American Airlines and US Airways challenged by Department of Justice

The Department of Justice has filed an anti-trust case to block the merger of American Airlines and US Airways.

The $11 billion deal, which would form the world’s largest airline, was backed by a federal judge in March and has been approved by the European Union.

The complaint says customers would see a price rise as the merger would “substantially lessen competition” in the domestic market.

US Airways boss Doug Parker said the company would fight the injunction.

“We are extremely disappointed in this action and believe the DOJ [Department of Justice] is wrong in its assessment,” Doug Parker said in a letter to employees.

The District of Columbia and six US states and have joined the legal action: Texas, where American Airlines is headquartered, Arizona, where US Airways is based, Florida, Pennsylvania, Tennessee and Virginia.

American Airlines and US Airways said that in light of the justice department’s action they no longer expected the merger to close by the end of 2013, but that they remained “hopeful” litigation would be over by year’s end.

Shares in both companies fell, along with the stock prices of other airlines, as news of the anti-trust case hit the markets on Tuesday.

“By challenging this merger, the Department of Justice is saying that the American people deserve better,” US Attorney General Eric Holder said in a statement.

“This transaction would result in consumers paying the price – in higher air fares, higher fees and fewer choices.”

The lawsuit also cites direct competition between the airlines on nonstop routes worth about $2 billion in annual revenues.

In one example, the complaint says the newly merged company would take up 69% of flights out of Washington’s Reagan National Airport and 63% of nonstop routes out of the airport.

The airlines had previously conceded take-off and landing slots at airports in Philadelphia and London in order to win EU approval last week.

When the deal was announced in February, Senate Commerce Committee chairman Jay Rockefeller also expressed concern that consumers would lose.

American Airlines has been in bankruptcy protection since November 2011, but US Airways has been profitable in recent years.

The two combined airlines would have 6,700 daily flights and annual revenue of roughly $40 billion.

The justice department complaint argues the two companies do not need to merge to continue to be competitive, and that American Airlines is likely to exit bankruptcy as a “vigorous competitor”.

The department also cited American Airlines’ purchase two years ago of 460 new planes, said to be the largest such order in industry history.

If the merger continues, there will be only three major US airlines, which the justice department alleges “increasingly prefer tacit coordination over full-throated competition”.

Some industry analysts suggest that American Airlines and US Airways’ ability to compete without a merger is not as strong as the department argues.

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