American Airlines and US
Airways in separate court filings on Tuesday struck back at the U.S. Department
of Justice, claiming its suit to block their merger is built on faulty
analysis, unsubstantiated allegations and a selective memory when it comes to the
airline industry.
The airlines' stance already
has been aired in the past month through numerous public statements, but Tuesday's
filings are the airlines' first official response in court to the allegations
in DOJ's complaint, initially filed last month in
the U.S. District Court for the District of Columbia and bound for trial in late November.
The airlines in their filings
denied DOJ allegations that their merger will raise fares, increase ancillary
fees and reduce competition.
"The airline industry is intensely competitive today and
would remain so after this transaction," argued American Airlines. "Air
travelers today receive more service to more places at lower prices (properly
adjusted for inflation and other relevant factors) than ever before. The complaint
ignores this reality, and instead concocts an imaginary narrative where
airlines tacitly collude and where prices are higher than in the past, but the
real facts are just the opposite."
US Airways even claimed that
DOJ itself is lessening competition "by precluding the market from creating new
and competitive flight options for passengers"—namely, the consummation of
their merger.
A Selective
View?
US Airways argued that DOJ's complaint, which has been joined
by a growing coterie of state attorneys general, often focuses too narrowly on airline
competition among legacy airlines, often ignoring "the most meaningful
competitive development in the airline industry since deregulation: the emergence
of low-cost carriers."
Such carriers would include the largest U.S. airline in terms
of enplaned domestic passengers, Southwest Airlines, as well as JetBlue, Spirit
Airlines, Virgin America, Sun Country, and Allegiant, which collectively
"are expanding at dramatic rates," according to US Airways.
Those carriers, together with "regional competitors
Alaska Airlines and Hawaiian Airlines, now transport over 40 percent of all
domestic passengers, and that share continues to grow," US Airways noted.
Regarding the remaining
competitive set in the U.S. airline industry, US Airways noted that the DOJ in
recent years approved the Delta-Northwest and United-Continental mergers, helping
to create "airlines with much larger and more comprehensive networks than
either American or US Airways."
Meanwhile, the carriers argued
that the DOJ complaint paints a thriving airline industry that is swimming in
profits, when a further step back reveals a different picture. "US
Airways has undergone two bankruptcies in recent years, and American has
undergone one, from which it has not yet emerged," according to American
Airlines. "Together, the two airlines lost almost $14 billion in the last
twelve years, and the uncertainty and shocks that have prevailed in today's airline
industry make the need for their combination all the more important to
consumers."
Carriers: DOJ Analysis "Quaint"
DOJ's complaint leans heavily
on an application to individual city pairs
of the Herfindahl-Hirschman
Index, a measure of a company's market power relative to competition.
DOJ found high HHI figures for "more than 1,000" of
the merged carrier's routes, posing what it called potential anticompetitive
harm. However, AA noted that "almost 90 percent of the passengers on these
routes will continue to be served by at least three airlines after the
merger" and about "85 percent of passengers on these routes"
will continue to be served by a low-cost carrier.
Furthermore, AA argued that "virtually none
of the routes have any barriers to new entry," suggesting opportunities
for new competitors to emerge. A key exception would be the merged carrier's presence
at the slot-constrained Ronald Reagan Washington National Airport.
AA also noted that DOJ "ignores that other recent
airline mergers resulted in comparable HHI values and were nonetheless approved
and lauded by the DOJ because across the entire network the net benefits
stemming from the transactions were overwhelmingly positive."
The carriers at various times in their filings suggested DOJ
is applying different standards to their merger than it has to prior airline
deals. "DOJ's approach in evaluating those earlier mergers—unlike in this
transaction—was fully consistent with its own merger guidelines, which
recognize that market shares and HHI numbers are merely starting points for
analysis, not the decisive results portrayed in this complaint," according
to AA's filing.
Added AA, "Doing competitive effects analysis by simply
counting competitors might have been accepted practice four decades ago, but
seems quaint at best today. It is inconsistent with the state of the law and
with the DOJ's own Horizontal Merger Guidelines."
US Airways asked the court not to focus on "the few
aspects of the intensely competitive airline industry plaintiffs do not like,
or a comparison to some hypothetical state of the airline industry that
plaintiffs would prefer," but rather determine "whether this airline
merger would result in a 'substantial lessening of competition,' relative to
what would happen absent the merger."