AIRLINE INDUSTRY Without merger, what’s next?

Associated Press

DALLAS

The merger between American Airlines and US Airways was supposed to cap an era of consolidation that helped the airline industry return to profitability. And it would produce a stronger competitor to giants United and Delta.

Now a government lawsuit to block the merger has put both of those expectations in doubt.

If American cannot grow by merging, it could decide to add flights to better compete with larger rivals. Doing so would likely reduce airfares — and profit margins — across the industry, an outcome that many airline investors fear. Airline stocks sank for a second straight day Wednesday.

American has faded to a distant third and is particularly weak along the East Coast. US Airways is No. 5 among U.S. carriers, lacks strength in the middle of the country and doesn’t even fly to Asia. Put them together under the American Airlines name, and you’ve got the biggest airline in the world.

Size helps airlines land important corporate-travel accounts.

That’s why American and US Airways are vowing to fight the U.S. Justice Department’s lawsuit to block their merger.

“If this merger does not take place, US Air will continue to have the gaps and weaknesses in its network that it has now, and American will continue to have the gaps and weaknesses in its network,” said Joe Sims, an antitrust lawyer hired by American.

Airline profits have improved in recent years as mergers eliminated several major airlines and the survivors limited the supply of airplane seats, driving up fares. Many analysts think that if American remains independent, it will pursue a rapid-growth strategy — that was CEO Tom Horton’s plan before the merger. Wall Street didn’t like it.

American’s parent, AMR Corp., and US Airways Group Inc. announced their merger in February and AMR made the deal part of its reorganization plan that a federal bankruptcy judge was expected to approve today. The plan would have allowed AMR to end nearly two years in bankruptcy.

But on Tuesday, the Justice Department and six states sued to block the deal, saying it would hurt competition and drive up prices.