It’s been more than a year since American Airlines hinted it was interested in a merger, hoping to emerge out of bankruptcy. Earlier this year, the airline announced it had approved a deal with US Airways that would create the world’s largest carrier.
“The new company, the new American, is going to have a great many more destinations. It will have more hubs across which to interchange traffic. In all respects, it will be a fundamentally enhanced competitor,” former American Airlines CEO Bob Crandall told Marketplace Morning Report in February.
Sounds like serendipity, right? Better keep the receipt on that merger gift. The Justice Department filed a lawsuit Tuesday seeking to block the merger, saying it would reduce competition substantially, increase airfare and cut services. According to the New York Times, antitrust regulators have not challenged an airline merger since 2001.
So how did we get here, and what happens next? First, let’s take a look back:
- American Airlines’ parent company AMR first filed for bankruptcy in November 2011. American was one of the last major carriers to hold out on filing for Chapter 11, citing high labor costs and rising fuel prices. By that time, the company had posted losses in 14 of the last 16 quarters.
- As a way to cut costs, the airline began considering cutting pension programs for its employees, something other airlines had done through their own bankruptcies. It also looked into voiding employee contracts if it couldn’t get more concessions from labor unions. Labor unions began fighting back as employees watched layoffs continue.
- But then came the merger rumors. First, there was Delta — already the world’s second largest carrier. But then US Airways threw its hat into the ring — even snatching up the Internet domain name American-USAirways.com. With American hoping to get out bankruptcy, and US Airways seeking a big brother, it looked like a good plan to lean on each other.
- Months later, an agreement between the two emerged. Robert Isom, the COO of US Airways, and John Snook, the Senior Vice President of Customer Service at American Airlines, spoke to Marketplace Morning Report about the deal. “The scale of our network is really one of the biggest advantages that our customers will see,” said Snook. Isom added, “When we take a look at some of the value that comes out of the merger, we’re able to join US Airways’ strong East Coast presence with American’s global reach, and it’s going to mean great things for our customers.”
- Still, there was still some apprehension about the merger — after all, business history “is littered with the corpses of really bad mergers.”
Could American-US Airways be the next bad merger? We’ll have ongoing coverage as the Justice Department moves forward with its case.