Jetrader - July/August 2013 - 14

essentially eliminate all competition, resulting in a monopoly.
Because each of American and US Airways offers either the
highest or lowest fare on a considerable number of these routes,
the DOJ will be tasked to determine whether the American–US
merger goes so far as to limit competition to the same extent
as the failed US Airways–United merger.
As an alternative, an airline may propose certain remedies
to assuage the DOJ’s concern over competition by proposing to
transfer route slots or other assets to other airlines in an effort
to maintain a more competitive landscape post-merger. On the
one hand, the DOJ approved the United–Continental merger upon
the condition that the merged airline permanently transfer slots
and other assets to Southwest at Newark Liberty Airport in order
to avoid a monopoly on such routes. On the other hand, the DOJ
rejected the US Airways–United proposal to divest assets at Reagan
National airport and jointly ﬂy speciﬁc routes with American to
maintain competition as inadequate to alleviating such competitive harms. Whether a similar remedy will be proposed by the
American–US Airways merger remains to be seen.

Airport Concentration
Another key consideration of DOJ analysis is the concentration
of routes out of large hubs and the marginalization of smaller
local airports. Large mergers may harm smaller communities by
diverting air trafﬁc to larger hubs (extending travel time and
cost per route by adding multiple stops to these routes) and
eliminating less proﬁtable routes (decreasing the number of
available ﬂights out of smaller communities). This type of route
reorganization consequently results in fare increases. For example,
Delta eliminated Cincinnati as a hub and reduced departures by
40 percent following its merger with Northwest, American cut
85 percent of ﬂights at TWA’s former St. Louis hub upon merger,
and US Airways reduced ﬂights by 50 percent at Las Vegas following its merger with America West.
Furthermore, the DOJ examines whether Low-Cost Carriers
(LCCs) can serve as a viable source of competition in these larger
concentrated markets. Nearly every entrant LCC airline since
deregulation has either failed or been acquired. Among the LCCs
that remain, only JetBlue, Spirit and Frontier pose any semblance
of competition to the legacy carriers or Southwest. However, given
the recent volatile nature of jet fuel prices and other economic
struggles within the airline industry, it is doubtful whether LCCs
can be relied upon to provide substantial competition at larger
concentrated hubs.
As consolidation places more pressure on LCCs as competitors
to the legacy carriers and Southwest, the question remains as to

whether certain policy changes are required to promote the role of
LCCs. As noted above, the DOJ perhaps may require that certain
assets, routes or services be divested from American-US Airways
and granted to LCCs as a prerequisite to merger on any routes
that are found to substantially eliminate competition. Perhaps
the best out-of-the-box strategy, suggested by Clifford Winston
of the Brookings Institute in his statement to the Senate, is to
eliminate cabotage restrictions by creating a deregulated global
airline industry, “allowing U.S. and foreign carriers the freedom to
enter and set fares in U.S. and international markets.” Regardless
as to the probability of any conciliatory proposal or drastic policy
change, the protection of smaller markets and the maintenance of
competition to those markets will remain of concern to the DOJ
as it evaluates the future competitiveness of each American–US
Airways route.

Industrywide Competition
Undoubtedly, the consequences of a large airline merger will
resound industrywide. Speciﬁcally with respect to the proposed
American–US Airways transaction, the DOJ will likely focus upon
the pragmatism of purported synergies and the effect upon
international alliances and market share.
The realization of synergies has historically been a principal
defense posited by participant airlines in mergers that are subject
to DOJ scrutiny. Synergy refers to the operational and ﬁnancial
savings generated through efﬁcient consolidation. While beneﬁcial in
the long term, the realization of synergies is not always seamless.
Post-merger operational adjustments, particularly in the form of
systems integration failures, accompany every airline merger. The
United–Continental merger particularly struggled with technical
consolidation as the merged system continued to malfunction,
causing CEO Jeff Smisek to publicly apologize as disservice issues
hit the two-year mark after the merger. Additionally, with respect
to the American–US Airways merger, while the synergy of ﬂeet
optimization leads to service, cost and fuel efﬁciency by pairing
speciﬁc model aircraft to capacity- and range-appropriate routes,
the diversiﬁed American–US Airways ﬂeet will also require the costs
of pilots, maintenance and administration to manage the diverse
Boeing, McDonnell Douglas, Airbus and Embraer ﬂeet—costs of which
could negate any such potential synergy. Considering the resulting
network size of the soon-to-be-largest American–US Airways airline,
merger proponents will have the burden of supporting the alleged
$1 billion in net synergies and convincing the DOJ that difﬁculties
similar to the United–Continental merger will not occur.
Finally, any large merger will also have an effect upon international competition, market share and alliance structure. In its

14 The ofﬁcial publication of the International Society of Transport Aircraft Trading

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