few barriers to entry and significant viable entities which could enter. The only area where there would be market power and barriers to entry is National airport, so a settlement there should be enough. (And the barrier to entry is government limits on takeoffs and landings.)

Sustained DOJ Opposition Will Kill the Merger

DOJ opposition effectively kills deals not because they have veto power — they do not, it’s ultimately a decision for the courts — but because they have the power to slow things to a crawl, getting to a court decision on the merits of a case isn’t just costly and distracting but it can take years. Mergers may no longer make strategic sense by the time the clock plays out. So American and US Airways need the government to drop its objections in order to move forward regardless of the merit or lack of merit in the government’s position.

Blocking the Merger Seems to Make Frequent Flyers Happy

US Airways partisans love their unlimited complimentary upgrades and their generous award chart — sweet spots especially like US to Hong Kong via Europe with an allowable stopover there for 90,000 miles in business class, 115,000 miles in business class to Australia with an allowable routing and stopover in Asia for instance. They also may prefer Star Alliance over oneworld.

American partisans prefer that top tier elites get 8 confirmed international upgrades each year valid from any fare, better award availability in first class, and that the airline actually serves food.

Harmonizing the carriers and their products will make some people unhappy. And certainly more frequent flyer programs for those of us with tons of points in each is desirable. And yet there are also consumers who would combine their miles from the two programs and then have enough to redeem for premium cabin international awards. Some folks have been getting one credit card or the other in the program they hadn’t previously participated in, in hopes of combining their miles.

Mostly though there’s concern about the future of frequent flyer programs, especially in light of the direction that some programs like Delta have been hinting — shifts to revenue-based redemptions, for instance.

There will be changes in the frequent flyer landscape. If American and US Airways merge, those changes will be blamed on the merger (post hoc ergo propter hoc). But in all likelihood a merger just speeds up the process of change, giving us much of what we will wind up with anyway.

Department of Justice Arguments are Weak and Contradictory

I finally had a chance to read the Department of Justice filing.

As I mentioned, the focus on connecting markets is relatively novel and unexpected. They impose a standard that previously approved mergers would not have met.

They rely on assumptions about US Airways continuing current pricing practices as a standalone entity (not at all required or guaranteed) and a belief that those practice would end post merger.

At some points they assume the new airline becomes like American. But at other points they recognize that it’s US Airways leadership that remains in charge of the combined entity, cherry-picking quotes from those executives about what they see as necessary for and the future of the industry (stated beliefs which are the norm across the industry).

While not a legal analysis, from an argumentative perspective the DOJ filing is unpersuasive. Cranky Flier goes further, describing the filing as the DOJ going off the rails.

  • It’s unclear why American, Delta, United and Southwest, JetBlue, and a patchwork of carriers like Allegiant and Spirit do not offer meaningful competition. The DOJ brief talks about connecting routes like Fresno-Indianapolis, Charlotte-Durango, and Hilo – Miami. Concern over extremely thin routes which still have multiple carrier options, albeit not from Southwest (until they start flying to Hawaii!) is the crux of the argument.
  • It’s unclear why other airlines wouldn’t offer a competitive response. The DOJ suggests that American was poised to get competitively aggressive but-for the merger, which seems to make this a likelier outcome than not to happen with another airline in its place.
  • The filing suggests that the current US Airways is the only legacy carrier that’s aggressive in pricing in these connecting markets and that would go away. Either it’s a good strategy and will continue, or it’s likely to go away anyway, and somewhat out of context quotes don’t demonstrate that this follows uniquely from the merger.
  • The DOJ is on its strongest ground regarding market concentration with Washington’s National airport. Everyone knows they’ll have to divest slots, whether this is ultimately good or bad for consumers notwithstanding (the question is, which consumers, since small town service is likely to diminish).
  • The filing reads more like a rhetorical document than a legal brief, with phrases like “the American public has seen this before” to cast doubt on the veracity of claims American might make about its future business plans. They include a graphic talking about the “New Holy Grail” of consolidation. A simple rule of thumb is the greater reliance on rhetoric, the weaker the argument.

How you define the market determines what you think about a merger’s competitive effects. The DOJ filing wants to look at all potential city pairs, rather than the non-stop flights operated by each airline. That will be controversial, but it’s the only way to oppose this (and every other future) merger.

If US policy cared about competition, there are much more effective things it could do besides opposing this merger.

For instance, lifting foreign ownership rules. This is usually discussed as “get Singapore Airlines to fly in the US and we’d get great service!” More likely we’d see Ryanair or Easyjet operate alongside Spirit and Allegiant, imposing significant downward pricing pressure. At a minimum, there’s little legitimate reason to prevent this.

Meanwhile, even as airlines have consolidated, airfares have fallen (looking at more than a single year time horizon) in inflation-adjusted terms.

And how is this for over the top? The government’s brief even asks that they be awarded attorneys’ fees for undertaking the case against the merger. They want American and US Airways to pay them. Now that’s piling on.

The States Signing On to This

This is really more about grandstanding and showing broad support rather than bringing legal force to the argument, but the specific states’ Attorney Generals signing onto the DOJ action is interesting.

  • Texas, where American Airlines is headquartered (are they worried about reduced importance of DFW post-merger? And the Attorney General is running for governor)
  • Arizona, where US Airways is headquartered (the headquarters will move and Phoenix could be de-emphasized)
  • Florida (I admit I don’t get this one, but then I know little of Florida politics)
  • District of Columbia, the Washington National issue looms large
  • Pennsylvania, which has already lost Pittsburgh as a hub and sees Philadelphia threatened
  • Tennessee, I don’t understand why here either.
  • Virginia. where there’s both the Washington National issue and the Attorney General is running for governor

Like or Hate the Merger, There’s Still a Path Forward

If the Department of Justice were to prevail on the appropriate analysis being connecting city pairs, it would likely win. Although non-stop versus connecting routes is hardly the only way to look at this. With three major airlines there is still competition — and not just between American, Delta, and United but also with trains and buses and cars and with Skype and GoToMeeting.

None of that matters, since this never gets to trial. They’re putting a firm boot on the merger.

The reason I was most skeptical of the filing as a negotiating tactic is that they weren’t just talking about ‘curable defects’ like overconcentration at National airport. They were talking – in extreme rhetoric – about pricing practices and scores of routes. How could DOJ walk that back?

Terry Maxon interviews Assistant Attorney General William Baer who seems to hedge over whether a settlement might still be possible.

Baer has no answer to why object to this merger, and not United-Continental.

First, we take each merger on its own merit. If you look at this one and the degree of competitive overlap between US Airways and American, you look at the financial ability of these two airlines to thrive as independent agents. You look at what we’ve seen over the past number of years in terms of the increased tendency led often by US Airways of these airlines to try and coordinate on fares and on ancillary fees. This one is problematic. That is why we’re going to court and asking the court to enjoin it.

See? No analysis to distinguish the cases. Later Baer focuses on American and US Airways having strong financial performance. American certainly hasn’t had this consistently, and only is performing well when all other carriers in the market are. There’s no contrast really drawn to past mergers either, even though it’s in response to a question about differences.

In response to whether divesting National slots would be enough of a cure? “If anybody wants to come to us to propose a settlement, we’re always prepared to listen.”

He repeats this later.

But as a law enforcement official, one always has to be sure you’re open to listening to people who think they have a better idea. They can come to us and say they’ve got a better idea. But you ask me what I think the better idea is right now, it’s to enjoin the merger.

(Emphasis mine)

On whether United and Delta lobbying against the merger had an effect? “We talk to anyone who wants to come see us and have a view on this.” Of course he denies lobbyists made the decision.

The DOJ needs a pound of flesh here and it needs to be big before they back down and allow the merger. Slots at National – perhaps more than previously contemplated – and they’ll need something else too. There could be some vague service and pricing commitments to let DOJ save face. Unions will be fully on board to lobby, because it’s their future pay raises on the line.

DOJ could back down, but the actual filing against the merger reduced the odds of consummation substantially I imagine.

May we live in interesting times


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About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Reason tn signed on is because delta closing the mem hub. Fedex pilots are having a hard time getting to work and this merger will only make it harder.

  2. Count me in the camp of US Partisans happy that the merger may not go through, but the impending delay does put us into a bit of Star Alliance purgatory. US agents have already stopped seeing LH intra-Europe award space past 10/1 — I imagine the merger announcement had something to do with this (whether US or LH is doing the blocking).

    Here’s a hypothetical: if the merger doesn’t go through, do you see US moving forward with the decision to join OW? They’d be playing second fiddle to AA, just as they do in *A with UA, but I wonder if the economics make sense…especially if a non-merger situation results in US making a “strategic investment” in AA or some other alternative.

  3. And as a follow on to my last comment that I really should’ve led with, thanks for the insight, Gary. Your analysis has been the best and clearest of the lot throughout this whole process, even if I’m looking at things from the other side of the AAisle 😉

  4. Is it correct to assume that we can still continue booking for the US to Asia for 90k on Biz awards (Star Alliance Partners) till at least January 2014 instead of anticipated November 2013?

  5. For Parker’s US last year’s Delta swap was incredibly short-sited. US traded all it’s LGA slots to DL for slots at DCA it now uses for mostly short-hops to make DCA a mini-hub. DOJ, of course, doesn’t like the US concentration at DCA in a merger with AA and will force divestment, hopefully to smaller carriers.

  6. I’ve seen several comments on how it takes years to complete litigation. That’s true generally of large-scale civil litigation. But this will be litigated as a preliminary injunction, which will be like a mini trial and very rapid (completed in a matter of months). The losing party might appeal, but no one will pursue years of litigation after the PI is resolved.

  7. Nashville is a hublet for AA, I believe a leftover from the TWA merger. With Charlotte in play, the number of flights in and out of BNA on AA would be reduced. Hence why TN signed up for the lawsuit.

  8. Gary, you only partially quote Baer in response to the question about Washington National slot divestitures. The full quote was, “If anybody wants to come to us to propose a settlement, we’re always prepared to listen. But our view, looking at the evidence before us, is that the right outcome here a full-stop injunction.”

    You can’t really cherry pick that first sentence to try and make the claim that this may just be a negotiating tactic by the DOJ when the very next sentence out of the man’s mouth goes completely against that.

  9. Gary: I love your blog, but you should stick to writing about things you understand. You’re not a lawyer, a Ph.D. economist, or an antitrust expert, and it shows.

    To pick one example, your comment that “And how is this for over the top? The Department of Justice is even asking that they be awarded attorneys’ fees for undertaking the case against the merger. They want American and US Airways to pay them. Now that’s piling on.” is just silly. That’s standard practice when filing an antitrust suit (or most other lawsuits). It would be hugely surprising if they didn’t ask for that.

    Your comments about how frequent fliers are reacting to this, and about what effects it will have on frequent fliers, are helpful, interesting, and useful, like most of what you write on this blog. You’re really good at that, and in general it’s a good rule to stick to what you know.

  10. Also note that the request for attorneys fees is only for the state plaintiffs. DOJ is not requesting attorneys fees.

  11. I’m not going to comment on the legal merits of the DOJ suit, in part because the outcome will (as Gary pointed out) likely be only a 2nd or 3rd derivative of those merits. That said, can we stop with the ridiculous argument that DL/NW and UA/CO mergers went through, so it would be “unfair” to deny AA/US? It is precisely because of the previously permitted consolidation that each successive merger deserves increasingly more scrutiny. Take the hypothetical example of an industry that consolidates to the point that there are only two players left. Based on this “fairness” line of reasoning, these companies would have the strongest case yet to be allowed to merge- literally a stack of precedent transactions to point to- but would we still expect the resulting monopoly to be permitted?

  12. Rob, maybe your problem is you’re too much involved in that world. In the real world the idea of the government suing me to stop a business deal and asking me to pay for their attorneys to boot is simply outrageous.

  13. Hansgolden: DOJ is NOT asking them to pay for their attorneys. That’s just a reading comprehension error by Gary. The request is by the states.

  14. So you’ve laid out your case against the DOJ lawsuit but I’d like to hear your thoughts on why the merger is good for us. Not for AA/US (mgmt or labor) but why it’s good for the consumer. Sure I’d love to pool my miles, but the Citi AA cards are extremely churnable at the moment, and I’m already at 50k US miles with the signup bonus + follow-on spending challenge.

  15. Unless there is a master conspiracy to collude on pricing between AA/US, DL/NW and UA.CO (which is per se illegal and therefore highly unlikely), three strong competitors will still result in strong competition. And that does not factor in the effect of the LCCs. Passengers mostly make purchase decisions based on price, so there will remain a pwerful incentive to undercut the competition.

  16. @DBest – I am not actually making the case that this is good for consumers. I think there IS a countervailing case to the one DOJ offers, such as all of the city pairs served by the combined US/AA that they do not currently serve and increased competition on those routes. My point isn’t that we should be excited about the merger, I’ve written several times my preference was for a standalone American. But that doesn’t mean the DOJ’s arguments are correct, or that the merger can’t still happen.

  17. To be clear, item 97(c) of the federal government’s brief asks for attorneys fees for “the Plaintiffs” which would include the states. But it is a request made in the brief signed and submitted by federal officials.

  18. @Chas – no fairness argument here, my point is that the DOJ has changed the standards it is applying in review of such cases and that previous mergers would not have been allowed under this approach.

  19. @Rob – sorry you don’t like my comments, I made clear this is not legal analysis of the substance of the anti-trust claim but rather the argumentation presented is not strong regardless of the merits of the legal approach (eg “While not a legal analysis, from an argumentative perspective the DOJ filing is unpersuasive.”)

    My day job for the past 17 years has been working with PhD economists, and I have done graduate work in economics, but that is neither here nor there for the purposes of this post.

  20. Sorry, Gary, your View from the Wing has become a View from the Boardroom. As someone who’s gone through the CO/UA merger and seen prices go up and service go down, forgive me if I’m wary of your assurances that what is good for the likes of Doug Parker is good for the customers. This US/AA merger would facilitate yet more collusion and less competition among the shrinking pool of major US carriers, with very negative implications for ticket prices, services and FF programs. Good for the DOJ to take US at its word, as per this LA Times quote and much other evidence the DOJ filing revealed:

    “The government’s case included internal communications among executives at US Airways, who complained about passenger demands to improve services and suggested that a blockbuster merger would ease that pressure.”

    “In a 2011 email exchange, one senior executive vented about the need to install in-flight wireless Internet. He wrote: ‘[N]ext it will be more legroom. Then industry standard labor contracts. Then better wines. Then the ability to book on Facebook.'”

    “Parker, the CEO, wrote back: ‘Easy now. Consolidation will help stop much of the stupid stuff but inflight Internet is not one of them.'”

  21. @Andrew – I was excerpting what I thought was the relevant portion for the point, not trying to misrepresent him. He definitely says their view is injunctive relief is appropriate, that’s contained in the government’s brief so I don’t think I was keeping it a secret and of course that’s their starting point in negotiations, it’s interesting that they note several times that they’re open to negotiate still.

  22. “To be clear, item 97(c) of the federal government’s brief asks for attorneys fees for “the Plaintiffs” which would include the states. But it is a request made in the brief signed and submitted by federal officials”

    Gary, not sure why you are so unable to read the complaint accurately. But for the third time, you are flat wrong.

    Here is the actual sentence from paragraph 97: Plaintiffs request:
    “(c) that Plaintiffs be awarded their costs of this action, including attorneys’ fees to Plaintiff States”

    You’re just leaving out the last word for some reason. The complaint is here if anyone wants to check.

    http://www.justice.gov/atr/cases/f299900/299968.pdf

  23. The one interesting point is that, on connecting itineraries, US is often the cheapest carrier by far close to the date of travel. While AA, UA & DL generally have advance purchase restrictions that they don’t waive or offer very cheap prices last minute, US doesn’t do this if they have inventory (again only connecting, not non-stop.) While there’s no certainty which way the merged entity will go, and there’s nothing to prevent US from changing, if the merger causes the change it will eliminate that aspect of competition, and in fact it’s possible that the math changes enough with one less competitor that it will maximize revenue not to discount last minute (ie. US has low share and picks up enough incremental business from the other 3 carriers to make its current discounting economically maximizing, but when merged with AA the maximizing strategy becomes to hold out for high last minute fares.)

    Not saying that on the whole this argument should prevail or lead to a better long-term result, but in the strange way that government anti-trust works, they may hang on this argument and it could derail the merger.

    Also the analysis may say that going from 4 to 3 major network airlines automatically reduces competition in a way that going from 5 to 4 doesn’t…. and a main flaw in this merger is that it’s the last one.

  24. My guess on FL joining the suit is a fear that the MIA hub will become less used if CLT exists as an option for the merged AA/US.

  25. The state AGs almost always sue for attorneys fees and costs. Often for financial recovery for their states, too.

    It does seem distasteful but it’s not unique

  26. I agree with Rob that the analysis here is also very thin, and I refer to the economic rather than the legal analysis (though you cannot expect more from a blog post, but perhaps that’s why a blog post is unsuitable for these types of arguments).

    Working with PhD economists in some vague capacity doesn’t make one an economist any more so than a trainer working with athletes makes that trainer qualified to play that sport well.

    You know about facts about travel and that’s what we come here to read; convincing analysis requires much more thought and understanding (and some supporting, reasonably advanced math, which never appears here) and I think that’s out of your league.

  27. First, regarding competition, the internal notes from US did not help them, see LATimes article:
    http://www.latimes.com/business/money/la-fi-mo-justice-department-us-airways-internal-messages-20130813,0,4594941.story

    That said, again, all you had to do was look at TMobile/ATT they DOJ made it clear going from 4 to 3 majors was not going to happen and again we see that they consider this bad for competition.

    AA should have looked at AS if it needed a stronger smaller partner, but they are not going to allow 3 major airlines and as US said in the article, they do not consider SW and JBlue to be competition.

    This was not posturing by the DOJ for changes/divestures, this was unless you come up w/ a MAJOR change to this merger it is not happening.

    Lastly, I’m surprised NC hasn’t joined in on this.

  28. Joe Schmoe, I trusted you that you were correct, but when you pasted the actual quote, I see you’re wrong and that according to the quote, both feds and states are requesting attorneys’ fees: “(c) that Plaintiffs be awarded their costs of this action, including attorneys’ fees to Plaintiff States”

    It’s clearly a request for all Plaintiffs’ attorneys’ fees, while being clear it also includes the states, not just the DOJ.

  29. Steve, Rob, others – those who feel that though I’ve done graduate work in economics that I do not have a PhD means that I cannot qualify on whether the DOJ filing (1) applies a different standard than in previous mergers, one which others would not have passed, and (2) argues for a form of analysis of competition that doesn’t appear to understand the airline industry, instead of “impugning my credentials to speak” as a means of silencing me, why don’t you actually respond to my arguments instead and explain how I am wrong? Most of the markets are contestable whether they are currently contested or not, show me the markets as well that will leave only a single or even just two competitors. Tell me I’m wrong that the DOJ in claiming that there are effectively few upsides to the merger isn’t ignoring the city pairs neither AA nor US individually serve but will serve post-merger?

  30. I have to laugh at the critiques of Gary’s work here. First, it’s his blog, not the Washington Post. Second, he clearly frames most everything in terms of his opinions and impressions. Maybe he is wrong, but that is his opinion. Third, this is the most detailed piece I have seen so far and it provides an interesting analysis from the perspective of a person pretty involved in the travel industry. Finally, the Texas AG (who regularly campaigns and sues AGAINST federal government interference -ref. Facebook), lists his concern as the potential for lost service to smaller cities (but as Gary noted, he is running for governor).

  31. This may be one of the best and most intellectual pieces of journalism you have ever written and I applaud your detailed breakdown.

    However, each merger is judged on it’s own merits, therefore forget about other airline mergers which leads to THE most important point.

    The one glaring red-flag of this merger which USAIR is going to regret is the actions by their CEO Doug Parker who forwarded that email to a rival airline in an attempt to “collude” with a rival airline to about ending a triple miles promotion as it will ruin the industry. You neglected to mention that part.

    In 2010, one of US Airways’ larger rivals extended a “triple miles” promotion that set off a market share battle among legacy carriers. The rival airline was also expanding into new markets and was rumored to be returning planes to its fleet that had been mothballed during the recession. US Airways’ CEO complained about these aggressive maneuvers, stating to his senior executives that such actions were “hurting [the rival airline’s] profitability – and unfortunately everyone else’s.”

    US Airways’ senior management debated over email about how best to get the rival airline’s attention and bring it back in line with the rest of the industry. In that email thread, US Airways’ CEO urged the other executives to “portray these guys as idiots to Wall Street and anyone else who’ll listen.”

    Ultimately, to make sure the message was received, US Airways’ CEO forwarded the email chain—and its candid discussion about how aggressive competition would be bad for the industry—directly to the CEO of the rival airline. (The rival’s CEO immediately responded that it was an inappropriate communication that he was referring to his general counsel

    Collusion is an illegal agreement between two or more parties, therefore secretive, to limit open competition by deceiving or misleading.

    That my friends is the one thing that the Justice Department does take extremely seriously and maybe the straw that broke the camel’s back and differentiates this merger from all of the other mergers. When it comes to Anti-Trust matters, in any industry in the which involves collusion and the Justice Department is involved. It is the beginning of the end of any merger
    and not a negotiating tactic. That’s not an opinion. That’s a fact.

    So when anyone wants to know why this merger is different than any other airline merger, or why this merger won’t go through, or in the end why this merger didn’t go through; they can thank greedy Mr. Parker for showing his true colors.

  32. HansGolden: I’m not sure how you interpret a request for “attorneys’ fees to Plaintiff States” to include a request for attorneys’ fees to the federal government. In any event, the statute that the feds are suing under (15 USC 25) does not provide for attorneys fees, while the statute that the states are suing under (15 USC 26) does. So I’m pretty sure the specific request for state fees was not inadvertent.

    Gary, thanks for updating your original post. I agree that “government” request for fees is more accurate than “Department of Justice” request for fees.

    I’ll stop beating a dead horse now…

  33. I think you misunderstand the word “including”. “Including” does not exclude. The original item (“plaintiffs”) is still the defining word; “including” only serves to widen and clarify the definition. (In this case, the author wanted to be sure that it was understood that even though it was the DOJ authoring the brief and requesting fees for plaintiffs, they wanted to ensure that it was understood that the state wanted their fees paid too.)

    If I say, “The NHL teams are requesting concessions from their players, including concessions from players of Canadian NHL teams” what does that mean? It’s the exact same sentence structure and situation and it makes it obvious it’s not LIMITED to only Canadian NHL teams. But the first sentence in the legal filing was clear too, so I don’t know what your issue is.

    The only reason you’re calling it a dead horse is because you messed up and were quite vocal about it to boot.

  34. I think you misunderstand the word “including”. “Including” does not exclude. The original item (“plaintiffs”) is still the defining word; “including” only serves to widen and clarify the definition. (In this case, the author wanted to be sure that it was understood that even though it was the DOJ authoring the brief and requesting fees for plaintiffs, they wanted to ensure that it was understood that the state wanted their fees paid too.)

    If I say, “The NHL teams are requesting concessions from their players, including concessions from players of Canadian NHL teams” what does that mean? It’s the exact same sentence structure and situation and it makes it obvious it’s not LIMITED to only Canadian NHL teams. But the first sentence in the legal filing was clear too, so I don’t know what your issue is.

    The only reason you’re calling it a dead horse is because you messed up and were quite vocal about it to boot.

  35. This goes to trail, the merger is toast. DOJ wins 84-1 in the since 2003 on blocking mergers. The filing is way too broad to be about concessions, it is a broadside against further consolidation.

  36. Joe Schmoe, I just figured out where you’re confused. At first, I totally could not understand how you could misunderstand, but now I understand your thought process:

    “that Plaintiffs be awarded their costs of this action, including attorneys’ fees to Plaintiff States”

    “that Plaintiffs be awarded their costs of this action, including attorneys’ fees, to Plaintiff States”

    The above two sentences mean different things because of a comma. You were understanding it with the comma in the latter sentence. Unfortunately, it’s the former sentence that is the actual sentence. Hopefully this clears it up for you.

    In either case, it is a quite poorly constructed sentence, which is consistent with the entire filing. The sloppy writing is matched by the sloppy thinking. Cranky has more details on the sloppiness of the “facts” cited: http://crankyflier.com/2013/08/14/us-department-of-justice-gets-a-cranky-jackass-award-for-its-lawsuit-to-stop-the-us-airwaysamerican-merger/

  37. To those asking whether the merger will benefit consumers, the answer is that that is possible. The answer depends on whether AA and US Air will be able to compete with DL and UA given their size disadvantage. Allowing AA and US Air to merge will create a third competitor strong enough to tackle DL and UA head-on. Without the merger? Well, AA already went bankrupt, and US Air is pathetically tiny.

    A lot of us consumers are tied to the profits of the airline companies in many ways. First of all, they employ our friends and relatives. If they make negative profit, or worse, go under, there will be layoffs. Secondly, many mutual funds that hold our assets invest in these companies. If they go bankrupt, we lose all the investment in them. Thirdly, these companies pay taxes on profit. Allowing them to make money also contributes to the government’s balance sheet.

    One major selling point of the merger was that it would make whole for the creditors. Not only that, the merger would also allow AA’s shareholders to recover part of their investment, quite in exception in the history of bankcruptcy cases. I doubt any other emergence plan will offer such a generous provision. If your mutual fund is one of AA’s creditors, my condolences.

    We often tend to separate consumers from businesses without realizing their intertwined relationship. It’s all our money in one form or another.

  38. Gary,

    As usual, a thoughtful and insightful view. Please keep commenting on this area as it clearly within the purview of being relevant to the blog.
    I believe, (my speculation) what is behind the doj is that prices have gone up. Forget that one relative basis it’s cheaper to fly now than it was in the past. Where there is minimal completion at hubs, the prices can be higher to fly to a hub domestically than to fly to Europe. The doj is seeing airlines do a much better job of keeping prices up, be it ancillary fees or the cost of airfare and they attribute this to reduced competition. Their arguments, whether they hold merit or not are a red herring. I believe this all comes down to what it costs to fly. Whether prices are truly up or not may or may not be relevant. It will most likely come down to their direct experience.

    As a frequent flier I am happy this didn’t go through. As someone who used to do m&a integration, I’m sorry I wouldn’t get to see what a finished product of these two companies melding looks like.

  39. The juiciest bit to me was when Doug Parker is alleged to have forwarded an email to a rival airline CEO about how bad a “triple miles” promotion was for the airline industry profitability. I was shocked to read this because many large companies make it VERY clear in their training to employees that such attempts to collude could be potentially illegal.

    In 2010, one of US Airways’ larger rivals extended a “triple miles” promotion that set off a market share battle among legacy carriers. The rival airline was also expanding into new markets and was rumored to be returning planes to its fleet that had been mothballed during the recession. US Airways’ CEO complained about these aggressive maneuvers, stating to his senior executives that such actions were “hurting [the rival airline’s] profitability – and unfortunately everyone else’s.”

    US Airways’ senior management debated over email about how best to get the rival airline’s attention and bring it back in line with the rest of the industry. In that email thread, US Airways’ CEO urged the other executives to “portray these guys as idiots to Wall Street and anyone else who’ll listen.”

    Ultimately, to make sure the message was received, US Airways’ CEO forwarded the email chain—and its candid discussion about how aggressive competition would be bad for the industry—directly to the CEO of the rival airline. (The rival’s CEO immediately responded that it was an inappropriate communication that he was referring to his general counsel.)

    Translation: Doug Parker pushes the envelope to get other airlines to not compete and maintain overall industry profitability.

  40. I’m really trying to understand: Why do we want the government deciding what for-profit businesses can or can’t do?

  41. A few things toads to this dialogue:

    1) The recover of fees, I’m pretty sure someone has pointed out the underlying statutes for the action and what is recoverable. In the legal world your litigation is comprised of costs (paper, travel, experts, telecom, etc.) and then attorneys fees, which are the the hours worked. As bad as the sentence maybe to some, to one who plays in the arena, the request is costs for the Plantiffs and Attorneys fees for the Plantiff States, as further confirmed by the relevant statues under which the actions are brought. So, we should debate the appropriateness from that understanding.

    2) I disagree with Gary’s position/suggestion DOJ is wrong or being somewhat unfair to AA/US by introducing the connecting service standards for analyzing competitive impact. There is a reason the statutes have no hard and fast rules of what to apply and why DOJ has the burden of then providing empirical evidence for their reasoning, the world and markets change each prior event informs subsequent approaches and analysis. The system has to learn and adapt to the current reality, otherwise it becomes irrelevant, it would be crazy for DOJ to have reviewed AT&T and T-Mobile through a Ma-Bell era prism.

    3) DOJ may have been inelegant in stating their case why the should look at connecting service, but as a consumer it makes sense and also if we look at how airlines themselves operate, 1-stop is a viable comparison to non-stop. Part of why this is, funny enough, is the plethora of hubs and focus cities that recent consolidation has created within eavh of the mega legacies and the increased reliance on RJs. WAS-DEN vs WAS-ORD//EWR//IAH//PHX//PHL//LAX//SFO-DEN are for the most part comparable to the average consumer level, they are going to Dnever from Washington. those connecting flights, even setting aside the US program, do influence overall price discipline. Where DOJ likely got inspired was in seeing how the big 3 even with connecting service didn’t try to compete too hard because they coudl be easily retaliated against on their dominant routes, but scrappy US did interfere on many a route somethingof course that’s gone when you are now owner of shiny lucrative non-stops. Clearly the previous mergers were lucky cause DOJ hadn’t seen this influence atthe time, luck of the draw , and shouldnt restrain them applying it.

    4) unfortunately airlines have not covered themselves in a lot of glory recently and because of this AA/US will lose this case in the court of public opinion. Unless DOJ did some terrible math, US/AA will also likely pay a high price in Fed court for going to the mattresses, their consolidation rational underpinning the merger is anticompetitive even if economically sound. The past semi collusive behavior on fares and fees will not help either, airlines are being undone by their own MO.

    5) a question for the commentators, are you more likely to believe a 3rd mega legacy would comtribute to competitiveness or that the last standing 3 would slice up America and crank out guaranteed profits and not changing capacity or routes?

  42. The merger would speed up negative changes for airline loyalty program customers in the main not only of AA and US’s programs but also in the industry as a whole.

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