AAI Asks District Court to Overturn Airline Merger Settlement (United States v. US Airways Group)

The AAI has filed an amicus brief in the District of Columbia District Court asking a federal judge to overturn the Justice Department’s settlement permitting the merger of US Airways and American Airlines.  After the Justice Department challenged the merger last summer in a robust complaint depicting myriad, nationwide harms to American travelers,  it reversed course in the fall and settled with the airlines in exchange only for divestitures of slots at Reagan National and LaGuardia airports and a pair of gates at each of five other airports.   Although the parties opted to consummate the merger at their own risk in December 2013, Judge Kollar-Kotelly is now conducting a public interest review of the deal under the Antitrust Procedures and Penalties Act, 15 U.S.C. § 16 (the Tunney Act), and she retains authority under the statute to reject the settlement and send the parties back to the drawing board (or perhaps to trial). The AAI filed public comments objecting to the settlement, and its amicus brief replies to the government’s response.

The AAI argues that the government’s settlement does not prevent or even address the bulk of the anticompetitive harms alleged in its complaint.  The complaint alleged harm from presumptively unlawful increases in concentration in over 1,000 city pair markets, including head-to-head competition on 17 nonstop routes, as well as an increased likelihood of coordinating behavior among the three remaining legacy airlines, Delta, United and the “New American.”  The coordinated effects, according to the complaint, result in (or from): (a) the elimination of US Airways’ Advantage Fares (which compete by pitting cheaper indirect flights against rival legacy airlines’ direct flights); (b) increases in fares generally; (c) reductions in capacity and growth; (d) increases in baggage and ancillary fees and reductions in the quality and variety of ancillary services, and (e) thwarting American’s aggressive standalone expansion plans.[RB1]

AAI’s amicus brief explains that whether the settlement is in the public interest depends on whether the proposed relief reasonably resolves the harm alleged in the complaint.  Here, there is no factual basis to conclude it does.  The Department claims the settlement positions low cost carriers (LCCs) that acquire the divestiture assets, like Southwest and JetBlue, to improve competitive dynamics in the industry and prevent oligopoly pricing by the new Big 3 legacy carriers nationwide.  But the Department’s own estimates indicate that, at most, the airport divestitures will allow LCCs to increase passengers by  about 3%.  And it does not bode well that Southwest, which is purchasing well over half the airport slots, has already announced it will not be expanding capacity in 2014.

The AAI also explains that the consumers who will be helped by the remedy are not the same ones who will be harmed by the merger, which contradicts the longstanding principle that anticompetitive effects in one market cannot be justified by procompetitive effects in another.  The Tunney Act, and the Department’s own Merger Remedies Policy Guide, provide instead that successful remedies must effectively preserve competition in the relevant market or markets where harm is alleged.

Finally, the AAI objects that the settlement’s acquiescence to the consummation of the merger prior to Tunney Act review, without any hold-separate agreement, was itself not in the public interest, because allowing early consummation subverts judicial review and makes restoration of the status quo ante more difficult and costly.  This is particularly problematic where, as here, the settlement occurs during a pending litigation, rather than when the settlement is filed with the complaint and normally resolves the harms alleged in the complaint.

The brief was written by AAI General Counsel Rick Brunell and AAI Senior Counsel Randy Stutz.  Attorneys from GeyerGorey LLP, Phillip Zane and AAI Advisory Board member Allen Grunes, acted as pro bono local counsel to AAI.