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Justice Dept. Clears Merger of US Airways, American Airlines

American Airlines and US Airways Group Inc. have reached a settlement with federal regulators in the U.S. lawsuit seeking to block their $17.2 billion merger, a person familiar with the matter said. A deal with the Justice Department will be announced today, the person said, asking not to be identified because the negotiations are private. The two sides have been discussing airline concessions such as ceding flight slots at Washington’s Reagan National Airport, people familiar with the… ( More...

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PhotoFinish 2
Will be interesting to see what the final outline of the deal will be.

At first, many though the DOJ was only after a deal all along, either to win concessions or to flex DOJ muscle (an attempt at image repair).

As there was more time to ponder the deal, it becomes clearer that the deal may not have been the best possible match for AA, bit all other majors are taken, do they're stuck with the US matchup.

Parker certainly needed it. Went from an AA executive to America West chief to US Airways chief, back to being chief at AA (while simultaneously making it the largest airline in the world again).

But the merger (along with the other 4-5 major mergers in the last few years) will reduce competition through consolidation, and may create a barrier to entry for new airlines, and will cause prices to increase.

The correct remediation should not be against American alone, but should be an industry wide action to protect competitive environment that's properly balanced between large airlines and small. Would be a sane if large airlines would extinguish smaller airlines at will.
JD345 1
I don't think that these mergers are having much of an impact on the barrier to entry for new airlines... not any more than the natural barrier to entry that's pretty much the airline industry itself. It's hard to think of an industry with as high overhead and as volatile an environment as the airline industry.
PhotoFinish 2
If all new entrants have to avoid adding service into any one of the dozens of hubs of any one of the 4 major national carriers (or risk an aggressive anti-competitive reaction); then it would be a significant barrier to entry above and beyond the normal barriers of raising capital for such a substantial capital-intensive investment, etc.
ken young 1
I read a quote form Parker where he said there was too much competition between carriers. This merger just ended a whole bunch of it.
PhotoFinish 1
The decreased competition benefits all airlines.

After the merger is complete, any remedy needed to stimulate competition (or rather decrease anti-competitive behavior) should be industry wide. All large majors would be in a position to try to squash competion from much smaller rivals (and/or create a lot of pain for that smaller airline whilst trying to squash their competing service) into or from any of their major hubs where they have a dominant position. They can also respond strongly to competition from equal or nearly equal large competitors trying to greatly increase service into the dominant airline's fortress hubs. The response can be at the hub airport in question, or the fight can be brought back to the competing airline's own hub airports.

Regulations should be simple, should be minimally impactful, and should curtail retaliatory responses against much smaller rivals, trying to dissuade competing service.
PhotoFinish 1
Would be a SHAME if large airlines would extinguish smaller airlines at will.
PaulN2719 3
While this will inevitably lead to higher airfares, the lawsuit was really kind of pointless. Where was the outrage before AirTran-Southwest, United-Continental, Frontier-Midwest, or Delta-Northwest? The time to stop mega airline mergers was before they started. Now it's way too late to say "this is a mistake"!
Not for nothing, but there was plenty of outrage with USA/AWE, and there certainly was with AAL/TWA/RenoAir when they were bought out in the mid 2000s and late 90s respectively, especially when hubs became part of the deal. and FFT/MEP were no-where near the size of these two, especially with bringing their int'l routes into the mix; and it wasn't FFT/MEP that was big with that deal; it was RPA buying both carriers and adding their regional service through Chatauqua, ASE, and RPA in as well.

In all fairness, SWA would have the biggest justified gripe with the service into DFW because of Wright, but all they need to do is hold off until next October, and that will go away. DCA is lucrative for both SWA and VRD, especially with bringing the west coast into this.
pfp217 1
There was plenty of outrage when UA/US attempted to merge in the early 2000s. So much so that it didn't go through.
glenn parker -1
Exactely! The Justice Dept. was a day late and a dollar short. Ultimately, they had to approve this merger in order for American and US Airways to survive. If they were really worried about competition, high prices, poor service, etc., they would have had to address the first merger of Delta and Northwest and then subsequently dealt with the others. By acting as they have over the years, they put themselves behind the eight ball.
Mergers and consolidations probably bring inherently poor results no matter the field you are talking about: airlines, railroads, public school systems, etc., etc.,and etc.
PhotoFinish 1
American had been the largest airline in the world before all the recent mergers. They had the network and alliance to survive. They just needed to bulk up a bit, to compete more evenly with United and Delta.

Picking up US Airways allows them to bulk up instantaneously. But they are left with a more unwieldy network with much higher combined costs, with combined hubs that are not well distributed geographically, and will compete between themselves for passengers.

Growing organically would've created a better network (geographically and cost wise) that would be better at feeding traffic to from international to domestic long haul and short flights.

But at least American had a solid base upon which to grow, especially after the BK restructured an lowered their costs.

If not for the merger with AA, I'm not sure what US Airways' out would've been. US was in a more desperate situation than American. Notice how US had to change airline alliances with the merger. The other three were founding members of their own alliance. US Airways is just an add-on wherever it were to be positioned.
Joseph Sede 1
These mergers restrict competition and create monopolies that increase prices. Remember the oil mergers.
PhotoFinish 1
The term you mean to use is oligopoly. All major airports (large and mid-sized will be served by multiple carriers. The largest airports are served by all te major players.

Only the smallest of destinations are served by only one airline. If they could sustain service by more than one carrier they would already have multiple carriers, or soon will have service added by another carrier.

The argument against the mergers is that after consolidation with few competitors (oligopoly) the competitors will create an unwritten agreement to not challenge the competing airlines pricing on their turf, so they won't challenge your pricing on your turf.

There are sufficient opportunities for LCCs (JetBlue, Alaska, Virgin America, even Southwest with a slightly lower cost structure) and ULCCs (Allegiant, Spirit, Frontier) to compete on price and/or service to help keep pricing somewhat in check by United, Delta and the new American.

Some industry-wide regulation may be needed to protect the smaller rivals from the larger ones, at any size.
Maybe whoever worked for US Airways will learn from AA how to treat their customers huh?
ken young 1
Fat chance. Carriers treat most passengers as though they are merely tolerated instead of valued customers
Marcus Pradel 1
The only real objections to this merger are the other super sized airlines who managed theirs, but would rather not have one more elephant in the room. Delta-NW, SWA-AirTran, ContUnited..
Ric Wernicke 1
The administration got what it wanted. 44 slots at DCA to horse trade with congress. If you want to know why your legislator roller over for the Whitehouse, it is because he now has a nonstop flight home from Reagan National.

The fun part now will be watching how the new board sends Parker home with parting gifts, keeping Horton as CEO of the combined companies.
preacher1 2
Personally Ric, I hope you are correct but where did you come up with that tidbit about Parker? or is that just wishful thinking?
Ric Wernicke 1
I have carefully inspected the merger filings, and know something of the past action of the directors. The new company will have a 12 member board. Five are money moguls, three from current AA and 4 from Parker's clique. Horton will be the big cheese and Parker the CEO, at least until the shareowners meeting when Horton is supposed to wave bye-bye. It should be noted that Horton is a money mogul, and Parker is an empire builder.

The new company is held 72% by current AMR shareowners and 28% LLC. The AA shareowners can meet on their own and change officers at will. They will also be allowed to call a meeting of the board and place items of business on the agenda.

The majority of the 72% investors are money people and have a kinship with other money people. As talented as Mr. Parker is at empire building, that is not a trait respected by the money people. Horton has demonstrated an ability to make a profit with AA, and the smell of cash will certainly sway the members of the board who like that sort of thing.

Wall Street (who ever they are anyhow) wants profits. They will do anything to build shareholder value by making money. It is how they get rich. What Parker did was bring a ready made increase in size by a third, and the sharp money boys snapped it up. Sure they promised to make him Boss Hog, but did not say how long. Even if they had to pay him to go away, it would be small money compared to what can be made with a money guy in charge.

I also notice a former heavy hitter from Boeing is on the new board. This cannot be good news for Airbus options. I am sure the sharp pencil boys (accountants) will be watching the slow, fuel hungry EADS equipment nibble and profits and wear a new path in the carpet to the CFO's office with the results.

I notice with some glee that Mr. Cahill on the new board is the Executive Chairman of Kraft. Perhaps now we can have some decent Mac & Cheese onboard!
PhotoFinish 1
Interesting novel idea, but well argued. Thanks for sharing.
PhotoFinish 1
wishful thinking
preacher1 1
This will be interesting to watch over the next few months. The AMR board seems to have started having doubts about the merger itself, to the point that if the DOJ suit would have delayed it, they could have walked after mid January and word on the street was that they might. I wonder if there is a consideration to merge and then get rid of Douggie boy. LOL
AWAAlum 1
I hope not. In spite of all the negative publicity Doug is getting here, I know him reasonably well and he's a good man. He took over America West at the worst time in aviation history and made it a success. He's a mover and a shaker and there's nothing wrong with that.
PhotoFinish 1
If the idea is to get rid of Douggie, it may be worth reconsidering the entire merger. Gets a bit expensive to pick up DCA, and a bunch of slots here and there, plus a bunch of non-complementary hubs.

Planes - AA has a bunch of new ones on order.
Pilots - AA pays more than US. Just set out a sign, and they'll come.

Plus I've always liked the fit of Alaska with AA, and haven't been shy in saying so. (At least as compared with US-AA hub geography.)
PhotoFinish 1
If United-Continental was a rough merger, AA-US has the potential to be a certified disaster.

My theory is that the relative size of the acquiring airline to the merger partner correlates to the level of difficulty.
Delta was slightly larger than Northwest so little difficulty.
United was about 50% larger than Contintental, so some difficulty in merging the larger partner.
American will be slightly more then twice as large as US Airways.

So by this rationale, merging with American will be a daunting task for the smaller US Airways.

I consider the surviving management as the acquiring airline for this exercise. By my measure, the US-AA will be the toughest merger to execute, by far.*

* Unless Horton & associates stay on as the controlling management.
PhotoFinish 1
The one thing that will help them is that they were going to continue using the AA reservations system. Not only does AA have a long history in developing reservation systems, but continuing to use the larger system that was handling a larger load should lead to few issues.
Musketeer1 0
I'm still really curious if there are any pilots on here with either of these guys that can weigh in on future it going to be really good news for USAir pilots or really bad news for AMR pilots?

[This poster has been suspended.]

Musketeer1 3
Your sister makes $85 an hour on me.
ken young 0
I heard a statement from a consumer analyst where post merger fares rose by an average of 40% in cities where the merged carriers had a dominant presence.
The cost of flying just bent the flying public over a barrel.
This is a disaster for both the industry and the flying public. Recent press reports of delays, incompentence and poor practice by cactus are no surprise. I refuse to travel on USAirways, or 'useless airways', as some call them. I'm happy that they shall no longer be part of the Star Alliance. In my opinion, no amount of $$ P.R. by AMR can reverse the years of gouging, delays, rude employees and inferior equipment shall save them.
leonardo muniz -4
(Duplicate Squawk Submitted)

AMR Corporation and US Airways Announce Settlement with U.S. Department of Justice and State AGs

FORT WORTH, Texas and TEMPE, Ariz, – AMR Corporation (OTCQB: AAMRQ), the parent company of American Airlines, Inc., and US Airways Group, Inc. (NYSE: LCC) today announced that the airlines have settled the litigation brought by the U.S. Department of Justice (DOJ), the States of Arizona, Florida, Michigan and Tennessee, the Commonwealths of Pennsylvania and Virginia, and the District of Columbia challenging the merger of AMR and US Airways.


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