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American, US Airways win November trial date for antitrust case

  • A federal judge sets a Nov. 25 trial date for the Justice Department's antitrust challenge to US Airways' (LCC) proposed merger with American Airlines (AAMRQ.PK).
  • The airlines had pressed for an early trial, citing "steep costs and burdens" associated with the uncertainty over their future, while the government wanted a March start.
  • Today's hearing gave some hints about how the sides are preparing for the trial: US Airways and American likely will argue the merger would allow them to shore up weaknesses in their networks that make them less attractive to business travelers.
Comments (14)
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    This is quite positive for American and Us Airways. Here is why... If the DOJ had its ducks lined up it would have a provable case that the merger limits competition. Everybody, without dispute, would then agree then that the merger is bad. But, as a result of the other three major consolidations that have already occurred, most city pairs across the country, probably over 90 percent of the tickets, are served by more than 2 of the others already. With the exception of Reagan National, most airports have a hub and good competitors comprising a good percentage of outbound flights. What the DOJ is going to have a hard time proving is that a strong American/US Airways can exert enough pricing pressure against competitors that the merger is anti-competitive. Again, with the exception of Reagan National, where US Airways is already dominant, a stronger airline with streamlined costs may theoretically deliver services at a lower price and still make more money. The complaint by the DOJ only cites generalities about the competitive market. Now the DOJ has to find experts to back their assertions with some form of scientific evidence. Obviously, since they were planning to do this next year, it will be hard for them to scramble and do real research in time for November. I expect that the DOJ is meeting with American and Us Airways to work out the Reagan National issue, like the way they handled the swap of gates and slots between Delta at LGA and US Airways at DCA, where they put a dozen slots up for auction and JetBlue bought them. That kind of trade would also negate the discussion of the competitiveness of the Low Cost Carriers, that for sure, American/US airways would use as leverage in a trial. What is really sad about this is the lack of empirical research leading to the DOJ filing the case in the first place.
    30 Aug 2013, 05:27 PM Reply Like
  • mrbill757
    , contributor
    Comments (42) | Send Message
     
    The centralized economy planners in the White House have already admitted 5 years ago ala Joe the Plumber that they want to "spread the wealth around". That includes businesses as well. The DOJ is only interested in making life fair which means determining who flys airplanes where. They will squash any airline that is too successful and dominate the industry. Funny they didn't go after Microsoft which pretty much determines who all pcs function. I believe that based on this backdrop expect that the merger will have to give up a lot of slots, gates, etc to make it more "fair" for other carriers. Also funny how UAL dominates DEN and IAD but the centralized planners can't handle AA and USAIR dominating DCA. Hang on to your wallets for investing for about a week until the dust settles. Long term a good investment if one waits for a bit after the stock is offered.
    31 Aug 2013, 10:14 PM Reply Like
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    I believe that the Reagan National objection was a reaction by the DOJ due to the fact that this is their local airport! Like all government actions, it may have been done to try to keep fares low for DOJ staffers. Also checking the United departures out of Dulles, there seems to be more competition there as United is about 60 percent of the departures, not the 67 percent at Reagan National.
    1 Sep 2013, 05:31 AM Reply Like
  • mrbill757
    , contributor
    Comments (42) | Send Message
     
    7% justification for government intervention!!!!!!
    1 Sep 2013, 09:38 AM Reply Like
  • aaway
    , contributor
    Comments (4) | Send Message
     
    "What the DOJ is going to have a hard time proving is that a strong American/US Airways can exert enough pricing pressure against competitors that the merger is anti-competitive."

     

    From my perspective, the case the DOJ is pursuing is whether or not this merger will somehow counter an industry that exhibits cartel-like behavior.
    Apparently, the executives of the combined company, through dint of their own emails and statements, do not wish to position the combined carrier to really be competitive mavericks.
    31 Aug 2013, 01:27 PM Reply Like
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    You suggest that it is the other airlines, as well as American and Us Airways that exhibit cartel behavior? Where is the action against the other airlines?
    Is there direct evidence that the airlines are tipping each other off on pricing? I can go out and look up prices from all the different airlines in different markets and if I am an airline, I buy software to ping fares and routes continuously.

     

    Is there an abnormal rate of return in the industry? It seems that the industry continuously underperforms the rates of return of other industries, just ask Warren Buffet.

     

    The days of direct collusion between Bob Crandall and Harding Lawrence are over. The FTC/DOJ watch the industry and the Bureau of Transportation statistics publishes the data.

     

    The merger would leave 4 healthy airlines, with a combined fleet of about 4,000 planes out of a total of 7,500 airliners flying in the USA, the Combined American/US Airways would be about 1,200 of them, not very dominant.

     

    The real issue in my mind for the future is the return of anticompetitive behavior where a big airline intentionally loses money just to get another airline out of the market. Delta added flights, matched fares and offered triple miles to get JBLU out of the ATL-LGB market. JBLU had lowered a $2,000 ticket to $176 in 2003.

     

    One issue never addressed it the impact of frequent flyer miles on reducing competition. That one may have more impact as larger airlines have more pull over customers than the upstarts.
    31 Aug 2013, 02:45 PM Reply Like
  • mrbill757
    , contributor
    Comments (42) | Send Message
     
    Talk about collusion!!! every time I go fill up at the gas pump, the price is exactly the same within a 20 mile radius. When it changes the next day at one station, they all match to the penny. What a coincidence!! Why isn't the government investigating!!!!!!!!
    1 Sep 2013, 09:41 AM Reply Like
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    Mr Bill, In the old days, gas operators would guess what price to charge, maybe look across the street at a competitor, then set a price. Today, they can use apps like Gasbuddy to give them all the prices within a few miles. No longer are they out of line with the market. Airlines do the same thing. They buy software that pings their competitors' flights continuously. They know when one guy has too many seats and is discounting them to fill them up. No longer is there a giant discrepancy on prices. The airline industry is moving toward a more stable cost plus pricing model, that accounts for service level differences such as non-stop flights. Airlines make few mistakes in the new model. You may want to check this video put out by SABRE http://bit.ly/17epVE1
    1 Sep 2013, 01:02 PM Reply Like
  • Mongoose7916
    , contributor
    Comments (228) | Send Message
     
    Well said markcc.
    31 Aug 2013, 03:02 PM Reply Like
  • aaway
    , contributor
    Comments (4) | Send Message
     
    markcc,
    "You suggest that it is the other airlines, as well as American and Us Airways that exhibit cartel behavior? Where is the action against the other airlines?
    Is there direct evidence that the airlines are tipping each other off on pricing? I can go out and look up prices from all the different airlines in different markets and if I am an airline, I buy software to ping fares and routes continuously."

     

    Sounds like you're versed with some of the inner machinations of the business. Therefore I'll limit my answer to a portion of your question to a single acronym - ATPCO.

     

    The "signalling" is done surreptitiously. The days of profanity laden phone calls (ala Bob Crandrall to Howard Putnam) are over.

     

    Yet, apparently, Messrs Kirby and Parker are not astute observers of history. Behavior suggestive of certain activities (perhaps merely arrogance in the case of this merger) - communicated electronically, via voice or text - cannot go unscrutinized.

     

    As far as actions against other carriers - unfortunately DoJ let that genie out of the bottle when approving the other mergers. However, past action does not grant automatic carte blance to this proposed merger. DoJ has finally drawn that proverbial line in the sand that should have been drawn five+ years ago.

     

    1 Sep 2013, 08:08 PM Reply Like
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    aaway, The fact that the DOJ did not prevent the earlier mergers must be considered. It sets a legal precedence for the handling of the current case. THis is a legally murky area, but the DOJ has tacitly approved mergers virtually identical to the one proposed. Personally, I am a firm believer that the industry is better off by providing better service. American has had a long history of buying other airlines and shutting them down. Remember AirCal? TWA? Reno? need i say more. All their hubs are vacant now. That is a more compelling case against American's business practices than a merger similar to all the others since Delta and Northwest started the game. American was a failing company and deserved a green light just on that basis since all the other mergers were not consummated under the failing company doctrine.

     

    Arrogance of Kirby and Parker? I don't understand what you refer to. Clearly the executive management of US Airways is the winner, both in the alignment of positioning as well as turning the Unions against Tom Horton and getting him effectively fired by the court if this deal goes through. I am more concerned over US Airways inability to fully integrate America West and US Airways together after a number of years, and this may be an indicator of an airline that can't be effectively integrated in the future. Rumors say that there are still pilot pay lawsuits at US Airways pending that could cost US Airways significantly.

     

    As for the ATPCO case, the case was based on the ATPCO sending signals of pricing periods and expirations to the other airlines. http://1.usa.gov/17xXtiA While no overt collusion was detected, the system had the economic effect of coordinating fares in certain markets. At that time mid-week tickets were two to three times what they sell for today and the planes were running at 55-60% full. Keeping price up was a necessity, since there were a lot of empty seats in those days. In the settlement agreement with American, http://1.usa.gov/17xXqU8 they basically said that it was anti-competitive to get the terms and expiration dates on tickets. From the settlement: "American is enjoined and restrained from: A. using travel dates to initiate or match a fare increase; and B. using travel dates in initiating or extending a cross market initiative.

     

    Since there is no evidence that polling fares today violates that restriction, I do not see your point.
    2 Sep 2013, 12:08 AM Reply Like
  • aaway
    , contributor
    Comments (4) | Send Message
     
    Markcc,
    You are in error. Prosecutorial discretion does not create a basis for legal precedent. Only decisions rendered in a court of law form the basis for precedence with regard to (future) adjudicative matters. To suggest that DoJ must approve because it's appoved in the past is simply tautological.

     

    With regard to past merger history - mergers, regardless of industry, are as much about gaining girth as it is....the....hold it.... elimination of competition. It's an unfortunate consequence of consolidation that, eventually, network adjustments are made to the detriment of communities / jurisdictions / regions, etc.

     

    Among the blunders made by the AWE senior management was the premature discussion of capacity reductions and revenue initiatives. Yes, it was arrogant and foolhardy for those AWE guys to pop bottles and back slap before the all necessary diligence had been completed. They drew unnecessary attention to themselves with their various communiques.

     

    Another fact to consider - with previous airline mergers, the executives of the carriers involved (AA-TW, US-HP, DL-NW, UA-CO, WN-FL) had been careful to stress that there would be NO service reductions. Obviously, history has shown otherwise; that such statements were made merely for posturing or pandering to skeptical politicians. Yet, to have bucked this tried and true path previously blazed by airline executives also demonstrated the arrogance of Kirby-Parker. (i.e. "If we have to divest DCA slots, we'll just reduce service to smaller communities.")

     

    With regard to ATPCO - the specific case decision does not negate the fact that there is a standard industry wide technological platform that can be used for polling. Since there is no current enforcement action or monitoring with regard to the specific matter I've called attention to, neither you nor I can actually ascertain whether polling does or does not occur.

     

    I can tell you that DoJ will likely use archived fare information from, and tariff submissions to ATPCO in the prosecution of their complaint.

     

    From the tenor of your last post, sounds as though you've invested in AWE. If so, obviously you have a vested interest in the merger. I'll wish you luck with the venture.

     

    5 Sep 2013, 08:53 AM Reply Like
  • markcc
    , contributor
    Comments (1036) | Send Message
     
    aaway, With that handle, it appears that you may be aligned with AA? What is AWE? Is that the combined company?

     

    Full disclosure, I made my money holding put options on the drop in price on the AMR bankruptcy from $6 to 50 cents, and own one share of AAMRQ just to get notices.

     

    Anyhow, we seem to be in agreement that mergers are market share takeovers, and costs come out as unprofitable markets are closed. This has even happened in the Southwest-Airtran merger. How much are the airlines responsible to provide service to markets that do not support economically viable service. If they were, they would turn into Amtrak!

     

    As for the prosecutorial discretion issue, an element of property rights is the ability to dispose of that property at will, including merging the property of two airlines. The DOJ through its actions has favored the first three airline mergers, then when confronted with a similar merger, decided to take that property right away using anti-trust laws. the combined entity would be only 15-20% of all the airliners, so not market dominant, except for DCA, where nobody else can get in. You suggest that the only way that precedence is set is in the courts, I see a situation where a clever legal team with more research resources than I have can build a case based on 1) the arbitrary way this merger was attempted to be stopped and, 2) the diminishment of property value that has occurred. I am not smart enough to know enough cases, but there might be an argument there. Not enough evidence to make an investment decision on though, thats why this thread is interesting to me.

     

    As for the ATPCO issue, it may exist, we cant. A more likely scenario is that other sources, not restricted by the FTC don't come under the original ruling and may be currently used instead.

     

    Right now, I go back to my first posting where The DOJ does not appear ready for arguments in November and may fail due to lack of preparedness. The window for investing on this theory will be open for a while, with a mid-October decision point.

     

    Interesting discussion by the way.
    5 Sep 2013, 03:21 PM Reply Like
  • mrbill757
    , contributor
    Comments (42) | Send Message
     
    what's also still "up in the air" is the huge liability of continuing to fund health care for AA retirees. AA continues to call for ditching retirees. It will be interesting to see how this turns out. I think the bk judge has yet to fall for AA's sob story of how funding health benefits will make the airline untenable. So for now retirees had better get all their surgery and doc appointments taken care of B4 November.
    6 Sep 2013, 11:17 PM Reply Like
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