The Department of Justice announced in a press release last week that a settlement had been reached in the antitrust lawsuit filed in opposition to the merger of American Airlines and US Airways.  The settlement will establish the merged airline as the largest in the world, and will preclude the need for a trial scheduled for 25 November 2013.  The lawsuit, filed by antitrust officials for the Department of Justice (“DOJ”), and led by US Attorney General Eric Holder, sought to block the acquisition of American Airlines’ parent company, AMR Corporation, by US Airways in the wake of American Airlines’ bankruptcy.  In a statement released in August, Attorney General Holder warned that “This transaction would result in consumers paying the price—in higher airfares, higher fees, and fewer choices…If this merger goes forward, even a small increase in the price of airline tickets, checked bags or flight change fees would result in hundreds of millions of dollars of harm to American consumers.  Both airlines have stated that they can succeed on a standalone basis and consumers deserve the benefit of that continuing competitive dynamic.”

A number of individuals bolstered Holder’s position, pointing out the merger could easily violate multiple antitrust laws.  A report issued by the US Government Accountability Office (“GAO”) noted that the merger would make American the largest US passenger airline by far.  While 17.5 million passengers in 210 airport-pairs would benefit from the merger, 53 million passengers in 1,665 airport-pairs would see their effective competitor airlines eliminated.  Moreover, the GAO and DOJ were particularly concerned about the fact that the merger would dominate nonstop airline routes; for 7 of the 12 nonstop airport-pair routes on which US Airways and American overlap, there would be no other competitors on a nonstop basis.  In response, six state attorneys general—from Arizona, Florida, Pennsylvania, Michigan, Tennessee, and Virginia—joined in the department’s proposed settlement in an attempt to mitigate antitrust violations at their airports, which would be the most heavily impacted by the merger.

Other parties, however, disagree as to the viability of American Airlines as a standalone corporation.  Indeed, in November 2011, the company filed for Chapter 11 bankruptcy, and announced plans to restructure the corporation going forward.  Confidence in the organization continued to falter throughout 2012, as American Airlines was forced to cut tens of thousands of jobs, while simultaneously attempting to secure a $20 million severance package for its CEO (this proposal was later rejected by the Bankruptcy Judge).  Fears of a stock price split further fueled financial panic earlier this year.  These inconsistencies lent credence to the argument that American Airlines was no longer fiscally sustainable.

Though the settlement has yet to be approved by the court, parties on both sides have expressed satisfaction at the terms.  Under the terms, the DOJ is requiring US Airways Group Inc. and AMR Corp. to “divest slots and gates at key constrained airports across the country to low cost carrier airlines (LCCs),” according to the DOJ’s press release dated 12 November 2013.  This action would “increase the presence of the LCCs at Boston Logan International, Chicago O’Hare International, Dallas Love Field, Los Angeles International, Miami International, New York LaGuardia International and Ronald Reagan Washington National.”  Low cost carriers, in particular Southwest Airlines and JetBlue, expressed contentment with the terms, which guarantee them a larger foothold in markets that were previously dominated by American and US Airways.  JetBlue even announced a sale on flights out of Reagan Airport for $55, a reference to the fact that American and US Airways will only be entitled to US Airway’s 55 flight slots at Reagan under the terms of the settlement, a victory for JetBlue.