Airlines and Antitrust: Scrutinizing the American Airlines-US Airways Merger
In August 2013, the Antitrust Division of the Department of Justice (DOJ) shocked many in the airline industry by filing a lawsuit to block the merger of American Airlines and US Airways on the grounds that the merger would reduce competition. The two airlines had announced their intention to merge in February, making way for the creation of the largest airline in the world. The new airline would carry roughly 200 million passengers a year, employ more than 100,000 workers, and have total revenues of nearly $40 billion. The American Airlines-US Airways merger was only the latest, albeit the largest, in a recent spate of airline mergers. During the first decade of the twenty-first century, the airline industry had been plagued by economic recession, high fuel prices, record losses and bankruptcies. Starting in the mid-2000s, airline executives responded with an aggressive program of consolidation. Mega deals, such as the merger of Delta and Northwest (in 2008), United and Continental (2010), and, Southwest and AirTran (2011), had dramatically reshaped the industry. If approved by federal authorities, the merger between American Airlines and US Airways would leave four major airlines (American, Delta, United and Southwest) in control of 80 percent of the domestic market, down from nine major carriers in 2005. Part A of this case summarizes the historical ups and downs of the volatile US airline industry, the concerns raised by the DOJ and the responses of American Airlines and US Airways, and asks students to weigh the evidence and determine if the advantages of combining the two airlines outweigh the potential harm to consumers. The case sequel describes how the DOJ eventually settled the lawsuit with the airlines, after American agreed to divest slots and gates at several airports in November 2013.