Airline merger runs into turbulence

August 13, 2013

As a long-time customer of US Airways earlier in my life — and I realize they’re a different airline since they were absorbed by America West — I’d be hesitant to let them buy anyone. (Stan, back me up here.) They had the trifecta on bad — bad management, bad labor, bad service. They were kept from more frequent stops in bankruptcy court only by local subsidies and strong (anti)-competitive positions in some key markets. If ever there was a case for natural selection in business, this was it.   

Which brings us to the proposed merger with American Airlines. The Department of Justice (DOJ to aficionados) filed suit today to block it. Strange as it sounds for a global business, the contentious issue for airlines is market power over local markets, which was the US Air business model. The best guess is that they’ll divest some slots at key airports, starting with DC’s Reagan (see paragraphs 10 and 31 of the complaint). One of the more interesting aspects of the complaint, however, is the suggestion (para 41 and after) that the remaining major airlines might resort to “coordinated behavior,” which is code for collusion clever enough prosecution. Now “clever” sounds like the last word I’d use in conjunction with US Air, but I realize things might have changed. In the meantime it will be interesting to see how this plays out in court, if it gets that far.

Update (Aug 14):  nice summary of the DOJ complaint from Planet Money.  Aug 18:  another one.

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