Proposed Merger Of Us Airways And American Airlines

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INTEROFFICE MEMORANDUM TO: CHRISTOPHER CARRIGAN, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE FROM: JULIAN HOFFMAN, ECONOMIC ANALYST SUBJECT: PROPOSED MERGER OF US AIRWAYS AND AMERICAN AIRLINES DATE: JULY 15, 2013 Executive Summary This memo is in response to your request for an analysis of the economic implications of the potential merger of US Airways Group and the AMR Corporation (parent company of American Airlines), plans for which were announced in February of this year. While US Airways Group is currently operating normally, AMR Corporation is under Chapter 11 bankruptcy protection due to a lack of profit, putting it in a precarious business situation. This proposed merger is AMR Corporation’s proposed path out of bankruptcy, and one which both airlines claim could result in more than $1.5 billion in additional revenues and cost savings on an annual basis. (Wall Street Journal, 2012) This proposed merger would create the largest airline in the United States by market share, with a combined 21.2% of the domestic market using pre-merger market share levels (see Figure 1). The proposed merger would also bring the total number of major domestic airlines down to four: Delta, United, Southwest and the proposed new airline. These major domestic carriers would combine to control roughly 69% of the market, a dominant position. Any thorough economic analysis of the proposed merger has to focus in on this critical issue: the risk of having too few
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