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Squawks & HeadlinesDOJ tries to block American-US Airways merger

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DOJ tries to block American-US Airways merger

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(CNN) -- The federal government and other officials are trying to block a planned merger of American Airlines and US Airways -- a union that could create the world's largest airline. The U.S. Justice Department and attorneys general for six states and the District of Columbia on Tuesday filed a civil antitrust lawsuit challenging the proposed $11 billion merger between US Airways Group Inc. and American Airlines' parent corporation, AMR Corp. The merger "would substantially lessen… (www.cnn.com) More...

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PhotoFinish
PhotoFinish 8
A bit late for that. Should've figured out the competition equation long ago, before Delta-Northwest and United-Continental. But now that we've got 2 mega-carriers, we might as well have three, to better compete with each other.

I figure it is a negotiating ploy to get concessions from the combined airline on particular airports that have a combined US-Amerixan domination of the market.

Otherwise, they're just a bunch of incompetent government workers, that are allowing politics to have undue sway over their area of regulation. Oversight should be equally applied to all, not applied punitively to some after having given others special treatment previously.
PhotoFinish
PhotoFinish 3
BTW I left out Southwest-AirTran, which combined is the largest domestic carrier, with plans to fly overseas too.

So make it 4 mega-carriers to compete with each other, with foreign carriers, and with smaller rivals with lower cost structures and lower prices.
greglinton13
Greg L 1
wut!!!! when are they panning to fly overseas?
Moviela
Ric Wernicke 1
Air Tran already flies to Mexico and Caribbean destinations as far south as Aruba. Southwest has designs on very profitable South American routes.
btweston
btweston 1
I see what you're saying, but barriers to entry are barriers to entry, whether they are caused by government or the free market (which doesn't actually exist, by the way, as you would have learned in your macroeconomics class). There will always be big businesses and small businesses, but big businesses combining with more big businesses to form Captain Planet... err.... Mega Big Businesses serves no useful purpose to an economy.

And we should note that creating niches does not necessarily equate with competition. If Megacarrier One goes here, and Megacarrier Two goes there (especially if we consider Southwest to be a megacarrier), then they are not really competing with each other, and there is little chance of Normalcarrier X will have any chance of providing competition with either of them.

And if we allow the trend to continue... Just look at what Wal-Mart has done to local businesses across the country. Goodbye, grocery store, hardware store, record store, sporting goods store, pharmacy, et cetera. Goodbye, expertise. Hello, mediocre selection of lowest-bidder products. We talk a big game about pulling ourselves up from our bootstraps, but the game is rigged.
btweston
btweston 2
And I'd like to add that we should have learned our lesson about firms becoming Too Big To Fail.
PhotoFinish
PhotoFinish 1
bt, you're all over the place. I'll take each of you're three comparisons separately.

1. Starbucks. You're using a company known for responsibly sourcing their coffee beans, and valuing their workers, including giving their part-tie baristas healthcare, and paying better than the competition. I can't sew how any worker wouldn't want a Starbucks-like airline.

They should open as many stores and keep open as many stores as they can keep full. If some people choose to pay $3 for a cup of coffee, rather than 50cents or a buck, let them. If there are not enough people on a particular corner to justify a Starbucks, let people walk the extra 2 blocks to another Starbucks, or let them buy a 50 cent coffee.

The same with airlines. The major airlines all want a national network, that can serve the needs of any if their most profitable business clients. On top of that they want as many frequencies as they can fly reasonably full. This will make them more valuable to said profitable passengers. But any frequencies that can't be kept reasonably full should not be flown. The airline industry is not a welfare program for passengers, nor a jobs program for workers. As many flights as passengers are wilok hot pay for should be flown. No more. No less.

1. Walmart. No one can claim that Walmart causes prices to increase. The DOJ complaint is based on the idea that consolidation will increase prices. But Walmart is jot a good example of causing prices to increase.

In fact, smaller stores and speciality store often find it difficult to compete with Walmart on price. Those damned consumers always going to the store that gives them low prices, and a huge selection. How dare they be so self-interested!

3. Too big too fail. Now you're really lost. The bigger the network, the more valuable the asset. Not only will the larger network make it less likely that the airline will run into trouble. If they do, you'll have a list of people willing to take over the assets in bankruptcy, and havd a go at it.

Notice how the fight was that US Airways wanted to take over American's assets, and American wanted to continue with their assets as sn independent entity. You'll never have a lack of folks willing to take over a valuable asset. The larger the network, the more valuable the asset.

The only difference is that a financially sound airline is better place to work. Employees can work with less fear of being furloughed, of having their contracts invalidated in bankruptcy court, and having pensions be reduced or eliminated.
PhotoFinish
PhotoFinish 1
* The airlines should fly as many frequencies as passengers are willing to pay for. No more. No less.
PhotoFinish
PhotoFinish 1
* Walmart is NOT a good example of causing prices to increase.
preacher1
preacher1 1
Chambers Of Commerce all over the country holler for air service, thinking a 5 grand runway and some kind of terminal will make it happen, then grip and moan when it doesn't. Problem is, while the Chamber may want it, only 1/2 dozen people a month might use it.
preacher1
preacher1 1
While I don't necessarily like being the little guy, what we are seeing here is capitalism at it's best and those driving the train are after it for themselves. Major complaints are now coming from the ones left behind and/or cannot partake of that. Sam Walton had a good idea a few years back and when the stock first started trading in 72, lots of common folks bought it. Since that time, there have been multiple 2 for 1 and even some 3 for 1 splits. After it did, it didn't stay down a month, and now, a lot of those common folks are millionaires several times over, all because they got on the train at the right time. The complaining is coming from those still at the station that don't know that life is not fair.IMHO
btweston
btweston 2
I disagree. Conspiracy theories aside, monopolies (or triopolies [or plutocracies], as the case may be) are bad for consumers and bad for business. Better to draw the line somewhere than to say, "Aww, heck. I guess we'd better just let them screw all of us so that their shareholders can buy some more boats."

Trust busting is not a new idea.
canuck44
John Donaldson 4
Pretty shaky...especially the part where they state it is possible to receive less service from US Air. That must have been inserted for humor.

Apart from DCA there is little impact on competition particularly now that DAL has become the major player at LGA. It looks like this was thrown against the wall to see what sticks and a settlement of some sort for face saving purposes will likely result.
btweston
btweston 2
It is entirely possible that the merger will result in less service. Do you remember, a few years ago, when Starbucks started closing stores because there were so many that they were infringing on the corporation's profit margins? They found that they could sell just as many macchiatos with fewer stores with much less overhead. Of course, this means that many people had to travel further to get their extravagant coffee, but they usually did it anyway. Profits increased.

Airlines and widget factories work the same way. Sure, you will have less of a choice about when you can fly and where you can fly to and from, but you'll get there eventually, right? And profits will increase, so the hell with it, right? CEOs... I mean Job Creators will make a bundle, so let's all just pretend that it's awesome.

Actually jobs will be lost... But just look at the profit figures!
StymieHo
Chris Donawho 3
To wait until the 11th hour to start squealing about a merger (despite two very similar mergers being allowed between 4 other airlines) is suspect to say the least.
preacher1
preacher1 2
This thing was announced in February and pretty much on a fast track. I really thought DOJ had to sign off on this thing early before it gained momentum.
pilot62
Scott Campbell 2
---
- "We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this procompetitive merger will deny customers access to a broader airline network that gives them more choices," the companies said.

TOO BENIFIT PASSENGERS !! Love it, It's plainly Parker's Ego that needs this "merger", and he has been aiming at this his whole life! Like I've said before he needed America West to save him before, now American to continue. He's " almost worse than Tilton..
R123154
R123154 2
I remember one other merger that U.S.Air was involved in and that was with Piedmont Airlines ,a very profitable airline at the time.Well it wasn't long and they bankrupted causing lots and lots of people to loose pensions that they had worked almost their whole life for. This is one time that I agree with the government and I feel bad for the American Airlines employees for they have to be setting on the edge of their seats wondering.
preacher1
preacher1 2
"It's plainly Parker's Ego that needs this "merger", ". I love it. No truer words were ever spoken. Just like here while back when Horton said "My good friend, Doug Parker". What do he care. He's getting $20 mil to ride off into the sunset.LOL
R123154
R123154 2
Oh yea,guess you figured it out,I worked for Piedmont Airlines and I still believe they were one if not the best airline out there.
StymieHo
Chris Donawho 1
LOL, that's funny. At least Parker has been quoted as saying his goal was to run the world's largest airline. Ego or not, that's called following through.
louisjames
lou nagy 0
**ITS 'HORTON who is getting (or, suppose to be getting) the $20mil. Horton is the CEO of AA, not PARKER....DUH!!
preacher1
preacher1 1
read the post again. I think that's what I said.DUH!!!
PhotoFinish
PhotoFinish 1
You would think. But these brilliant folks killed off the AT&T merger of T-mobile late in that process as well, for similar reasons of industry consolidation. This merger block may end up sticking, even so late.
Moviela
Ric Wernicke 2
I don't believe for a second this is about the government wanting to foster competition. We need to look to the people who will profit if either or both of these carriers go bankrupt. Banks have used the Courts to take businesses through bankruptcy. They extinguish the equity of shareowners, bond holders, pension plans, and small lenders. In many cases they can shed unfavorable union contracts and highly compensated workers. The bank then operates the business using techniques designed to pump up the value of the enterprise. Then they sell it in the open market. They pocket five to ten times the original investment in the enterprise, as well as garnering large fees along the way to advise management what the property is worth.

New York bankers have been drooling over the carcass of American Airlines since Former CEO Bob Crandall said "A lot of people came into the airline business. Most of them promptly exited, minus their money." He would know, he dressed the company for take over by his banking buddies but was rebuffed by Reagan and Bush administrations. Crandall left (forced out) in 1998 and the airline struggled until the tail fell off and BK was declared in 2011.

Bankers were busy dissecting the corpse when out of the Old West (Paradise Valley, AZ) rides William Douglas Parker (Doug to his friends) on a white horse and makes a deal with AMR management to make them all fat cats on exit, if they merge with his outfit, US Air. Git along little doggies.

The bankers were not happy with this, but they had the ear of the highest office holders through rather modest financial consideration paid to politicians. Compared to the 11 BILLION they planned to make had had spent decades earmarking that haul for themselves. This is why the Justice Department has weighed in on behalf of the puppet masters in New York.

What our pal Doug needs to understand is you don't mess with operations at DCA. He may have more money than the politicians, but they have ALL the power...
capnaux
Eric Auxier 1
Living proof that Government shouldn't meddle in marketplace. They just muck it up more.
bearkeeper
michael fangel 1
where is n836d will it ever fly again?
sparkie624
sparkie624 1
Mixed feelings here... Not sure what is best. I have worked for USAir, and they can be quite cut throat and not really care about their people, but they have changed management teams since then. Will be interesting to see the out come.
louisjames
lou nagy 1
*** GEE, I DIDNT KNOW THAT THE GOVT CONTROLS THE AIRLINES. I could understand the slot issue, but other airlines bought out, merged, or whatever its called now adays. I remember when AA bought out RenoAir, and TWA; the GOVT didnt raise a 'stink' about that. You know what it comes down to, is "YOU WASH MY BACK, I'LL WASH YOUR BACK"....give HOLDER and crew their FREE LIFETIME UPGRADES, and EVERYTHING WILL BE FINE; YOU WAIT AND SEE ***
louisjames
lou nagy 1
**thanks, i have read all that before. They talk about higher 'fees' and such. CASE IN POINT, "SPIRIT AIRLINES", have you ever traveled on them and be subjected to their "NICKEL and DIME" type fees ("BAIT AND SWITCH"). GOVT DOES SAY ANYTHING ABOUT THAT, but the last two major airlines to form ONE, the GOVT 'CRIES'**
sparkie624
sparkie624 1
I agree 100 Percent.
wx1996
wx1996 1
So the US government says it is bad for a company to make a profit? Or is government is saying that aircrews, flight attendants, mechanics, etc. are currently paid appropriately and should not have the option for a raise in the future? Or is it an entitlement that everyone should be able to fly?

The US needs a strong profitable aviation sector. The US carriers are facing major pressure from international carriers with deep pockets and strong government backing. Customers need to pay reasonable fares when they fly. Fares that cover appropriately the cost of the service they receive with a reasonable profit for the company providing the service. Most companies in the US look to clear 20-30% in profit. The US airline industry is not even in the double digits, when they make a profit. If the government wants to protect consumers, why not reduce the price/profit on an iPhone or iPad? Reduce the taxes imposed on air travel. The airline industry needs to increase fares for the health of the industry.

In Dallas and Phoenix or other cities for that matter, if the fares get too high the competition will arrive with a desire to share in the profits. Jet Blue, Spirit, Virgin America, etc. will expand into overpriced markets to get part of the money, if the government will allow them.

Three primary mega carriers will compete. The US is still a long way from a monopoly in the airline business.
andytyler
Andy Tyler 1
yeah just ignore all the statistical trends showing prices on routes have gone up everytime there's been a merger between two airlines that used to compete on a route.
PhotoFinish
PhotoFinish 1
Most locations are served by more than one carrier. The vast majority by multiple airlines. Any airports/routes previously served only by US Airways and American or in which the combined airline would dominate, the new airline could be required to divest the overlapping slots so that other carriers can enter the market and provide service.

For example, the DOJ could require the combined airline to divest all or most of American's current slots at DCA to an very interested) Jetblue or a Spirit or Virgin America or some combination, in order to keep their market-leading US Airways slots at the airport.

Repeat such divestments everywhere else competition is unduly limited by the US Airways - American combination. This allows creation another strong competitor in the marketplace with nationwide coverage. It also creates openings for smaller nimbler competitors with lower cost structures (directly through required divestitures, and indirectly through capacity reductions and/or price appreciation that may result from the merger, leading to greater market penetration by the smaller and lower priced competitors.

A doubling of the market presence (over time) of jet blue, virgin america, spirit, and frontier will provide more pricing competition than US Airways could provide by staying independent. The US-American merger will strengthen the finances of each of these smaller airlines, both making it less likely they'll fold up, while also allowing them to grow faster.
gboroflyer
gboroflyer 1
The things is if you look at the US domestic airline network as a whole, the only way the competition between US and AA can be replaced would be for a new carrier to start up, and that is not going to happen any time soon.

Also I don't understand why people keep insisting that US is some how "in danger of folding up" Its AA that needs this merger, not US
PhotoFinish
PhotoFinish 2
> "only way the competition between US and AA can be replaced would be for a new carrier to start up"

Actually, by strengthening jetblue, virgin america, spirit and frontier, you'd get even more pricing pressure (or at least lower priced fares available) than an independent US Airways alone could provide.

The merger between 2 majors will result in some capacity reduction by majors (US, AA) and a complimentary increase in capacity by the smaller carriers that actually drive down prices.

Some of that capacity migration will happen indirectly through market forces, but some should be managed directly as a condition of the merger. Specifically, at key airports that are slot restricted, slots need to be transferred to lower cost operators. At airports that are dominated by any one airline, further consolidation through merger should instead be redirected by forcing the combined airline to give up the second airlines slots to a lower cost carrier. You will get more price competition from carriers with lower cost structures that can sustainably provide lower prices.

The consumer gets a range of prices, and can choose their flights based on the price and service level they desire. As long as the FAA ensures that all airplanes are properly maintained, all pilots are properly qualified and competent to fly the plane and all flight attendants can safely evacuate the plane in an emergency. Let each passenger choose, in the marketplace, how much legroom, what kind of food is served or not, what entertainment and internet services are provided or not, how much baggage, and what ancillary airport services that the passenger is willing to pay for.

As long as they're not dropping out if the sky, it's all good. Compete on price and service. Let each person decide which level of service they're willing to pay.
StymieHo
Chris Donawho 0
Can't stop it now. Merger should still close on time. Justice Dept is just simply trying to smokescreen you into thinking they're actually doing something besides chasing leakers and covering the NSA's tracks. Like PhotoFinish said, it's a bit late to start squealing about this now.
brindabella4
brindabella4 0
(Duplicate Squawk Submitted)

The US justice department tries to stop merge of US airways and American airlines

The DOJ (department of justice) are filing an anti-trust case in order to block the merge of American airlines and US airways. They say it could result in higher fees. The US airways boss, Doug parker says the company will fight the injunction.
Information is from the BBC and news.com.

http://www.news.com.au/travel/news/us-sues-to-block-merger-of-american-airlines-and-us-airways/story-e6frfq80-1226696669316
pcreece1
Paul Reece 0
Very simple the weaker airline goes belly up. The other three Air lines scramble for what ever they can grab and they all ignore what is marginally profitable. So you get higher prices and less service and nobody gets stuck with the junk. Hey DOJ very smart move go for it. Were did you learn this trick at Harvard?
preacher1
preacher1 4
You got to look at who leads that group. They had to find something for people to talk about to take the heat off all the other. They had their chance in February after it was announced. To me this is no more than a political ploy or butt covering, one or the other.
PhotoFinish
PhotoFinish 1
They really want to charge a community watch volunteer with civil rights charges for defending himself against a savage attack by truant drug-smoking teenager who was getting into trouble and sent to live in the baby-daddy's girlfriend's condo in the nice development. But doing so would erupt a racial war and animosities that are best left alone.

So as not to appear impotent, they'll derail this merger and screw the jobs of the employees of these airlines. At least one of them will be back at the bankruptcy trough, and will then be eliminated when it is acquired in distress and a shell of it's current self.

There will be major carriers with compete nation-wide networks. And there will be low cost competitors built from the ground up with a lower cost structure. But any airline caught in the middle with the cost structure of the majors but without the national network, will be eaten alive from both ends. The majors will pick off the more profitable business clientele. The low cost carriers will make the middle carrier's major cost structure a major disadvantage.

I'm not convinced that blocking the merger will change the outcome. It'll just make the process messier.

If they really cared about te consumer, they'd let the merger go through, but force them to hand over a big chunk of their business to the lower cost airlines. Basically anything over the size of Delta or United, should be provided FREE to the smaller competitors. They're going to shed capacity after the merger, whether they admit to it in advance or not (just like both Delta and United did), so you might as well get concessions of valuable slots at valuable slot-restricted airports where the small competitors would have a hard time getting in.

That way the consumer can truly win. (and not just be the flailing actions of an incompetent DOJ, trying to find relevancy).
preacher1
preacher1 1
Horton has long said AA could emerge from BR without merging. His board and creditors disagreed so this course has been charted. The final outcome will be interesting.
Moviela
Ric Wernicke 1
Horton Hears A Who too. There was no way AMR could escape the clutches of Chase and come out of BK. The balance sheet could not support the payments due the bank. Chase was looking to take control out of BK, dress the books for a year and sell on the open market.

Parker stepped in and made Horton and the shareowners a better deal. Parker still plans to cancel the stock and pensions while riding off into the sunset with the physical assets and the routes.
Yazoo
Yazoo -3
(Duplicate Squawk Submitted)

US gov't seeks to block AMR-US Air merger

Not so fast Doug..... You still have an uphill battle. You might want to get USAir and America West complete.

http://www.cnbc.com/id/100959290
emperorjimbo
Jim Byrd 0
(Duplicate Squawk Submitted)

Justice Department sues to block AMR-US Airways merger; stocks fall

(Reuters) - The U.S. Justice Department filed an unexpected lawsuit on Tuesday to block the merger of American Airlines parent AMR Corp and US Airways Group Inc, saying the deal would hurt consumers by leading to higher fares and fees.

http://www.reuters.com/article/2013/08/13/us-amr-usairways-lawsuit-idUSBRE97C0JF20130813
RRKen
Kenneth Schmidt 0
(Duplicate Squawk Submitted)

Justice files Anti-trust suit to nix US Air/American merger

DOJ decides the merger will not enhance competition.

http://www.bbc.co.uk/news/world-us-canada-23687680
ltcjra
ltcjra 0
(Duplicate Squawk Submitted)

Justice Department Files Antitrust Lawsuit Challenging Proposed Merger Between US Airways and American Airlines

Merger Would Result in U.S. Consumers Paying Higher Airfares and Receiving Less Service; Lawsuit Seeks to Maintain Competition in the Airline Industry

http://www.justice.gov/opa/pr/2013/August/13-at-909.html