Whereas the European Commission has cleared under the EU Merger Regulations the proposed merger between US Airways Group and AMR Corporation, including its main subsidiary American Airlines, on 5 August 2013, the U.S. Department of Justice has now filed an antitrust case to block the merger of American Airlines and US Airways on 13 August 2013.


US Airways and American Airlines are both major U.S. "flag" commercial airlines that provide scheduled air passenger services. The merger would lead in particular to a monopoly on the London-Philadelphia route, where US Airways and American Airlines, through its membership in a ‘metal neutral’ joint venture1 with British Airways and Iberia (the "Transatlantic Joint Business"), are the only carriers offering non-stop flights (the route is de facto operated by British Airways).

In the airline sector, there are three main airline alliances – Star Alliance, SkyTeam and oneworld. US Airways has been a member of Star Alliance, and American Airlines has been associated with the airline alliance oneworld.

The Decision of the European Commission2 The European Commission (the Commission) conditionally cleared the planned joint venture, which was notified to the Commission on 18 June 2013.

The decision is conditional upon the release of one daily slot pair at London Heathrow, and subject to other commitments in order to induce entry on the London-Philadelphia route.3 In light of these comprehensive commitments, the Commission concluded that the transaction would not raise competition concerns.

The Commission examined the competitive effects of the proposed merger on numerous transatlantic routes (one non-stop/non-stop overlap on the London-Philadelphia route, 27 non-stop/one-stop overlap routes and 39 one-stop/one-stop overlap routes).

The Commission’s investigation found that–

  • The transaction, as initially notified, would have led to a monopoly on the London-Philadelphia route out of London Heathrow airport as US Airways and American Airlines through their membership in the Transatlantic Joint Business are the only carriers offering non-stop flights on this route.
  • On all other transatlantic routes affected by the merger, the combined entity will continue to face competition from other strong competitors, notably from other metal-neutral joint ventures such as the North Atlantic Joint Venture, a partnership including Delta, Air France/KLM, and Alitalia; and the A++ JV, a transatlantic partnership including Lufthansa, Air Canada and United Airlines. In addition, for certain routes, it will continue to face strong competition from Virgin Atlantic, in particular following Delta’s acquisition of joint control over the Virgin Group, and from other air scheduled carriers not belonging to transatlantic metal-neutral joint ventures.4

In order to achieve the Commission’s approval, US Airways and American Airlines offered the following commitments–

  • To release one daily slot pair at London Heathrow and Philadelphia airports
  • To provide further incentives such as the possibility for a new entrant to acquire grandfathering rights after a certain period of time
  • To enter into special feed traffic agreements with the likely entrant airline5 (Since US Airways will exit Star Alliance upon completion of the merger and the combined firm will retain American Airlines’ oneworld membership,6 there was no need for a commitment as to compulsory exit from one of the alliances.)

In these circumstances, the commission accepted the commitments on the basis that they adequately addressed the competition concerns that it had identified, and that they should facilitate new entry on the London-Philadelphia route. The Commission therefore concluded that the proposed transaction would not significantly impede effective competition in the European Economic Area (EEA) or a substantial part of it on condition of the parties’ full compliance with the commitments.

The Complaint filed by the U.S. Department of Justice7

On 13 August 2013, the Antitrust Division of the U.S. Department of Justice filed a formal complaint against the merger in the United States District Court for the District of Columbia.

The move, joined by attorneys general from six states and the District of Columbia, surprised industry officials, who had expected little resistance to the deal. But it highlighted a newly aggressive approach by the Justice Department’s Antitrust Division, which has been more closely scrutinizing proposed mergers as the economy recovers. In 2011, for example, it blocked the merger of AT&T and T-Mobile, and this year it forced Anheuser-Busch InBev to significantly alter the terms of its takeover of the brewer of Corona before approving it.8

The U.S. Department of Justice regards the planned merger as violating section 7 of the Clayton Act, 15 U.S.C. § 18. The complaint only focusses on two relevant markets:

  1. National scheduled air passenger services between cities The U.S. Department of Justice does not expressly take into account any international air connection. Only services between so-called national "city pairs" were part of the assessment.
  2. Takeoff and landing slots at Reagan National Airport While US Airways already has 55% of the airport’s lots, the combined firm would control 69% of the slots at Reagan National Airport, which would be almost six times more than its closest competitor.

As can be seen, the U.S. Department of Justice limited the evaluation of relevant markets to markets that do not have any impact beyond the U.S. borders, whereas the Commission focussed on transatlantic routes from the EU to the United States (in particular London Heathrow – Philadelphia). This will be the main reason why the opinions of the U.S. and EU competition authorities substantively differed.

With respect to the domestic U.S. airline market, the market share of the two merging airlines is significantly higher than on any worldwide market. As can be seen from the table below, American Airlines had from January to September 2012 a domestic market share of 16.20% and US Airways 7.5% (based on revenue passenger miles).

Therefore, the combined company would have a domestic market share of 23.7% which would be even more than the market share of United, which was 21.7% in the same period.

Click here to view graph.

With a view limited to the U.S. domestic market, it is easier to understand that the U.S. Department of Justice takes the view that the merger would increase the likelihood of coordinated behaviour among the remaining network airlines, causing higher fares, higher fees, and more. The U.S. Antitrust Division also seems to discount the extent to which Southwest Airlines acts as an effective national competitor to the four other national airlines. In particular, the U.S. Department of Justice found that–

  • The merger would likely result in the elimination of US Airways’ advantage fares
  • The merger would likely lead to increased industry-wide "capacity discipline," resulting in higher fares and less service
  • The planned merger would likely block American’s standalone expansion plans, thwarting likely capacity increases
  • The merger would likely result in higher fees
  • The merger would eliminate head-to-head competition in hundreds of relevant markets and entrench US Airways’ dominance at Reagan National Airport

The decision to file a civil antitrust lawsuit brought an unusually strong reaction from the airlines. In a joint statement, American and US Airways said they would mount a "vigorous and strong defense" of their plan. In light of the Justice Department's action, American Airlines and US Airways no longer expect the merger to close by the end of 2013, but they hope that litigation will be over by year's end. On 22 August 2013, American Airlines and US Airways requested a 12 November 2013 trial date. Both airlines pointed out that the planned merger would be procompetitive rather than anticompetitive, as alleged by the U.S. Department of Justice:

  • The combined firm would become a more competitive and cost-effective airline to take on the country's largest air carriers – Delta, United Airlines, and Southwest – and a number of fast-growing, low-cost carriers, including Virgin America, JetBlue, Spirit, and Allegiant
  • Customers would also benefit from this stronger competition

Since the U.S. Department of Justice and six states on 27 August 2013 urged a federal judge to begin the trial of the antitrust suit on 3 March 2014 (a date the airlines said was an "unnecessary delay" that would put further strains on the transaction), the ultimate outcome that looked to be on hold until the close of the year seems to be delayed until 2014.