The proposed merger between US Airways and American Airlines would undoubtedly lead to higher fares and fewer services and remaining airlines would cooperate on other prices, Assistant U.S. Atty. Gen. William Baer said.
Baer, who heads the Justice Department's antitrust division, said that the lawsuit the law enforcement agency filed to stop the merger Tuesday is intended to protect U.S. consumers from price gouging.
The attorneys general of six states and the District of Columbia filed suit to block the $11-billion merger, which would make the combined airline the largest in the U.S. The state attorneys general include Texas, where American Airlines is based, and Arizona, where US Airways is based.
"We filed the lawsuit today because we determined that the merger -- which would create the world’s largest airline and leave just three legacy carriers remaining in the U.S. -- would substantially lessen competition for commercial air travel throughout the United States," Baer said. "Importantly, neither airline needs this merger to succeed."
The marriage of American, based in Fort Worth, Texas, and its smaller competitor based in Tempe, Ariz., would have been the latest transaction in a string of mergers and acquisitions in an industry that has weathered fluctuating fuel costs, labor strife and economic turbulence.
The merger, announced in February, would have reduced the number of major U.S. airlines to just four: Delta, United, Southwest and the new American company.
Since it was announced, critics have said the merger would reduce competition and result in higher fares and fees for U.S. air travelers.
The proposed merger had drawn scrutiny from lawmakers and the U.S. Government Accountability Office. The GAO, which neither opposed nor recommended the merger, said the transaction would cut competition on 1,665 routes with at least one stop.
The Justice Department lawsuit, which seeks a full stop injunction of the merger, comes about a month after a San Francisco law firm representing 33 passengers and travel agents sued to block the merger.
The Justice Department said that in a post-merger world, the remaining airlines would probably cooperate in setting ancillary fees, such as those for checked bagged or to change flights.
He said airlines would see no risk to raising fees if other airlines were doing so.
"When you have fewer competitors ... they play follow the leader," Baer said in a conference call with reporters.
The action by the Justice Department is a sign that further consolidation within the airline industry is unlikely.
Past consolidation, the lawsuit said, "has left fewer, more-similar airlines, making it easier for the remaining airlines to raise prices, impose new or higher baggage and other ancillary fees, and reduce capacity and service."
The filing of the suit follows a decision by European regulators who approved the merger, but only on the condition that a third carrier operate a flight between Philadelphia and London.
Following news of the suit, US Airways shares were down nearly 9% to $17.16.
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