Airlines and Antitrust: Scrutinizing the American Airlines-US Airways Merger (Sequel)

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  • Product Description

    Abstract:
    This sequel accompanies case number 2044.0. In August 2013, the Antitrust Division of the Department of Justice (DOJ) shocked many in the airline industry by filing a lawsuit to block the merger of American Airlines and US Airways on the grounds that the merger would reduce competition. The two airlines had announced their intention to merge in February, making way for the creation of the largest airline in the world. The new airline would carry roughly 200 million passengers a year, employ more than 100,000 workers, and have total revenues of nearly $40 billion. The American Airlines-US Airways merger was only the latest, albeit the largest, in a recent spate of airline mergers. During the first decade of the twenty-first century, the airline industry had been plagued by economic recession, high fuel prices, record losses and bankruptcies. Starting in the mid-2000s, airline executives responded with an aggressive program of consolidation. Mega deals, such as the merger of Delta and Northwest (in 2008), United and Continental (2010), and, Southwest and AirTran (2011), had dramatically reshaped the industry. If approved by federal authorities, the merger between American Airlines and US Airways would leave four major airlines (American, Delta, United and Southwest) in control of 80 percent of the domestic market, down from nine major carriers in 2005. Part A of this case summarizes the historical ups and downs of the volatile US airline industry, the concerns raised by the DOJ and the responses of American Airlines and US Airways, and asks students to weigh the evidence and determine if the advantages of combining the two airlines outweigh the potential harm to consumers. The case sequel describes how the DOJ eventually settled the lawsuit with the airlines, after American agreed to divest slots and gates at several airports in November 2013.

    Learning Objective:
    This case introduces students to the Oliver Williamson framework for analyzing mergers (as a tradeoff between reductions in competition and reductions in costs); helps students understand the importance and the challenge of defining the relevant market in a competitive analysis; and helps students explore the potential significance of increases in concentration. Concentration may make tacit collusion easier, but may not result in reduced competition if there is an effective threat of entry.

  • Other Details

    Publication Date: August 13, 2015
    Teaching Plan: Available with Educator Access
    HKS Case Number: 2044.1
    Case Author: Anjani Datla
    Faculty Lead: Jose Gomez-Ibanez
    Pages (incl. exhibits): 2
    Setting: United States
    Language: English
    Funding Source: Funded in part by a grant from the New England University Transportation Center, which is supported by the U.S. Department of Transportation’s Research and Innovative Technology Administration
    _year: 2010-2015
    _pages: 1-15
    _geography: US & Canada
  • Warranty Information

    /review/2044.1.EducatorCopy.pdf, /teachingplan/2044_2.pdf

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