From the Allied Pilots Association
Amended DOJ Complaint
As scheduled and expected, the DOJ filed an
amended complaint today to its original complaint filed Aug. 8. The amended complaint includes the Michigan attorney general joining the lawsuit.
Bloomberg reports the filing cuts 29 routes from the list of city pairs that will allegedly have illegally high levels of concentration if the merger goes through.
Antitrust Trial Update
U.S. District Judge Colleen Kollar-Kotelly at an initial scheduling conference Aug. 30 took firm control of the DOJ's antitrust challenge to the proposed US Airways–American Airlines merger by directing an expedited pre-trial discovery schedule and an early trial date. Rejecting the government's request to delay the start of trial until March, Judge Kollar-Kotelly ordered the trial to begin Nov. 25. In addition, she took a number of steps to support this trial date, including appointing a Special Master to resolve discovery disputes promptly as they may arise, advising the parties to be prepared to support a process of simultaneous depositions and cutting back the scope of a number of the government's discovery requests. The trial date is aggressive for a full trial on the merits of an antitrust case of this magnitude by any reasonable measure.
Judge Kollar-Kotelly entered a more detailed scheduling order Wednesday, providing for the filing of an amended complaint (Sept. 6) and an answer four days later, an early exchange of preliminary witness lists (Sept. 30), a close-of-fact discovery by Oct. 25 and an exchange of expert reports promptly thereafter, with expert discovery closed by Nov. 20. Although Judge Kollar-Kotelly at the Aug. 30 hearing directed the parties each to designate two potential mediators, thus showing her interest in good-faith efforts to resolve the controversy short of trial, Wednesday's order made it plain she did not intend to allow settlement conversation to derail her Thanksgiving trial schedule.
DCA Fly-in Lobby Day and Rally
On Sept. 17 and 18, American Airlines and US Airways employees — including labor, nonrepresented employees and some management — will meet on Capitol Hill for a lobby day and rally in support of the merger. They'll make scheduled visits to their respective House and Senate members to share their views on the merger.
Attendance is limited; sign-up details will be provided soon. Specific flight information and lodging arrangements (at the company's expense) are pending, but those attending can plan to depart the morning of the 17th and return the evening of the 18th. Travel information we have now is air charters will run Sept. 17 from DFW and PHX. (Times have not been determined.) Please stay tuned for more information.
Analyst Updates
Helane Becker, Cowen Securities:
- We were quite astonished that lawyers at the Department of Justice chose to classify Southwest Airlines as a non-viable competitor to a merged American/US Airways. Indeed, Southwest Airlines, with 13% of the industry's traffic and capacity share, is almost 40% larger than US Airways, with an 8% share.
- If the merger does not go through, we believe Delta and United will have a clear advantage over American. Corporate accounts prefer the big airlines, and corporate customers like to keep their flying on one airline, ostensibly to get the perks accorded them as a result of frequent flyer status, although those perks are increasingly difficult to come by.
Michael Linenberg, Deutsche Bank:
- Is the DOJ failing to consider the benefits to corporate consumers by preventing the formation of three major US network carriers?We believe corporate customers, who typically pay significantly higher air fares than leisure customers (primarily because of last-minute purchases) would be better off if they had three major networks competing for their annual air travel budgets rather than two. US Airways is one-third the size of Delta and United and, as such, at a significant competitive disadvantage, in our view, to compete for major corporate contracts. While American is likely to have more success in garnering corporate contracts than US Airways, it is two-thirds the size of Delta and United, and, in our view, losing ground to them in several key domestic and international markets.
- Presumably, the DOJ is referencing the rise in air fares from the depths of the great recession (up more than 20% since 2009), but in reality, average air fares are up only a few percent per annum going back to 2004 prior to the first major airline merger. (By the way, airline taxes have been on a bit of tear over the same timeframe for those keeping score.) However, consumers have benefited tremendously on the service front: In the first half of 2012, the DOT reported the lowest recorded rate of mishandled bags ever on record. The 83.7% on-time arrival rate represented the best January–June performance in 18 years, and the 1.1% flight-cancellation rate was the best since 1995. Quantifying the benefits/savings from the improved service, in our estimation, exceeds several billion dollars per year.
John Godyn, Morgan Stanley:
- We asked corporate travel managers to identify the carriers that they deal with. Not surprisingly, there was a positive correlation between the percentage of managers that use a carrier and the size of a carrier's total system, with United and Delta (the largest US airlines) frequently ranked at the top. We also asked corporate travel managers to choose the top legacy carrier in five different categories: Footprint (Quality of Network), Lift (Frequency of Flights/Attractive of Schedule), Quality of Product, Reliability and Price of Package. The surveyed corporate travel managers ranked Delta first in three categories and United in two. This is consistent with our view that consolidation has made the airlines involved more attractive corporate travel partners — a sustainable advantage should LCC's merger not be approved by the DOJ.
Hunter Keay, Wolfe Research:
- We think the DOJ's complaint fails to appropriately define the relevant markets in which LCC/AMR compete by: (1) ignoring competition from non-network airlines, (2) introducing one-stop connecting city pairs in its concentration analysis but ignoring lower-priced, two-stop connecting options as potential competitors, (3) ignoring the relative size of UAL, LUV and DAL in its Herfindahl work and (4) overemphasizing small markets as a representation of where consumers actually fly.
- We also think the DOJ relies too heavily on anecdotal and vignette-driven arguments, as was the case in Oracle/PeopleSoft, which the DOJ lost in an embarrassing fashion.
