We’re now less than a month away from opening arguments in the Department of Justice’s (DOJ) antitrust case trying to prevent American and US Airways from merging, and the rumors are ramping up that a settlement is being discussed. The closer
In general, neither side wants to go to trial. Lots of secrets end up being made public, and nobody likes that… except for journalists who get all kinds of tasty fodder from these things. (I spent hours cuddled up with the American/Sabre transcripts. Man, did Sabre look bad in that one, which would probably explain why they settled only 5 days in.) In addition, each side risks losing everything. A settlement avoids the courtroom drama and each side walks away with something.
If it goes to trial and DOJ wins, then the merger is off completely. The airlines don’t want that. However, if it goes to trial and the airlines win, then they get to merge exactly as they want, keeping all of their slots at Washington’s National Airport. DOJ doesn’t want that. As we get closer to the trial start date, the reality of what could happen starts to sink in.
DOJ may have been banking on its delay tactics to get the merger to fall apart on its own, but that isn’t happening. The judge has rebuffed pretty much all of the department’s delay attempts. This merger isn’t falling apart before the outcome of the trial is known, and that might make DOJ a little more nervous.
We also don’t know much about how each side is feeling about its case. DOJ went into it with a full head of steam, thinking it had the case won. But it has had more time to dig in to the issues, and it might not be as confident as it once was. The same could be true for the airlines. Either way, I think there’s probably a natural instinct to feel less confident on each side as the trial draws closer. You can just never know what the other side will present entirely, and you just can’t know how the judge will rule.
The court also would rather avoid a trial. It suggested mediation, and both sides have agreed to using an undisclosed mediator for talks. That doesn’t mean the talks will go anywhere, but a mediator should at least help them find a path forward, if one exists.
So what would a path forward look like? That’s the billion dollar question. To start, egos would have to be put aside.
There’s no doubt that any kind of settlement would have to involve the divestment of slots at Washington/National. That is a piece of DOJ’s complaint, and it was always assumed to be the big sticking point before the lawsuit was filed. If DOJ settles, I would imagine it would want all of American’s current slot pairs (50+) made available to new or limited entrants at the airport. I can’t imagine American and US Airways would be willing to give up all those slots. So they would need to find a common ground somewhere in between.
Beyond that, it’s hard to figure out what else could be included in a settlement. They’ve already agreed to give up a slot in London for an airline to fly to Philly. That was all the European Union wanted to approve the deal, and I would be shocked if any more London slots would be required by DOJ. Most of the other airports where the airlines fly either aren’t slot controlled or aren’t dominated by these airlines.
Could there be some sort of agreement to limit price increases or fees for a period of time as part of the settlement? It’s hard to see how something as sensitive as future pricing could be included in a settlement. That would be the ultimate signalling move in the airline industry. While I would be surprised if the airlines agreed to serious handcuffs like that, I could see them agreeing to not impose a frequent flier redemption fee for a period of time. That was specifically mentioned by DOJ in its complaint, so that could help DOJ save a little face.
But the biggest sticking point here is going to be whether the DOJ is willing to swallow its pride and agree to a settlement that clearly does not satisfy everything in its complaint. It has made such broad accusations that there is no settlement out there that could satisfy all the issues and still allow the airlines to merge. So DOJ would have to be ready to accept that, and I would think it would only do that if it felt its chances of winning the case were quickly slipping away.
More and more people are talking about a settlement coming down the pipe before the November 25 trial start date. I’m still not convinced, but it would be great if it happened.