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The U.S. Justice Department and several states have filed suit to block a huge airline merger. American Airlines and US Airways first announced their merger plans back in February, and since then there has been little opposition. But now the government says the merger would hurt competition and drive up fares for consumers. From Dallas, NPR's Wade Goodwyn reports.
WADE GOODWYN, BYLINE: In the not so distant past, the Justice Department didn't have any major problems with big airline mergers. It didn't object in 2008 when Delta gobbled up Northwest or in 2010 when United merged with Continental. But the federal government has evidently reached its limit when it comes to further consolidation.
ASSISTANT ATTORNEY GENERAL WILLIAM BAER: We simply cannot approve a merger that would result in U.S. consumers paying higher fees, higher fares and receiving less service.
GOODWYN: In a conference call with reporters, Assistant U.S. Attorney Bill Baer made the government's case that while further consolidation might be good for the airlines themselves, it would be on the backs of their customers.
BAER: Increases in the price of airline tickets, checked bags or flight change fees resulting from this merger would result in hundreds of millions of dollars of harm to American consumers. If this merger were to go forward, consumers would lose the benefit of head-to-head competition between US Airways and American on thousands of airline routes across the country, in cities big and small.
GOODWYN: When asked why the Justice Department signed off on the Delta and United merger but not on American's, the assistant attorney general revealed some buyer's remorse. Baer said the government has watched with dismay over the last four years as the airlines, quote, "increasingly prefer tacit coordination over full-throated competition."
BAER: And you do not need to take my word for this. One US Airways executive recently stated that this merger is the last major piece needed to fully rationalize the industry. In the airline business, the word rationalize is a code word for less competition, higher costs for consumers and fewer choices.
GOODWYN: But American is still in bankruptcy, and the merger with US Airways is its plan to re-emerge as a powerful carrier that can compete with United and Delta. The industry is only just now becoming profitable again after a decade of bleeding billions of dollars following 9/11.
In response to the legal action, the two airlines issued a joint statement that said: 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. We will mount a vigorous defense.
Wall Street was not thrilled with the news. US Airways stock dropped more than 10 percent, and American Airlines was down more than 40 percent. Ouch. Diana Moss is the vice president of the American Antitrust Institute. And while she acknowledges investors and creditors aren't going to be happy with the Justice Department, she is.
DR. DIANA MOSS: Yeah. Wall Street wants to see profitability, yes. They've been excited about the turnaround in the financials for a lot of airlines. But, you know, I think you have to ask the question, is increasing profitability in the airline industry a function of robust competition and competing on price and service quality and amenities and ancillary fees, or is it a function of higher prices resulting from market power from the consolidation we've seen so far?
GOODWYN: Clearly, the Department of Justice's lawyers believe it's the latter, and they've thrown a federal government-sized monkey wrench into American and US Airways' plans. Wade Goodwyn, NPR News, Dallas. Transcript provided by NPR, Copyright NPR.