Arizona investors cried foul when Attorney General Tom Horne announced that the State would join the U.S. Department of Justice in filing suit to block the pending merger between U.S. Airways and American Airlines. Horne is vowing to continue the fight.
Horne says that the fight is “to promote competition in order to produce more service and reasonable prices for the people of Arizona.”
A trial is set in the matter for November 25th.
American Airlines entered bankruptcy with plans to restructure and remain independent, adopting a standalone business plan designed to “restore America to industry leadership, profitability, and growth,” according to the company. The airline, which is still in bankruptcy, is claiming the merger is necessary for survival.
The parent company of American Airlines, Inc. and US Airways Group, Inc. said they intended to “mount a vigorous and strong defense to the U.S. Department of Justice’s effort to block their proposed merger.”
“We believe that the DOJ is wrong in its assessment of our merger. Integrating the complementary networks of American and US Airways to benefit passengers is the motivation for bringing these airlines together. Blocking this pro-competitive merger will deny customers access to a broader airline network that gives them more choices.”
Despite the fact that the company is in the process of restructuring, Horne surprised many financial experts when he made the claim, in an interview with CNBC, that the company showed a profit.
Horne stated, “American and U.S. Airways compete directly on thousands of heavily traveled nonstop and connecting routes. If this merger is completed, consumers will likely see less competition and higher airfares because airlines will be able to cut service and raise prices with less fear of competitive responses from rivals.”
However, the company argues that because the combined airline expects to maintain current hubs of both airlines and expand service from those hubs, it will result in more choices for customers. Consumer advocates disagree.
Horne claims that the merger would bring an end to an aggressive “pricing strategy and increase nationwide ticket prices by hundreds of millions of dollars. The merged airline would also be inclined to adopt American’s higher ancillary fee schedules (such as checked bag fees and ticket change fees), potentially costing consumers an additional $280 million each year.”
“We remain convinced that the airline merger between U.S. Airways and American Airlines is harmful to competition, and to Arizonans,” said Horne. “This merger would inevitably result in higher fares and lesser service as more routes would be monopolized by just one carrier.
“The law of supply and demand is an unchangeable law of nature, like the law of gravity. When there are more suppliers, prices go down and service goes up as they compete for business,” continued Horne. “As the number of airline carriers has decreased in recent years, we’ve all seen fares go up and new fees imposed for baggage, desirable seats, etc. Our complaint quotes one of the airline presidents as reporting that consolidation (mergers that reduce the number of airlines) has enabled the airlines to raise prices. Less competition means fewer choices, diminished service, and higher prices. It is a law of nature.”
Horne’s former supporters note that he should allow the market to determine which companies live and die, and allow the consumer to decide how much they are willing to pay.
The other states joining in the lawsuit include Florida, Pennsylvania, Tennessee, Texas and Virginia. The District of Columbia has also joined the suit.