The US Department of Justice sued to block the merger of AMR Corp.'s American Airlines and US Airways Group Inc. With this order, these two prospective partners are landed in a tough situation.
The Department took this move on Tuesday, after which shares of the US airlines plunged sharply. Bloomberg US Airlines Index showed a huge loss of about 6% in the shares of air industry. The main reason of declining share values of the industry as a whole is that after this big merger only four airlines would have left in the market, making them ignorant of the demands of the consumers. Few companies in the market mean less competition.
Airlines in the US have not been able to gain much of the profits during last decade; therefore, they persuaded the officials for approving the mergers. These mergers would decrease the number of companies, leading to less competition and allow the companies to raise the fares. Few examples of these mergers are Northwest Airlines Corp with Delta Air Lines Inc., America West Airlines with US Airways and Southwest Airlines Co. with AirTran Airway.
The airlines bore the losses of around $58 billion during last decade.
However, this merger could be approved on a condition, if these two big airlines give up the slots at few busy airports in order to give an opportunity to the new entrants in the industry.
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