Airline Analyst Critical of DOJ's AA - US Air Lawsuit

writing"Will politics destroy US Airways and what’s left of American Airlines?" asks airline financial analyst Robert Herbst. Herbst, an independent industry consultant and founder of AirlineFinancials.com, took aim at the Department of Justice's decision to block the proposed merger of American Airlines and US Airways.

"This week, under some of the most incredulous accusations ever foisted against the airline industry, " Herbst said the DOJ, with support of a handful of state Attorneys General "blocked what should have been the –one – airline merger that was a no-brainer to approve," Herbst wrote.

The DOJ's decision has divided opinion. The DOJ has mounted a defense of its decision, joined by the state attorney's general and some industry and consumer groups such as the Business Travel Coalition (BTC). Major pilot and flight attendant unions have also entered the debate critical of the DOJ's action.

"Ten years ago American Airlines was the largest of six major network carriers. Today, of the four that remain, American is by far the financially weakest and the distant third largest network carrier. It was the largest airline employer with over 100,000 employees. Today, American only has 64,000 employees (mainline operations). It operated over 2,700 flights per day. Today, American operates only 1,800 flights per day (mainline operations)," according to Herbst's analysis.

"Most important to recognize is that all of the above occurred –without– American merging with another carrier. Furthermore until the DOJ’s actions this week, American was on track to exit their ongoing bankruptcy and merge with the industry’s smallest network carrier, US Airways." 

"To in any way compare the –current– airline industry to what the industry was in 2001 and before the 9/11 tragedy is ludicrous. 9/11 was the direct cause of airline bankruptcies, billions in financial losses, tens of thousands of jobs lost, and the loss of passenger demand. Just as the industry was bailing out of its 9/11 demise, it was hit with skyrocketing fuel increases soon followed by the economic collapse of 2008," Herbst said.

"Contrary to the Attorney General’s accusations, the loss of capacity, airline jobs, and higher air fares had nothing to do with airline mergers," Herbst said.

Herbst said the DOJ analysis was faulty and tracked the airline industry's shaky profit/loss history over the past decade."The facts are that Delta, United, and Southwest –all– with their recent DOJ approved mergers have now become so large and so financially strong, that it is pure fantasy to suggest that either American and/or US Airways will be competitive as stand-a-lone airlines."

"The DOJ’s Anti-Trust Lawsuit makes several preposterous 'claims'. One of those claims is that the prior approved mergers –supposedly—were the cause of higher air fares and reduced service/capacity. It’s incredibly obvious that the DOJ knows nothing about the industry, where the airline industry has been, and more-so, why it is where it is today," Herbst said in his analysis.

Questioning the DOJ's key argument that the merger would be anti-competitive and could result in higher air fares, Herbst says the DOJ  left many factors out of their anti-trust suit: including the effects of 9/11/2001. 

He also contests the DOJ’s argument that suggests US Airways' market share at Washington Reagan Airport (DCA) is anti-competitive, and cites airline market share data at Chicago, New York and other major hubs. 

Would it be better to have three more-or-less equally strong airlines competing or four? Herbst asks. "The only legitimate option going forward is to have a fourth –equally strong—competitor for United, Delta, and Southwest. The merger of American and US Airways is the best choice and better for the industry, the communities they serve, and especially for the consumer."

Herbst concludes that dozens of once-great airlines went out of business for one primary reason: they failed to remain competitive. "Without a merger, there is simply no possibility American and US Airways will be able to compete over the long-term in what is now a much consolidated industry."

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