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How Did American Airlines, US Airways Overcome DOJ Objections?

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Jun. 16 2016, Updated 11:06 a.m. ET

DOJ objections

The US Airways–American Airlines (AAL) merger was opposed by the United States Department of Justice (or DOJ). The reason was increased industry concentration leading to fears of customer service being hampered.

A lawsuit was filed on the following grounds:

  • If the merger went through, almost 80% of the industry’s market share would be held by only four airlines. This could result in higher airfares and ancillary fees for customers.
  • There would be an American Airlines monopoly at the Ronald Reagan Washington National Airport since the merged entity would control almost 70% of the takeoff and landing slots and 63% of the non-stop routes.
  • It would be difficult for low-cost carriers to compete with legacy carriers.
  • American Airlines would have aggressive growth plans coming out of bankruptcy.
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Conditional approval

The merged entity would have controlled nearly 70% of takeoffs at the Ronald Reagan Washington National Airport. It would also have a 33% share at New York’s LaGuardia Airport. These airports already had high fares since they were slot controlled with restricted access to new entrants. The DOJ was afraid that fares would rise even further after the merger and thus negatively affect customers.

So the DOJ granted a conditional approval for the American Airlines–US Airways merger. The condition was that AAL had to sell a few of its slots and takeoff rights in these airports to low-cost carriers.

AAL agreed to sell 14 takeoff and landing slots at the Ronald Reagan Washington National Airport and 34 at LaGuardia Airport and gates at five airports to low-cost carriers.

The slots were purchased by Virgin America (VA) and Southwest Airlines (LUV). JetBlue Airways (JBLU) bought the flying rights at the Ronald Reagan Washington National Airport. American Airlines received more than $425 million for the sale of slots at the Ronald Reagan Washington National Airport and LaGuardia Airport, recording a gain of $381 million.

Investors can gain coverage to airline stocks by investing in the SPDR S&P Transportation ETF (XTN).

Next, let’s take a look at American Airlines stock.

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