United States v. US Airways Group, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, et al.
Plaintiffs,
Civil Action No. 13-cv-1236 (CKK)
v.
US AIRWAYS GROUP, INC., et al.
Defendants.
MEMORANDUM OPINION
(April 25, 2014)
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 US 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
1
Am. Compl., ECF No. [73]; Competitive Impact Statement, ECF No. [148] (“CIS”);
Response of Pl. United States to Public Comments on the Proposed Final Judgment, ECF No.
[159] (“Gov’t Resp.”); Pl. United States of America’s Mot. and Mem. for Entry of the Proposed
Final Judgment, ECF No. [161] (“Gov’t Mot.”); Proposed Final Judgment, ECF No. [161-1]
(“PFJ”); Brief of the Am. Antitrust Inst. as Amicus Curiae to Reply to the Response of Pl. United
States to Public Comments on the Proposed Final Judgment, ECF No. [163-1] (“AAI Amicus
Brief”); Brief of Amici Curiae, Carolyn Fjord, et al., in Opp’n to Pl.’s Mot. for Entry of
Proposed Final Judgment and in Reply to Pl.’s Response to Public Comments on the Proposed
Final Judgment, ECF No. [165], Ex. A (“Fjord Amicus Brief”).
Worth, Texas. Id. Defendant AMR Corporation was the parent company of American Airlines.
Id. In the year 2012, American flew over eighty million passengers to approximately 250
locations worldwide, taking in more than $24 billion in revenue. Id. US 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
2
Michigan joined the Plaintiffs on September 5, 2013, and Texas withdrew from the
lawsuit on October 1, 2013, after reaching a settlement with Defendants. See Am. Compl; Pl.
State of Texas’s Mot. to Voluntarily Dismiss its Claims With Prejudice, ECF No. [95].
Accordingly, as used in this opinion, “Plaintiff States” refers to Arizona, Florida, Michigan,
Tennessee, Pennsylvania, Virginia, and the District of Columbia.
3
Given that the Amended Complaint is the operative complaint in this action, unless
otherwise specified, the term “Complaint” in this opinion refers to the Amended Complaint filed
on September 5, 2013.
2
Defendants are required to divest or transfer to purchasers approved by the United States, in
consultation with the Plaintiff States:
• 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;
• 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
• 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 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.
4
Both Reagan National and LaGuardia are subject to slot limitations governed by the
FAA, which limit the number of take-offs and landings at each of these airports. CIS at 7. Slots
at Reagan National are designated as either “air carrier,” which may be operated with any size
aircraft that meets the operational requirements of the airport, or “commuter” which must be
operated using aircraft with seventy-six seats or fewer. Id. at 2 n. 2.
3
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
4
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. US 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 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, US Airways, Inc. and United States Department of Justice, In re AMR Corp., No. 11-
15463 (Bankr. S.D.N.Y. Nov. 27, 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
5
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
6
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 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 (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
7
also United States v. Republic Serv., 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.”).
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
8
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
9
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 US 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 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 US Airways and American had indicated their intent to disrupt such coordination
among legacy carriers. US 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
10
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 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,
11
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 pre-
existing 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,
12
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
13
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 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 addition of six nonstop flights from Newark, the
United States expects a similar (and larger) multiplier effect with the divestitures here.
The United States also points to past experience from the entry of JetBlue into Reagan
National as evidence that divesting assets to LCCs will reduce the anticompetitive effects of
Defendants’ merger. Id. at 10-11. Prior to the current divestiture, JetBlue had only had a limited
number of slots at Reagan National. Nevertheless, it used these limited slots to drive down fares
and increase output on the routes it did serve. For example, after JetBlue began service from
Reagan National to Boston in 2010, average fares dropped by thirty-nine percent and passengers
nearly doubled. Indeed, US Airways estimated that after JetBlue’s entry, the last-minute fare for
round-trip travel between Reagan National and Boston dropped by over $700. Id. (citing Am.
14
Compl. ¶ 88).
Evaluating the proposed Final Judgment under the limited standard appropriate under the
Tunney Act, the Court finds that the settlement agreement is “within the reaches of the public
interest.” Microsoft, 56 F.3d at 1461. The United States has provided a reasonable basis for
concluding that the settlement will mitigate the anticompetitive effects of combining two of the
remaining legacy airlines. In addition to reducing slot concentration at Reagan National, the
settlement provides LCCs with substantial assets at key airports. The United States predicts,
based on past research and experience, that providing LCCs with these otherwise unavailable
opportunities will create incentives for LCCs to invest in new capacity, expand into new markets,
and provide more meaningful system-wide competition to the three remaining legacy airlines,
impeding the shift to oligopoly in the airline market. Specifically, the United States predicts that
Southwest, JetBlue, and Virgin America’s acquisition of slots at Reagan National and LaGuardia
will allow them to provide greatly expanded service on numerous routes, including new nonstop
and connecting service to points throughout the country. Similarly, gate divestitures at O’Hare,
LAX, Boston Logan, Miami International, and Dallas Love Field will expand the presence of
these potentially disruptive competitors at strategically important airports. Through these
divestitures, the United States believes, LCCs will establish stronger positions at strategically
important destinations where obtaining access has been especially difficult due to legacy airline
entrenchment. At the same time, these LCCs will have new incentives to invest in new capacity
and generate additional passenger demand. These predictions, which are founded on past
experience and research, are entitled to the Court’s deference. See 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”); Archer-Daniels-Midland, 272 F. Supp. 2d at 6 (noting that “[a] district
15
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”).
None of the remaining Tunney Act factors suggest a different conclusion. As discussed,
in reviewing the proposed Final Judgment, the Court must also consider additional factors
besides those relating to competitive concerns in the relevant market. First, the Court must
address “anticipated effects of alternative remedies actually considered.” 15 U.S.C. §
16(e)(1)(A). As an alternative to the Final Judgment, the United States considered a full trial on
the merits against the Defendants in which the United States would have sought an injunction
against the merger. CIS at 16. The Final Judgment avoids the time, expense, and particularly
the uncertainty of a full trial on the merits. “Success at trial was surely not assured, so pursuit of
that alternative may have resulted in no remedy at all. While a trial may have created an even
greater evidentiary record, that benefit may not outweigh the possible loss of the settlement
remedies.” SBC Commc’ns, 489 F. Supp. 2d at 23. See also 15 U.S.C. § 16(e)(1)(B) (requiring
“consideration of the public benefit, if any, to be derived from a determination of the issues at
trial”).
The Court also finds no cause for concern in the proposed settlement’s “provisions for
enforcement and modification.” Id. § 16(e)(1)(A). “The proposed final judgment[] contain[s]
standard provisions that maintain the Court’s jurisdiction and en[s]ure compliance with the
decrees as entered.” SBC Commc’ns, 489 F. Supp. 2d at 24. The Court retains jurisdiction over
this action for ten years to enable any party to apply for further orders necessary to carry out,
construe, modify, ensure, enforce, or punish violations of the proposed Final Judgment. PFJ §§
XV, XVI. In addition, to ensure that all necessary actions are being taken by Defendants, the
Final Judgment permits the United States, in consultation with the Plaintiff States and with the
16
Court’s approval, to appoint a Monitoring Trustee. Id. § VII. Defendants are further required to
submit affidavits to the United States describing their efforts to comply with the Final Judgment.
Id. § X. Finally, the Final Judgment empowers the United States to investigate compliance with
the agreement through such means as inspection of documents, interviews, and written
discovery. Id. § XI. Taken together, the Court finds that these enforcement and modification
provisions are appropriate. See SBC Commc’ns, 489 F. Supp. 2d at 24 (finding largely identical
provisions “adequate . . . for the enforcement and modification of the final judgments.”).
Finally, the Court must also consider “whether [the proposed final judgment’s] terms are
ambiguous.” 15 U.S.C. § 16(e)(1)(A). Based on the Court’s review, the proposed Final
Judgment is sufficiently clear, as it clearly and specifically describes the assets to be divested,
how these divestitures will be made, the circumstances in which modifications may be made, and
how the Final Judgment can be enforced. As the Court addresses, infra, objections to the
contrary are unavailing.
C. Objections to Final Judgment
The objections filed during the public comment period and by amici do not dissuade the
Court from the view that the settlement is within the reaches of the public interest. The Court
addresses these objections below.
1. Failure to Remedy Harms Alleged
First, several commenters and both amici contend that the proposed Final Judgment fails
to fully resolve the harms alleged in the Complaint. See, e.g., AAI Amicus Brief at 8-17; Fjord
Amicus Brief at 10-16. They argue that new LCC entry fostered by the divestitures will not
neutralize all of the competitive losses in all of the city pair markets that might be affected by the
merger. In this respect, these commenters and amici question the competitive significance and
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long-term impact of LCC entry on fares and services. One commenter (Delta) specifically
questions whether LCCs will provide significant competition to legacy carriers for business
travelers. Gov’t Resp., Appendix, Att. 6 (Comments of Delta Airlines, Inc.) at 20-24. In
addition, AAI argues that the divestitures are not of a significant scope to remedy the
anticompetitive harms from the merger. AAI Amicus Brief at 8-13. Relatedly, commenters also
point to the settlement’s failure to preserve US Airways’ Advantage Fares program and
specifically maintain competition on each city pair route on which Defendants provided
competing service. Fjord Amicus Brief at 10-12. The Court finds these objections unavailing.
The United States has provided significant evidence to support its prediction that LCCs
will provide meaningful and effective competition through their acquisition of the divested
assets. As an initial matter, the United States provides evidence that LCCs are not limited to
leisure travelers and do compete with legacy carriers for business travelers. See Gov’t Resp. at
24 (“Southwest, the largest LCC, has reported that approximately 35% of its passengers are
travelling on business and that corporate sales are increasing.”); id. (noting that JetBlue
“provides frequent service on the business routes that it flies.”); id. at 25 (“Virgin America also
caters to business passengers, billing its flights to corporate travel customers as ‘your corner
office in the sky.’”). Moreover, in support of its predictions of LCC entry and expansion, the
United States points to the scope of the divestitures here as well as past evidence of the effect of
LCC entry on fares. Id. at 8-15. Although AAI argues that the divestitures are too small in
scope to provide the gains the United States hopes, the United States provides evidence of the
significant impact of previous, smaller-scale divestitures to LCCs. In addition, as noted, the
“[t]he Court must accord deference to the government’s predictions about the efficacy of its
remedies . . . .” SBC Commc’ns, Inc., 489 F. Supp. 2d at 17. And as discussed, supra, the United
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States has provided a reasonable basis for its predictions of LCC entry and expansion through
receipt of the divested assets. The Court notes, as an additional matter, that none of the LCCs
have objected to the settlement on the grounds that it is insufficient to remedy the
anticompetitive effects of the merger.
Amici attempt to undermine the United States’ predictions by pointing to evidence after
the parties entered into the settlement. See, e.g., AAI Amicus Brief at 5; Fjord Amicus Brief at
3-5. For example, in order to show that the United States’ predictions are inaccurate, AAI points
to statements by Southwest’s Senior Vice President and CFO that Southwest “continue[s] to
have a disciplined growth strategy, with flat year-over-year capacity in 2014.” AAI Amicus
Brief at 5. AAI argues that this statement shows that the United States is misguided in predicting
that Southwest will use the opportunities provided by the divestitures to expand its network and
reduce the anticompetitive harm of the merger. The Court disagrees. First, Southwest is only
one of the LCCs receiving the divested assets. Moreover, the Court is skeptical that the brief
statements cited by AAI, standing alone, significantly undercut the United States’ predictions. In
addition, the Court is not reviewing the reasonableness of the United States’ decision in
hindsight based on ex post facto statements. Rather, “the relevant inquiry is whether the United
States’ conclusion about the adequacy of the . . . divestiture was reasonable, not whether it was
correct.” United States v. Abitibi-Consolidated, Inc., 584 F. Supp. 2d 162, 166 (D.D.C. 2008)
(“The United States has provided a factual basis for concluding that the . . . divestiture was
reasonably adequate to eliminate the merged firm’s incentive to close capacity strategically.
Irrespective of whether that conclusion [was] correct, the United States has established an ‘ample
foundation for [its] judgment call’ and thus shown ‘its conclusion [was] reasonable.’”) (quoting
Microsoft, 56 F.3d at 1461).
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As an additional matter, despite the objections of commenters and amici, perfect
matching between remedies and alleged violations is not required for Tunney Act approval. “[I]t
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. In arguing that every aspect
of the Complaint must be satisfied in the settlement, the commenters and amici presume that the
United States would have succeeded at trial in obtaining all the relief it sought in the Complaint.
Yet, when undertaking Tunney Act review, the Court must keep in mind that “[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.” Microsoft, 56 F.3d at 1461.
2. Loss of Specific Routes
Next, several commenters object to the loss of specific routes flown by Defendants,
which they argue will cease under the merged airline. Specifically, Delta and several members
of Congress argue that only legacy carriers provide service to small and medium-sized
communities, and that the loss of an independent airline will place flights to these destinations in
jeopardy. See Gov’t Resp., Appendix, Att. 2 (Comments of Sen. John D. Rockefeller IV, Rep.
Bill Shuster, Sen. John Thune, and Rep. Nick J. Rahall II); Id., Att. 3 (Comments of Sen. John
Thune); Id., Att. 6. In addition, the Wayne County, Michigan Airport Authority (“WCAA”),
which operates the Detroit Metropolitan Airport (“DTW”), expresses concern that the
divestitures have forced American, as part of the merged airline, to cease its direct flights from
Reagan National to DTW, leaving Delta as the only nonstop carrier on this route. Id., Att. 4
(Comments of WCAA); Id., Att. 5 (Suppl. Comments of WCAA). Yet, for the reasons discussed
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below, the Court is not persuaded that these objections are sufficient to place the settlement
outside the reaches of the public interest.
The United States argues that the settlement protects small and medium sized
communities without increasing oligopoly or imposing cumbersome route-specific remedies.
The Court agrees. As an initial matter, the United States has provided evidence that LCCs do
serve small and medium sized communities, providing a reasonable basis for its prediction that
LCCs may expand into other small and medium sized communities in response to the
divestitures. Gov’t Resp. at 24, 41. The United States also argues that permitting divestiture
purchases by Delta in order to preserve service to small and medium sized communities would
do more harm than good, as further concentration of slots and gates with legacy carriers would
exacerbate the alleged shift to oligopoly in the airline market. Id. at 40-41. Finally, the Court
notes that the Final Judgment does not divest any of the merged airline’s “commuter” slots at
Reagan National. Id. at 36. These commuter slots, which are limited to smaller-sized aircraft,
are well-suited for service to small and medium sized communities. Indeed, the Department of
Transportation agreement entered into by Defendants, although not part of the Final Judgment,
requires that Defendants use all of the commuter slots at Reagan National to serve airports
designated as medium, small, and non-hub airports for a period of at least five years. Id. at 8 &
n. 11.
In addition, the United States has adequately responded to the comments of the WCAA
by noting that the proposed Final Judgment does not mandate American’s elimination of the
Reagan National-DTW nonstop flight. The merged airline maintains a significant share of slots
at Reagan National and has the flexibility to deploy these slots in the way it sees fit. Id. at 35-36.
By ceasing direct service to DTW, American is making a business decision as to which routes it
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will serve after the divestitures. Id. at 37. The United States further explains that amending the
Final Judgment and mandating that the merged airline continue specific routes or requiring an
LCC to undertake a specific route would represent a solution that is neither feasible nor
desirable, as these “types of behavioral remedies would be exceedingly difficult to craft, entail a
high degree of risk of unintended consequences, entangle the government and the Court in
market operations, and raise practical problems such as the need for ongoing monitoring and
enforcement.” Id. at 30 n. 52. Indeed, “[e]ven a full-stop injunction of the merger would not
have guaranteed continued competition between the merging airlines on specific routes . . . .” Id.
Moreover, the Court notes that should prices increase on the Reagan National-DTW route as
WCAA predicts, LCCs will have the incentive to enter this route and compete on price with
Delta. As the United States points out, by providing LCCs with substantial assets at Reagan
National, the settlement creates opportunities for this sort of competition. Id. at 39.
3. Failure to Comply with Tunney Act
Several commenters and amici contend that the settlement should be rejected because the
United States and Defendants have failed to comply with the procedural requirements of the
Tunney Act. The Court finds all of these objections unavailing.
First, both amici argue that Defendants closing of their merger on December 9, 2013,
prior to this Court’s entry of Final Judgment, was in contravention of the Tunney Act. AAI
Amicus Brief at 19-21; Fjord Amicus Brief at 16-20. However, as the United States points out,
the text of the Tunney Act does not require a district court’s approval of a settlement prior to
closing a merger. Gov’t Resp. at 50-51. Indeed, courts have previously acknowledged and
accepted such action. See SBC Commc’ns, 489 F. Supp. 2d 1, 8 (D.D.C. 2007) (noting that the
transaction at issue closed prior to entry of the Final Judgment “in keeping with [the United
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States’] standard practice that neither stipulations nor pending proposed final judgments prohibit
the closing of the mergers.”). As the United States points out, by choosing to close their merger
prior to entry of the Final Judgment, Defendants have accepted the risk of undoing the merger
should it prove necessary. Gov’t Resp. at 51. Moreover, the Court notes that although not
charged with enforcing the Tunney Act, the Bankruptcy Court gave its approval to the settlement
and thus allowed Defendants’ merger to close well before this Court’s consideration of the Final
Judgment.
Second, one commenter argues that the United States has failed to meet its obligations to
explain the proposed consent judgment under 15 U.S.C. § 16(b)(3), because the CIS does not
include substantive economic analysis and cost-benefit analysis of the sort required by Executive
Orders 13563 and 12866. Gov’t Resp., Appendix, Att. 13 (Comments of Relpromax Antitrust,
Inc.). Yet such analysis, while potentially helpful in establishing that a settlement is “within the
reaches of the public interest”, Microsoft, 56 F.3d at 1461, is nowhere required by the Tunney
Act. Moreover, in the Court’s view, the United States’ CIS contains a sufficient explanation of
the settlement to allow the public to understand the provisions of the decree and submit
meaningful comments. Accordingly, the alleged failure to comply with 15 U.S.C. § 16(b)(3) is
without merit.
Similarly, the Court rejects this same commenter’s argument that the United States was
required to consider more than one alternative to settlement because the Tunney Act requires the
United States’ CIS to describe “alternatives to such proposal actually considered.” 15 U.S.C. §
16(b)(6). Here, the United States has presented the only alternative to this settlement that it
actually considered, and thus there is no violation of the Tunney Act simply because the United
States did not consider other alternatives.
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Finally, the Fjord amici and several commenters argue that the settlement was the product
of improper political pressure by the airlines and should thus be rejected. Gov’t Resp. at 49-50;
Fjord Amicus Brief at 20-23. Yet the objecting parties provide no evidence for this contention
other than bare speculation. They similarly provide no reason to doubt the sufficiency of
Defendants’ compliance with the disclosure requirements of the Tunney Act. 15 U.S.C. § 16(g).
Accordingly, the Court will not reject the settlement on these grounds.
4. Ambiguity in Final Judgment
Next, commenter Allegiant Air, LLC argues that the Final Judgment is ambiguous
regarding Defendants’ ability to reacquire divested assets at LAX. Gov’t Resp., Appendix, Att.
14 (Comments of Allegiant Air, LLC) at 2. Allegiant expresses concern that even after
American, as part of the merged airline, relinquishes claims to “preferential use” of the divested
gates at LAX, as required by the settlement, it may still attempt to operate out of these gates on a
“common use” basis, and thus limit LCC access to LAX. Id. Airport gates leased to a particular
carrier on a “preferential use” basis allow the leasing carrier to use the gate subject to the airport
authority’s ability to provide access to another airline if the gate is not being used by the lessor.
Id. “Common use” gates involve a situation where multiple carriers share use of the gate, with
priority among the users determined according to protocols set by the Los Angeles World
Airports Authority, the owner and operator of LAX. Id. Allegiant is apparently concerned that
the merged airline may regain rights to the LAX gates if they are designated as “common use.”
However, the United States argues, and the Court agrees, that the existing language in the Final
Judgment prohibiting Defendants from reacquiring “any interest” in the divested assets is
sufficient to prevent the merged airline from using LAX procedures to block LCC access at this
airport. Gov’t Resp. 46-47. Accordingly, modification of the Final Judgment is unnecessary.
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5. Objections Outside the Scope of Tunney Act Review
In addition to the foregoing objections, several commenters and amici raise objections
that fall outside the scope of review applicable under the Tunney Act.
First, Delta argues that the Complaint was unjustified and unnecessary because there is
no threat of coordinated pricing among the remaining legacy airlines. Gov’t Resp., Appendix,
Att. 6 at 9-20. The Court takes no position on this objection other than to note that it does not
come within the purview of Tunney Act review. Essentially, Delta is challenging the United
States’ prosecutorial discretion in bringing its initial lawsuit against Defendants and the merits of
this underlying lawsuit. Such an objection sheds no light on whether the settlement of this
litigation is within the reaches of the public interest. A Tunney Act proceeding is not occasion
for a “de novo determination of facts and issues.” United States v. Western Elec. Co., 993 F.2d
1572, 1577 (D.C. Cir. 1993) (citation omitted). Rather it merely represents an opportunity “to
determine whether the Department of Justice’s explanations [are] reasonable under the
circumstances.” Id. (citation omitted).
Next, the comments of the Consumer Travel Alliance, while recognizing that the
settlement contains “some good first steps”, argues that the Department of Transportation should
take further action to ensure competition in the airline industry, such as disclosure of airfares,
ancillary fees and code shares. Gov’t Resp., Appendix, Att. 8 (Comments of Consumer Travel
Alliance). Again, the Court takes no position as to the validity of these objections, except to note
that they fall outside the scope of the United States’ Complaint. As discussed, under the Tunney
Act, “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. Microsoft, 56 F.3d at
1459. The Court “cannot look beyond the complaint in making the public interest determination
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unless the complaint is drafted so narrowly as to make a mockery of judicial power.” SBC
Commc’ns, 489 F. Supp. 2d at 15. Here, there is no argument that the United States’ Complaint is
too narrowly drafted in excluding the Consumer Travel Alliance’s concerns such that it has
become a mockery of judicial power.
Finally, amici argue that the underlying merger between Defendants violates various
principles of antitrust law. AAI Amicus Brief at 17-19 (alleging violation of the out-of-market
benefits rule); Fjord Amicus Brief at 12-16 (alleging violation of Brown Shoe Co. v. United
States, 370 U.S. 294 (1962)). Yet these objections misconceive Tunney Act review, as this
Court is “not tasked with deciding whether . . . mergers as a whole run afoul of the antitrust
laws,” SBC Commc’ns, 489 F. Supp. 2d at 3, but rather must only ensure that the proposed
settlement is “within the reaches of the public interest,” Microsoft, 56 F.3d at 1461. Here, for the
reasons discussed, the Court is satisfied that this standard is met.
IV. CONCLUSION
For the foregoing reasons, the Court concludes that the proposed Final Judgment is in the
public interest. In an exercise of its discretion under the Tunney Act, the Court finds that a
hearing on this issue is not necessary. The United States’ [161] Motion for Entry of the
Proposed Final Judgment is GRANTED, and the Final Judgment will be entered as proposed. A
separate Order accompanies this Memorandum Opinion.
/s/
COLLEEN KOLLAR-KOTELLY
UNITED STATES DISTRICT JUDGE
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