The Department of Justice announced today
it will allow the merger of American Airlines and US Airways, a deal it had originally tried to block, arguing it would “result in passengers paying higher airfares and receiving less service.”
So why the reversal, especially when Assistant Attorney General for the Antitrust Division, Bill Baer, said the DOJ was “preparing to go to trial,” and its “case got stronger” as the November 25 trial date approached?
On a call with the media, Baer said the settlement, which requires the airlines to give up slots at seven airports around the country, is a better result for the DOJ than simply winning the case, which would have preserved the “troubling status quo.”
That’s because the DOJ gets to decide who gets those precious slots, and it’s a big fan of low cost carriers, which have been proven to drive down fares when they’re given the chance to compete on routes with legacy carriers.
Airlines like Southwest and JetBlue will have the chance to bring their “competitive model” to routes older carriers had controlled, Baer said. “Competition is kind of a magic potion” for driving down fares.
Baer did not provide details on how the DOJ will parcel out the slots at airports in Boston, Newark, Dallas, Chicago, Los Angeles, Miami, and Washington, D.C. “We’re gonna sit down and work with the parties,” he said.
Asked about the chance of a foreign carrier picking up a slot, he called the idea “intriguing.” It’s not impossible that a legacy carrier like Delta would benefit, but Baer said those companies are “part of the problem” — a clear indication they likely won’t get any slots.
Throughout the hour-long call, he returned repeatedly to the advantages of having low cost carriers in the market. The settlement will allow the DOJ to “lower barriers to entry” into lucrative markets, and “provide significant new competition nationally, system-wide.”
Giving space at key airports to low cost carriers has lowered fares before. It’s not a stretch to say that since this is the largest divestiture of airport slots ever in an airline merger, those benefits will be multiplied.
It won’t take long for low cost carriers to put their names in the ring to expand their presence at big airports. “We look forward to working with DOJ on a fair and transparent process by which Southwest can expand our low fare competitive presence in DCA and LGA,” the airline said in a statement. Expect JetBlue and airlines like it to echo that sentiment.
The deal has the “potential to shift the landscape of the airline industry,” Baer said. It’s “obviously good news for consumers.”
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