US department of justice filed one case of anti-trust for blocking merger of US Airways and American Airlines.
The deal of $11bn, which will form largest airline of the world, happened to be backed by one federal judge during March and is approved by European Union.It is said that customers will see price rise since merger will lessen the competition substantially in domestic market.
Doug Parker, the boss of US Airways said company will fight this injunction.He said in one letter for employees,
“We are extremely disappointed in this action and believe the DOJ [Department of Justice] is wrong in its assessment.”
6 US states as well as Columbia District have joined legal action: Arizona, where the US Airways happens to be based, Texas, where the American Airlines tends to be headquartered, Tennessee, Virginia, Pennsylvania and Florida.
US Airways and American Airlines said that with reference to the action of justice department they didn’t expect this merger to be closed by end of the year 2013, though they stayed “hopeful” that litigation will be over till this year’s end.
The shares of both of companies fell, and also along with other airlines’ stock prices, as the news of case of anti-trust hit markets this Tuesday.
Eric Holder, the Attorney General of US, said,
“By challenging this merger, the Department of Justice is saying that the American people deserve better.This transaction would result in consumers paying the price – in higher air fares, higher fees and fewer choices.”
Also, this lawsuit cites the direct competition that’s between airlines on the nonstop routes that are worth around $2bn in the annual revenues.
According to an example, complaint says the company that’s newly merged will take up the 69% flights out from Reagan National Airport of Washington and 63% nonstop routes from the airport.
These airlines had conceded previously take-off as well as landing slots on airports in London and Philadelphia to win the approval of EU the previous week.
When this deal got announced this February, chairman of Senate Commerce Committee of US, Jay Rockefeller, expressed his concern too that the consumers will lose.
The American Airlines tends to have been under bankruptcy protection from November 2011, though the US Airways stayed profitable during recent years.
Both the combined airlines will have 6,700 flights daily and the revenue of around $40bn annually.Complaint of justice department argues the 2 companies don’t need merging for continuing to be quite competitive, and the American Airlines most likely is to exit the bankruptcy as one “vigorous competitor”.
Department also did cite the purchase of American Airlines 2 years back of four-hundred-and-sixty new planes, that are considered to be largest order like that in the history of industry.
If merger continues, there’ll be only 3 major airlines of US, which justice department does allege growingly prefer the tacit coordination on competition that’s full-throated.
One airline analyst, Ray Neidl, said,
“I’m not sure if long term either of these airlines can be a viable competitor by itself. It probably will cause prices to go down in the short term as they compete, but I think long term US Airways and American are going to have a hard time competing.”
Though, an opponent of consolidation of the 2 firms, Charlie Leocha, the director of Consumer Travel Alliance, said that it was one stake in heart of this merger and he didn’t see that moving forward.