November 15, 2006
The emergence of low-fare competitors could be a key factor in getting US antitrust authorities to approve US Airways' proposed USD$8 billion purchase of bankrupt rival Delta Air Lines, experts said on Wednesday.
US Airways is likely to argue that low-fare competitors have injected new competition into the industry in hopes of soothing concerns at the Justice Department's antitrust division, according to industry and antitrust experts.
"There's a feeling in the industry that the way mergers are looked at today might be different than the way they were looked at a few years ago," one industry source said.
"The (antitrust) analysis ought to change," this source said, speaking on condition of anonymity.
US Airways almost certainly would have to divest one of the East Coast shuttle services operated by the two carriers, which compete directly with each other in the corridor between Boston, New York and Washington, DC, several antitrust lawyers said.
However, low-fare competition such as JetBlue Airways and AirTran, along with upheaval that has led to billions of dollars in losses in recent years, could help convince antitrust regulators to approve the deal without imposing too many conditions, such as shedding large numbers of routes and giving up airport gates.
The acquisition plan comes more than five years after the department scuttled a proposed merger of United Airlines and US Airways over antitrust concerns.
In that case, the department concluded that the combination would crimp competition on more than 30 routes, leading to higher fares and fewer choices for air travelers.
Antitrust lawyers said the combination of US Airways and Delta would also face close scrutiny. Typically, the Justice Department focuses on whether competition would be curtailed on routes where the two carriers have overlapping service. It also could consider whether they compete for corporate discount programs.
"This is a transaction that the Department of Justice is going to examine very closely," said Washington antitrust lawyer Mark Schechter, of the firm Howrey LLP. "The parties are going to have a very challenging task ahead of them."
US Airways could hope for an outcome like the one it got in June 2005, when the department cleared its merger with America West Airlines.
But in that case, there was little route overlap and the department concluded the deal would be good for consumers, allowing better service to more destinations.
Government antitrust guidelines also include a provision that allows it to approve the buyout of a "failing firm" even when there are serious competition concerns.
However, antitrust lawyers said Delta does not meet the Justice Department's traditional definition of a "failing firm" because, even though it is operating under the protection of bankruptcy proceedings, it is not in imminent danger of exiting the market.
US Airways could argue that a spate of bankruptcies and the success of low-fare airlines have loosened the grip that major carriers used to have on major routes and hub airports. "Their ability to keep out competitors is nonexistent," the industry source said.
(Reuters)