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United States v. US Airways Group, Inc.

United States District Court, D. Columbia.

April 25, 2014

UNITED STATES OF AMERICA, et al., Plaintiffs,
v.
US AIRWAYS GROUP, INC., et al., Defendants

Page 70

For UNITED STATES OF AMERICA, Plaintiff: Mark William Ryan, LEAD ATTORNEY, Katharine Stevens Mitchell-Tombras, Kathleen Suzanne O'neill, William H. Stallings, Ryan J. Danks, United States Department of Justice, Antitrust Division, Washington, DC; Michael D. Billiel, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Washington, DC.

For STATE OF ARIZONA, Plaintiff: Nancy M. Bonnell, LEAD ATTORNEY, OFFICE OF THE ARIZONA ATTORNEY GENERAL, Phoenix, AZ; Susan V. Myers, OFFICE OF THE ARIZONA ATTORNEY GENERAL, Antitrust Unit, Phoenix, AZ.

For DISTRICT OF COLUMBIA, Plaintiff: Bennett C. Rushkoff, LEAD ATTORNEY, OFFICE OF THE ATTORNEY GENERAL, Public Advocacy Section, Washington, DC; Nicholas Alan Bush, DC OFFICE OF THE ATTORNEY GENERAL, Washington, DC.

For STATE OF FLORIDA, Plaintiff: Lizabeth A. Brady, LEAD ATTORNEY, FLORIDA OFFICE OF THE ATTORNEY GENERAL, Tallahassee, FL; Christopher R. Hunt, OFFICE OF THE FLORIDA ATTORNEY GENERAL, Tallahassee, FL.

For COMMONWEALTH OF PENNSYLVANIA, Plaintiff: James A. Donahue , III, LEAD ATTORNEY, OFFICE OF THE ATTORNEY GENERAL, Antitrust Section, Harrisburg, PA; Jennifer Ann Thomson, OFFICE OF THE ATTORNEY GENERAL, Commonwealth of Pennsylvania, Harrisburg, PA.

For STATE OF TENNESSEE, Plaintiff: Victor J. Domen , Jr., LEAD ATTORNEY, TENNESSEE ATTORNEY GENERAL'S OFFICE, Nashville, TN.

For COMMONWEALTH OF VIRGINIA, Plaintiff: Sarah Oxenham Allen, LEAD ATTORNEY, Matthew Ryan Hull, OFFICE OF THE ATTORNEY GENERAL, Consumer Protection Section, Richmond, VA.

For STATE OF MICHIGAN, Plaintiff: D. J. Pascoe, LEAD ATTORNEY, MICHIGAN DEPARTMENT OF ATTORNEY GENERAL, Corporate Oversight Division, Lansing, MI.

For U.S. AIRWAYS GROUP INC, Defendant: Richard G. Parker, LEAD ATTORNEY, Courtney B. Dyer, Henry C. Thumann, Katrina M. Robson, O'MELVENY & MYERS, LLP, Washington, DC; Steven Gill Bradbury, LEAD ATTORNEY, Gorav Jindal, Paul T. Denis, Paul H. Friedman, DECHERT LLP, Washington, DC; Andrew J. Forman, Charles F Rule, Daniel J. Howley, CADWALADER, WICKERSHAM & TAFT LLP, Washington, DC; Kenneth R. O'Rourke, O'MELVENY & MYERS LLP, Los Angeles, CA.

For AMR CORPORATION, Defendant: John M. Majoras, LEAD ATTORNEY, JONES DAY, Columbus, OH; Mary Jean Moltenbrey, LEAD ATTORNEY, PAUL HASTINGS LLP, Washington, DC; Paula W. Render, LEAD ATTORNEY, JONES DAY, Chicago, IL; Christopher N. Thatch, John Bruce McDonald, Michael S. Fried, JONES DAY, Washington, DC; Rosanna K McCalips, JONES DAY, Business and Tort Litigation, Washington, DC; Scott Mitchell Flicker, PAUL, HASTINGS, JANOFSKY & WALKER, L.L.P., Washington, DC.

For STATE OF OKLAHOMA, Movant: Patrick R. Wyrick, LEAD ATTORNEY, ATTORNEY GENERAL OF OKLAHOMA, Oklahoma City, OK.

For CAROLYN FJORD, KATHERINE ARCELL, KEITH DEAN BRADT, JOSE M. BRITO, ROBERT D. CONWAY, JAN MARIE BROWN, ROSEMARY D'AUGUSTA, BRENDA KAY DAVIS, PAMELA FAUST, DON FREELAND, DONALD FRY, GABRIEL GARAVANIAN, HARRY GARAVANIAN, YVONNE GARDNER, LEE GENTRY, VALARIE JOLLY, GAIL KOSACH, JUDY CRANDELL, MICHAEL C. MALANEY, LEN MARAZZO, LISA MCCARTHY, Movants: Theodore Frank Schwartz, LEAD ATTORNEY, Clayton, MO.

For AMERICAN ANTITRUST INSTITUTE, Movant: Phillip Craig Zane, LEAD ATTORNEY, GEYERGOREY LLP, Washington, DC.

For ALLIED PILOTS ASSOCIATION, Amicus: Filiberto Agusti, Robert Wallace Fleishman, Shannen W. Coffin, LEAD ATTORNEYS, STEPTOE & JOHNSON, L.L.P., Washington, DC; Darin M. Dalmat, Edgar N. James, JAMES & HOFFMAN, P.C., Washington, DC.

For ASSOCIATION OF PROFESSIONAL FLIGHT ATTENDANTS, Amicus: Robert S. Clayman, LEAD ATTORNEY, N. Skelly Harper, GUERRIERI, CLAYMAN, BARTOS & PARCELLI, P.C., Washington, DC.

For ASSOCIATION OF FLIGHT ATTENDANTS-CWA, Amicus: Edward James Gilmartin, LEAD ATTORNEY, ASSOCIATION OF FLIGHT ATTENDANTS-CWA, Washington, DC.

For TRANSPORT WORKERS UNION OF AMERICA, Amicus: Jeffrey Blumenfeld, LEAD ATTORNEY, LOWENSTEIN SANDLER, LLP, Washington, DC; Richard S. Edelman, LEAD ATTORNEY, O'DONNELL, SCHWARTZ, AND ANDERSON, Washington, DC; Sharon L. Levine, LEAD ATTORNEY, PRO HAC VICE, LOWENSTEIN SANDLER LLP, Roseland, NJ.

For OFFICIAL COMMITTEE OF UNSECURED CREDITORS, Amicus: Albert L. Hogan , III, John Wm Butler , Jr., LEAD ATTORNEYS, PRO HAC VICE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Chicago, IL; Gregory Bestor Craig, LEAD ATTORNEY, SKADDEN ARPS SLATE MEAGHER & FLOM LLP, Washington, DC; James A. Keyte, Jay M. Goffman, Kenneth B. Schwartz, LEAD ATTORNEYS, PRO HAC VICE, SKADDEN, ARPS, SLATE, MEAGHER & FLOM, LLP, New York, NY.

For COMMUNICATIONS WORKERS OF AMERICA, AFL-CIO, Amicus: Mary Katherine O'Melveny, LEAD ATTORNEY, COMMUNICATIONS WORKERS OF AMERICA, Legal Department, Washington, DC.

For DALLAS/FORT WORTH INTERNATIONAL AIRPORT BOARD, CITY OF CHARLOTTE - CHARLOTTE DOUGLAS INTERNATIONAL AIRPORT, CITY OF PHILADELPHIA, CITY OF PHOENIX - PHOENIX SKY HARBOR INTERNATIONAL AIRPORT, Amici: David H. Bamberger, LEAD ATTORNEY, DLA PIPER LLP (U.S.), Washington, DC.

For CHARLOTTE CHAMBER OF COMMERCE, CHICAGOLAND CHAMBER OF COMMERCE, DALLAS REGIONAL CHAMBER, FORT WORTH CHAMBER OF COMMERCE, GREATER PHILADELPHIA CHAMBER OF COMMERCE, GREATER PHOENIX CHAMBER OF COMMERCE, Amici: Michael Deuel Sullivan, WILKINSON BARKER KNAUER, LLP, Washington, DC.

For ONEWORLD ALLIANCE, LLC, Amicus: Douglas W. Baruch, LEAD ATTORNEY, FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP, Washington, DC.

For U.S. AIRLINE PILOTS ASSOCIATION, Amicus: Kevin Clark Maclay, LEAD ATTORNEY, CAPLIN & DRYSDALE, Washington, DC.

For SOUTHWEST AIRLINES CO., Amicus: Alden Lewis Atkins, LEAD ATTORNEY, VINSON & ELKINS, LLP, Washington, DC.

For VIRGIN AMERICA INC, Amicus: J. Robert Robertson, LEAD ATTORNEY, HOGAN LOVELLS U.S. LLP, Washington, DC.

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MEMORANDUM OPINION

COLLEEN KOLLAR-KOTELLY, UNITED STATES DISTRICT JUDGE.

Presently before the Court is the United States' [161] Motion for Entry of the Proposed Final Judgment. Upon consideration of the pleadings [1], the relevant legal authorities, and the record as a whole, the Court GRANTS the United States' Motion for Entry of the Proposed Final Judgment.

I. BACKGROUND

At the time of the filing of the Complaint in this litigation, Defendant U.S. Airways was a Delaware corporation headquartered in Tempe, Arizona. CIS at 3. In the year 2012, it flew over fifty million passengers to approximately 200 locations worldwide, taking in more than $13 billion in revenue. Id. American Airlines was a Delaware corporation headquartered in Fort Worth, Texas. Id. Defendant AMR Corporation was the parent company of American Airlines. Id. In the year 2012, American flew over eighty million passengers

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to approximately 250 locations worldwide, taking in more than $24 billion in revenue. Id. U.S. Airways and AMR Corporation agreed to merge on February 13, 2013. Id. at 4.

On August 13, 2013, the United States and the States of Arizona, Florida, Tennessee, and Texas, the Commonwealths of Pennsylvania and Virginia, and the District of Columbia filed a civil antitrust Complaint seeking to enjoin the proposed merger of Defendants.[2] See Complaint, ECF No. [1]. The initial Complaint, as well as the Amended Complaint [3] filed on September 5, 2013, alleged that the likely effect of this merger would be to lessen competition substantially for the sale of scheduled air passenger service in city pair markets throughout the United States, and in the market for takeoff and landing authorizations (" slots" ) at Ronald Reagan Washington National Airport (" Reagan National" ) in violation of Section 7 of the Clayton Act as amended, 15 U.S.C. § 18. See Am. Compl. ¶ 96. The Court subsequently set a trial date of November 25, 2013. See Order, ECF No. [56].

On November 12, 2013, the parties reached a settlement, and the United States filed a proposed Final Judgment designed to remedy the harm to competition that was likely to result from the proposed merger. The proposed Final Judgment requires the divestiture of slots, gates, and ground facilities at seven airports around the country. CIS at 2-3. Specifically, the Defendants are required to divest or transfer to purchasers approved by the United States, in consultation with the Plaintiff States:

o 104 air carrier slots [4] at Reagan National (i.e., all of American's pre-merger air carrier slots) and rights and interests in any associated gates or other ground facilities, up to the extent such gates and ground facilities were used by Defendants to support the use of the divested slots;
o 34 slots at New York LaGuardia International Airport (" LaGuardia" ) and rights and interests in any associated gates or other ground facilities, up to the extent such gates and ground facilities were used by Defendants to support the use of the divested slots; and
o Rights and interests to two airport gates and associated ground facilities at each of the following airports: Chicago O'Hare International Airport (" O'Hare" ), Los Angeles International Airport (" LAX" ), Boston Logan International Airport (" Boston Logan" ), Miami International Airport (" Miami International" ), and Dallas Love Field.

Id. at 2-3. The United States argues that this remedy permits the entry or expansion

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of airlines that can provide meaningful competition in numerous markets, eliminates the significant increase in concentration of slots at Reagan National that otherwise would have occurred, and enhances the ability of low-cost carriers to compete with legacy carriers on a system-wide basis. The subject slots and facilities have been or are in the process of being divested to several airlines, specifically Southwest Airlines, JetBlue Airways, and Virgin America. Gov't Resp. at 7.

In addition to the relief provided by the proposed Final Judgment, Defendants reached an agreement with the Plaintiff States to maintain service from at least one of the merged airline's hubs to specified airports in the Plaintiff States for a period of five years. Supplemental Stipulated Order, ECF No. [151] at 4-6. Defendants also reached an agreement with the United States Department of Transportation to use all of the merged airline's commuter slots (as opposed to air carrier slots) at Reagan National to serve airports designated as medium, small and non-hub airports (i.e. airports accounting for less than one percent of annual passenger boardings) for a period of at least five years. See Gov't Resp. at 8 & n. 11.

Pursuant to the requirements of the Antitrust Procedures and Penalties Act (" APPA" or " Tunney Act" ), 15 U.S.C. § 16(b)-(h), the United States published the proposed Final Judgment and the accompanying Competitive Impact Statement (" CIS" ) in the Federal Register on November 27, 2013. See 78 Fed. Reg. 71377. The United States also had summaries of the terms of the proposed Final Judgment and CIS, together with directions for submission of written comments relating to the proposed Final Judgment, published in the Washington Post, Dallas Morning News, and Arizona Republic for seven days, beginning on November 25, 2014, and ending on December 9, 2013. Gov't Resp. at 4. The sixty-day period for public comment on the proposed Final Judgment ended on February 7, 2014. Id. The United States received a total of fourteen comments by the deadline. Id. The United States received an additional fifteen e-mails from individuals expressing concerns about competition that were sent through means other than those designated for submitting comments under the Tunney Act. Id. at 2 n. 1. On March 10, 2014, the United States filed with the Court its [159] Response to Public Comments on the Proposed Final Judgment along with the public comments and e-mails that it received. This filing responds to both the comments and the e-mails the United States received. Pursuant to 15 U.S.C. § 16(d), and with the Court's authorization, see Order, ECF No. [154] at 2-3, the United States posted the comments and its Response to Comments on the Antitrust Division's website. See U.S. Department of Justice: Antitrust Division, U.S. and Plaintiff States v. U.S. Airways Group, Inc. and AMR Corporation, http://www.justice.gov/atr/cases/usairways/index.html (last visited Apr. 25, 2014). On March 13, 2014, the United States published in the Federal Register its Response to Public Comments on the Proposed Final Judgment and the location on the Antitrust Division's website at which the comments are accessible. See 79 Fed. Reg. 14279.

Because Defendant AMR Corporation was in bankruptcy at the time of the settlement, the parties' agreement also required approval by the bankruptcy court. Gov't Resp. at 3. On November 27, 2013, the United States Bankruptcy Court for the Southern District of New York entered an order finding that the settlement satisfied the requirements for approval under the Bankruptcy Code, granted AMR's motion to consummate the merger, and denied

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a request for a temporary restraining order filed by a private plaintiff seeking to enjoin the merger on antitrust grounds. See Order Pursuant to Bankruptcy Rule 9019(a) Approving Settlement Between Debtors, U.S. Airways, Inc. and United States Department of Justice, In re AMR Corp., 502 B.R. 23 (Bankr. S.D.N.Y. 2013), ECF No. 11321. AMR exited bankruptcy protection, and the merger closed on December 9, 2013. Gov't Resp. at 3. The Bankruptcy Court has retained jurisdiction to hear the private case. Fjord v. AMR Corp., ( In re AMR Corp. ) Adv. Pr. No. 13-01392 (Bankr. S.D.N.Y. filed Aug. 6, 2013).

On March 13, 2014, the United States filed with this Court the present Motion for Entry of the Proposed Final Judgment. Alongside this motion, the United States filed a [161-2] Certificate of Compliance which states that all of the requirements of the APPA have been satisfied. After receiving this motion along with the accompanying certification, the Court left the record in this case open for an additional twenty-one days until 5:00 PM on April 3, 2014, in order to allow filings by parties seeking to lodge additional comments prior to the Court's decision on the proposed Final Judgment. See Order, ECF No. [162] at 2.

On April 1, 2014, the American Antitrust Institute (" AAI" ) sought leave to file an amicus brief in reply to the United States' response to the public comments on the proposed Final Judgment. See Unopp. Mot. of the Am. Antitrust Inst. for Leave to File Brief as Amicus Curiae to Reply to the Response of Pl. United States to Public Comments on the Proposed Final Judgment, ECF No. [163] (" AAI Mot." ). On April 4, 2014, a group of consumers and travel professionals (the " Fjord amici" ) also sought leave to participate as amici, attaching a proposed brief replying to the United States' response to public comments. See Unopp. Mot. for Leave to File Brief Amici Curiae by Carolyn Fjord, et al., and in Opp. to Pl.'s Mot. for Entry of Final Judgment and for a Hearing on the Proposed Final Judgment, ECF No. [165] (" Fjord Mot." ). The parties do not oppose either group's participation as amici. AAI Mot. at 2; Fjord Mot. at 2. In light of this Court's " inherent authority" to permit amici participation, Jin v. Ministry of State Sec., 557 F.Supp.2d 131, 136 (D.D.C. 2008), the Court will grant AAI leave to file its amicus brief. In addition, although the Fjord amici filed their brief after the Court's deadline and provide no explanation for this delay, the Court will nevertheless grant the motion and consider their brief in light of the fact that their participation is unopposed and in the interests of considering all available information. Accordingly, by separate Order issued this day, the Court grants both AAI and the Fjord amici leave to file their briefs. See Order, ECF No. [167].

In addition, on March 11, 2014, the Court Clerk's Office received an e-mail to its online suggestion box from a private citizen who objected to the settlement on the grounds that it was insufficient to counteract the alleged anticompetitive harms of the merger. A redacted version of this e-mail has been placed on the docket. See Order, ECF No. [166].

II. LEGAL STANDARD

The Clayton Act, as amended by the APPA, requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the court shall determine whether entry of the proposed Final Judgment " is in the public interest." 15 U.S.C. § 16(e)(1). In making that determination, the court, in accordance

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with the statute as amended in 2004, is required to consider:

(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.

Id. A court must engage in an independent determination of whether the proposed consent judgment is in the public interest. United States v. Microsoft, 56 F.3d 1448, 1458, 312 U.S.App.D.C. 378 (D.C. Cir. 1995). Nevertheless, the court's inquiry is limited, as the United States is entitled to " broad discretion to settle with the defendant within the reaches of the public interest." Id. at 1461. " With respect to the adequacy of the relief secured by the decree, a court may not 'engage in an unrestricted evaluation of what relief would best serve the public.'" United States v. Graftech Int'l, No. 10-cv-2039, 2011 WL 1566781, at *12 (D.D.C. Mar. 24, 2011) (quoting United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988)). Accordingly " a district court is not permitted to reject proposed remedies merely because the court believes other remedies are preferable." United States v. SBC Commc'ns, Inc., 489 F.Supp.2d 1, 15 (D.D.C. 2007) (citation omitted). See also United States v. Republic Servs., Inc., 723 F.Supp.2d 157, 160 (D.D.C. 2010) (finding that " [i]n light of the deferential review to which the government's proposed remedy is accorded, [amicus curiae's] argument that an alternative remedy may be comparably superior, even if true, is not a sufficient basis for finding that the proposed final judgment is not in the public interest" ). " [A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is within the reaches of public interest." United States v. AT& T, 552 F.Supp. 131, 151 (D.D.C. 1982) (citation omitted).

" Such a rule is justified because '[r]emedies which appear less than vigorous may well reflect an underlying weakness in the government's case, and for the district judge to assume that the allegations in the complaint have been formally made out is quite unwarranted.'" SBC Commc'ns, Inc., 489 F.Supp.2d at 15 (quoting Microsoft, 56 F.3d at 1461). " Moreover, room must be made for the government to grant concessions in the negotiation process for settlements." Id. (citing Microsoft, 56 F.3d at 1461 (" it could also be that this was a concession the government made in bargaining." )). Nor in making this assessment is the court " tasked with deciding whether [the] merger[] as a whole run[s] afoul of the antitrust laws." Id. at 3. Rather, a court must simply determine " whether there is a factual foundation for the government's decisions such that its conclusions regarding the proposed settlements are reasonable." Id. at 15-16. See also United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981) (" The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree." ).

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In making this determination the court " must accord deference to the government's predictions about the efficacy of its remedies, and may not require that the remedies perfectly match the alleged violations . . . ." SBC Commc'ns, Inc., 489 F.Supp.2d at 17. See also Microsoft, 56 F.3d at 1461 (noting the need for courts to be " deferential to the government's predictions as to the effect of the proposed remedies" ); United States v. Archer-Daniels-Midland Co., 272 F.Supp.2d 1, 6 (D.D.C. 2003) (noting that " [a] district court must accord due respect to the government's prediction as to the effect of proposed remedies, its perception of the market structure, and its view of the nature of the case" ). As other courts of this district have noted, " it is improper for a court to require a proposed settlement to perfectly remedy antitrust violations when those violations have not yet been proven at trial, and when the government needs room to negotiate a settlement." SBC Commc'ns, Inc., 489 F.Supp.2d at 16. An imperfect match between the remedy and alleged violations may " only reflect underlying weakness in the government's case or concessions made during negotiation." Id. at 17.

" Moreover, the court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint . . . ." Graftech, 2011 WL 1566781, at *13. A court may not " construct [its] own hypothetical case and then evaluate the decree against that case." Microsoft, 56 F.3d at 1459. Because the " court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place," it follows that " the court is only authorized to review the decree itself," and not to " effectively redraft the complaint" and inquire into matters that the United States did not pursue. Id. at 1459-60. Indeed, a court " cannot look beyond the complaint in making the public interest determination unless the complaint is drafted so narrowly as to make a mockery of judicial power." SBC Commc'ns, 489 F.Supp.2d at 15.

A court is not required to hold an evidentiary hearing or to permit intervenors as part of its review under the Tunney Act. Id. at 10 (citing 15 U.S.C. § 16(e)(2)). A court can make its public interest determination based on the competitive impact statement and response to public comments alone. United States v. Enova Corp., 107 F.Supp.2d 10, 17 (D.D.C. 2000).

III. DISCUSSION

A. Harm Alleged from Merger

The Complaint sets out several harms to competition that would result from the merger of Defendants. First, and most obviously, the merger would eliminate two independent competitor airlines, ending head-to-head competition between U.S. Airways and American on numerous nonstop and connecting routes. Am. Compl. ¶ 82.

Second, the merger of Defendants would leave the market with three similar " legacy" airlines -- Delta, United, and the merged airline. Id. ¶ 3. These three carriers would have extensive national and international networks, connections to hundreds of destinations, established brand names, and strong frequent flyer mile programs. Id. ¶ 32. By contrast, other carriers such as Southwest Airlines, JetBlue Airways, Virgin America, Frontier Airlines, and Spirit Airlines, which the United States refers to in the CIS as " low-cost carriers" or " LCCs" , lack the extensive networks of the legacy airlines. Id. The Complaint alleged that by reducing the

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number of legacy airlines from four to three and by aligning the economic incentives of these remaining airlines, the merger would render it easier for the remaining legacy airlines to cooperate, rather than compete, on price and service. Id. ¶ ¶ 41-46, 71-81. In the absence of the merger, both U.S. Airways and American had indicated their intent to disrupt such coordination among legacy carriers. U.S. Airways' network structure provided it the incentive to offer an " Advantage Fares" program, through which it offered discounts over other airlines' nonstop fares with its own cheaper connecting service. Id. ¶ ¶ 48-58. Similarly, upon emerging from bankruptcy, American was expected to undertake significant growth at the expense of its competitors. Id. ¶ ¶ 68-70. The merger casts into doubt these existing or expected disruptive strategies. Accordingly, the Complaint expressed concern that the merger would shift the airline market to a tighter oligopoly with coordinated pricing among the remaining legacy airlines.

Third, the Complaint alleged that the merger would entrench the merged airline as the dominant carrier at Reagan National, where it would control sixty-nine percent of

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the take-off and landing slots. Id. ¶ 83. According to the United States, the merger would effectively foreclose entry or expansion by other airlines that might increase competition at Reagan National. Id. ¶ ¶ 84-86.

In addition to laying out the potential harms from the merger, the Complaint also explained that new entry or expansion by existing competitors to the legacy airlines would be unlikely to prevent or remedy these anticompetitive effects. Id. ¶ ¶ 91-94. Although LCCs offer important competition to the legacy airlines, they have less extensive networks than legacy carriers and face several barriers to entry and expansion. For example, four of the busiest airports in the country -- Reagan National, LaGuardia, John F. Kennedy International, and Newark Liberty International -- are subject to slot limitations governed by the FAA. The lack of availability of slots is a substantial barrier to entry at these airports. Slots at these airports are concentrated in the hands of legacy airlines that have little incentive to sell or lease slots to LCCs -- the carriers most likely to compete aggressively against them. According to the United States, slots are expensive, difficult to obtain, and change hands only rarely. There are no alternatives to slots for airlines seeking to enter or expand their service at Reagan National. LCC expansion is also stymied by limited access to gates. At several large airports, a significant portion of the available gates are leased to established airlines under long-term exclusive-use leases. In such cases, a carrier seeking to expand or enter would have to sublease gates from incumbent airlines. The Complaint expressed concern that because of these high barriers to entry and expansion, LCCs would be unlikely to counteract the anticompetitive effects of the merger.

B. Review of Final Judgment

The Final Judgment seeks to address both the harm resulting from increased slot concentration at Reagan National and the broader harms alleged in the Complaint by requiring the divestiture of facilities at seven important airports -- Reagan National, LaGuardia, O'Hare, LAX, Boston Logan, Miami International, and Dallas Love Field -- including substantial divestitures at Reagan National and LaGuardia.

As an initial matter, the divestiture of slots at Reagan National addresses the localized competitive concern at this airport. Gov't Resp. at 11. Prior to the divestitures, LCCs held only six percent of the take-off-and landing slots at this airport. Id. The Final Judgment transfers an additional twelve percent of slots to LCCs, which constitutes all of Defendant American's preexisting air carrier slots at Reagan National. Id. In addition, LCCs will also enjoy a substantially increased presence at LaGuardia, where they held less than ten percent of the slots prior to the divestitures. Id.

Similarly, although the Final Judgment does not create a new independent competitor nor replicate American's capacity expansion plans nor affirmatively preserve the Advantage Fares program, the United States predicts that it will impede the airline industry's evolution toward a tighter oligopoly. Id. at 8-9. The proposed Final Judgment significantly eases the high barriers to LCC entry and expansion identified in the Complaint by providing these non-legacy airlines access to strategically important and slot-constrained airports. Id. at 11. The United States argues that access to these key airports made possible by the divestitures will create otherwise unavailable network opportunities for the purchasing LCCs. LCCs will not only use these slots and gates to add new routes, but will incorporate these new routes into their existing networks, making them more significant competitors to the remaining legacy airlines. Id. at 15. The United States admits that the remedy does not eliminate all entry barriers faced by LCCs. Id. at 15 n. 28. However, because LCCs have shown some ability to overcome other disadvantages with the help of lower costs, the United States expects that the network-wide strengthening brought about by the divestitures will, over time, help the LCCs overcome some of the other obstacles that limit their ability to expand. Id. Accordingly, the United States predicts that these divestitures to LCCs will provide increased incentives for these carriers to invest in new capacity and to expand into additional markets, providing more meaningful competition system-wide to legacy carriers.

In making its predictions about the disruptive tendencies of LCC entry or expansion, the United States relies on past experience and research. Previous work by both the Department of Justice and academics has shown that the presence of an LCC on a nonstop route results in substantial price reductions and capacity increases. Id. at 9 n. 13 (citing Jan K. Brueckner et al., Airline Competition and Domestic U.S. Airfares: A Comprehensive Reappraisal, 2 Econ. Transp. 1-17 (2013); Phillippe Alepin et al., Segmented Competition in Airlines: The Changing Role of Low-Cost and Legacy Carriers in Fare Determination, (working paper), available at http://papers.ssrn.com/sol3/papers.cfm?abstract id=2212860; Martin Dresner et al., The Impact of Low Cost Carriers on Airport and Route Competition, 30 J. of Transp. Econ & Pol'y 309-328 (1996); Steven A. Morrison, Actual, Adjacent, and Potential Competition: Estimating the Full Effect of Southwest Airlines, 35 J. of Transp. Econ & Pol'y 239-256 (2001)). In addition, the United States also relies on past instances where LCCs gained access to slot-constrained airports. Id. at 9-11. In 2010, in response to the United States' concerns regarding competitive effects of the proposed United/Continental merger, United and Continental transferred thirty-six slots, three gates and other facilities at Newark Liberty International Airport to Southwest. Id. at 9-10. Southwest used those assets to establish service on six nonstop routes from Newark, resulting in substantially lower fares to consumers. For example, average fares for travel between Newark and St. Louis dropped twenty-seven percent and fares for travel between Newark and Houston dropped fifteen percent. In addition, through these

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additional Newark routes, Southwest established connecting service to approximately sixty additional cities throughout the United States, strengthening its larger network through the acquisition of assets at a single airport.

Here, the Final Judgment will require the divestiture of many more slots, gates, and additional facilities than were divested during the United/Continental merger. The United States expects that these substantial divestitures will significantly strengthen the purchasing carriers, providing the incentive and ability for these LCCs to invest in new capacity and provide legitimate competition to the remaining legacy carriers nationwide. Just as Southwest was able to offer service on sixty routes through the ...


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