A proposed merger of American Airlines and US Airways is being blocked by a lawsuit filed by the Department of Justice and state's attorney's from multiple states on the grounds that it will hinder competition and harm consumers, according to CNN.
The $11 billion merger would create the world's largest airline and allow them to compete with Delta Air Lines and United Airlines, two companies who recently used mergers to become the nation's top two airlines. The suit claims that the merger would reduce competition for "commercial air travel in local markets throughout the United States and result in passengers paying higher air fares and receiving less service," according to the New York Times.
"By challenging this merger, the Department of Justice is saying that the American people deserve better," Attorney General Eric Holder said in a statement. "This transaction would result in consumers paying the price - in higher airfares, higher fees and fewer choices."
The lawsuit comes as a bit of a surprise to financial analysts who thought since the two carriers don't share all that many routes that the Department of Justice would have no issue with the merger. It is thought that years of consolidation within the industry might be more to blame than this particular merger, according to Politico.
Previous mergers, such as when United merged with Continental and when Delta merged with Northwest, took place at a time when airlines were hemorrhaging money. The mergers may have been the only way to save those companies when they occurred. Currently the airline industry is raking in billions from higher fares as well as fees for everything from luggage to having the option to not sit in the middle seat. The fees alone brought in $6 billion in 2012, according to CNN.
The lawsuit uses the example of Ronald Reagan Washington National Airport to illustrate how the merger would reduce competition. If the merger were to go through the combined airline would control 63 percent of the outbound nonstop routes, according to CNN.
Vinay Bhaskara, an analyst for Aspire Aviation, a research firm in Hong Kong, told the Wall Street Journal that the merger would probably do very little to keep fares down for consumers. Bhaskara believes that the industry is already dominated by the largest carriers.
"There was a time when you could make the argument that the sky is falling [if the merger went through], Bhaskara said. "But that doesn't really change the ballgame. It's already an oligopoly."
