US corks US Airways Group Inc (NYSE:LCC), American Airlines merger
In an anti-trust suit, the U.S is saying that the US Airways Group Inc (NYSE:LCC) and American Airlines merger should be halted. This overthrows American’s plans to move out of bankruptcy via a deal that would in effect create the biggest airline in the world. As per the complaint that was filed in the Federal Court in Washington, this tie-up will lead to under-competition in the airline industry and consumers would eventually be straddled with higher prices.
The justice department is seeking to block this merger permanently as well as any other transactions that would lead to the merger of these 2 companies. At Tuesday’s close, LCC had dropped 13.07% and American parent AMR Corp bonds also dipped on this news. This decline has been the airlines biggest intraday dip since 2011 October.
In court papers, the Obama administration said that it is seeking to block the deal as U.S Airways would then hike their fares and will have no incentive to pull them down at all. Thomas Horton, the AMR Chairman said that LCC as well as AMR will be fighting the suit.
Adverse impact on consumers
In a statement, Eric Holder the U.S Attorney General said that consumers would end up paying the price for this merger- they would be left with fewer choices, higher fees and higher airfares. This latest action proves that the U.S is determined to ensure robust competition and fight for best consumer interests. This lawsuit came as a total surprise to industry executives and analysts alike.
It is also in sharp contrast with the policy that the Justice Department followed in the past. Over the last 5 years, in an effort to end losses and cut costs, 6 unprofitable airlines had merged. In 2012, US Airways Group Inc (NYSE:LCC) flew over 50M passengers to 200 destinations and had over $13B in revenue.