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Airline merger challenged

Airline merger challenged

Tue, August 13, 2013 - 1:47 PM

WASHINGTON (AP) — The U.S. government is challenging the proposed merger of American Airlines and US Airways to create the world's largest airline, saying it would cause "substantial harm" to consumers by leading to higher fares and fees.

The U.S. Justice Department, joined by the attorneys general of six U.S. states, filed a lawsuit to block the merger today in federal court in Washington, D.C.

The government's challenge threatens to quash a deal that would create the world's largest airline by passenger miles. The airlines could challenge the government in court, or possibly agree to concessions that would convince regulators to approve the merger.

The lawsuit caught many observers by surprise. In the last five years, antitrust regulators had allowed three other major airline mergers to go ahead, leaving five airlines in control of about 80 per cent of domestic market. But the government argued that this merger would hurt consumers around America by eliminating a competitor on more than 1 000 routes.

If the merger leads to even small increases in ticket prices or airline fees, it would cost American consumers hundreds of millions of dollars each year, the department said.

As examples, the government cited round-trip fares for travel this month between Miami and Cincinnati and between Houston and New York in which US Airways' fares are far lower than American and other competitors.

Shares of both airlines plunged on news of the lawsuit. US Airways Group Inc. shares fell $1.66, or 8.8 percent, to $17.16 in midday trading. AMR shares were taken off the New York Stock Exchange shortly after the company filed for bankruptcy protection in late 2011 but still trade over the counter; they were down $2.43, or 41.8 percent, to $3.38.

The companies issued a statement criticizing the Justice Department's conclusions and arguing that together they would create a stronger network of flights that gives travelers more choices.

In a letter to AMR employees, CEO Tom Horton said both companies tried to convince the Justice Department that the deal would be good for their customers and for airline competition.

"Since the DOJ has formed a contrary view, the matter will now be settled by the courts," Horton said, a process he said would "likely take a few months."

The airlines had already announced the management team at the combined company, which would be called American Airlines Group Inc. and led by US Airways CEO Doug Parker. Those plans are now on hold.

Last year, business and leisure travelers spent more than $70 billion on airfare in the United States. Consumer advocates cheered the lawsuit.

"This is the best news that consumers could have possible gotten," said Charlie Leocha, director of the Consumer Travel Alliance and member of a panel that advises the government on travel-consumer issues. He said that recent mergers had led to higher fares and fewer flight choices and this one would have the same result.

The lawsuit will not necessarily stop the deal. The airlines could fight back in court, but it might not even get that far.

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