The World's Biggest Airline

The US Justice Department says it has reached an agreement to allow American Airlines and US Airways to merge, creating the world's biggest airline.

The agreement requires the airlines to scale back the size of the merger at Washington's Reagan National Airport and in other big cities.

In August, the government sued to block the merger, saying it would restrict competition and drive up prices for consumers on hundreds of routes around the country.

The airlines have said their deal would increase competition by creating another big competitor to United Airlines and Delta Air Lines, which grew through recent mergers.

The settlement reached Tuesday would require approval by a federal judge in Washington and eliminate the need for a trial that had been set to begin Nov. 25.

It would require American and US Airways to give up takeoff and landing rights or slots at Reagan National and New York's LaGuardia Airport and gates at airports in Boston, Chicago, Los Angeles, Dallas and Miami to low-cost carriers.

Attorney General Eric Holder said the agreement would ensure more competition on nonstop and connecting routes throughout the country. The department said the divestitures were the largest ever for an airline merger.

The companies expect to complete the merger in December. As soon as the deal closes, the airlines will coordinate prices and schedules as if they were one, but combining the fleets will take months or years, executives said.

Six states had joined the lawsuit to block the merger, fearing the loss of flights and jobs at their airports. The Justice Department said that American and US Airways agreed to maintain for three years the US Airways hubs in Charlotte, Philadelphia and Phoenix and American hubs at Miami, Chicago's O'Hare Airport, New York's John F. Kennedy International Airport and Los Angeles International.

If the settlement is accepted, the combined American and US Airways would operate 44 fewer daily departures at Reagan National and 12 fewer at LaGuardia than they would have without concessions.

But the new American will still be the biggest carrier at Reagan National.

The two airlines run about 290 takeoffs a day at Reagan National - about two-thirds of the airport's total - and 175 at LaGuardia now.

The Justice Department said the divestitures were the largest ever for an airline merger.

Standard & Poor's analyst Jim Corridore said the airlines gave up more than he expected but the settlement shouldn't change the financial benefits of the merger to the companies.

The companies and some airline industry experts said the Justice Department had a weak case, especially after allowing four big airline mergers in the past eight years with few conditions. American and US Airways, however, were not willing to bet their fate on the decision of a federal judge.

"We didn't think we should have to give up anything," Doug Parker, the US Airways CEO who will lead the new company, said in an interview. "The lawsuit should not have been filed, but once it was, there is some risk in going all the way to trial. This settlement was worth doing rather than taking on that risk."

When it sued in August, the Justice Department was joined by Texas, where American is based, and Arizona, home to US Airways. They said the deal would hurt consumers in their states.

But six weeks later, the Texas attorney general, a Republican who is running for governor next year, had a change of heart and pulled out of the lawsuit. Then the attorney general of Florida met with American CEO Tom Horton and expressed hope for a settlement, adding to the sense of crumbling opposition to the merger. Dozens of Democratic members of Congress implored the Obama administration to drop the lawsuit.

Last week, Holder confirmed that settlement talks were underway and added that he hoped a trial could be avoided. He seemed to set wide parameters on a possible compromise.

WHAT THIS MEANS FOR YOU

American Airlines and US Airways have cleared the last major hurdle to merging, but it will be several months - if not years - before passengers see any significant impact.

Passengers with existing tickets on American or US Airways - and members of both frequent flier programs - shouldn't fret. No changes will come immediately.

Since announcing the deal in February, the two airlines have been working behind the scenes to try and make the merger as seamless as possible. Following Tuesday's agreement with the Justice Department, the two airlines said they expect the deal to close in December. But that doesn't mean everything will happen overnight. When the deal does close, here's what passengers can expect:

AIRFARE

During the past five years, the airline industry has seen the combinations of Delta with Northwest, United with Continental and Southwest Airlines Co. with AirTran.

The price of a domestic round-trip flight has climbed more than 15 percent since 2009, when adjusted for inflation, according to the Bureau of Transportation Statistics.

The merger will give a combined American and US Airways Group Inc. the ability to increase fares. United, Delta and Southwest would be likely to follow.

Although it could also pave the way for further expansion by discount airlines such as Spirit Airlines Inc. and Allegiant Travel Co.

FREQUENT FLIER MILES

Your miles will be safe. After the merger closes, the two airlines will likely combine the miles into one program and elite status from one airline will likely be honoured on the other.

That puts the occasional traveller closer to rewards.

The merged carrier will continue American's participation in the OneWorld alliance, which was founded by American, British Airways, Cathay Pacific and Qantas. Today, it has 13 airlines including Finnair, Royal Jordanian and Japan Airlines.

US Airways will leave the Star Alliance, which includes rival United Airlines, Lufthansa, Air Canada and 24 other airlines. Alliances allow passengers to earn and redeem miles on partner airlines.

DESTINATIONS

A key reason for merging is to link both airlines' networks, creating a system on par with Delta Air Lines and United, part of United Continental Holdings Inc.

There is little overlap between the two airlines' existing routes. The combined carrier will offer more than 6,700 daily flights to 336 destinations in 56 countries, making it more attractive to companies seeking to fly employees around the globe with few connections.

US Airways passengers will gain access to American's international destinations, particularly London and Latin America. American's passengers will be able to better connect to smaller U.S. cities that US Airways serves.

The combined carrier will have considerable presence in New York, Philadelphia, Washington, Charlotte, N.C., Miami, Chicago, Dallas, Phoenix and Los Angeles.

It is unclear how many of those cities will keep their levels of service. In past mergers, airlines have promised not to close any hubs but have gone ahead and dramatically reduced service in once-key cities.

PASSENGER CONFUSION

The merger of two airlines often means confusion and hassle for customers. Which terminal or ticket counter do they go to for check in?

If there is a problem with a ticket, which company should they call?

For a while, United and Continental were issuing two confirmation numbers for each ticket so either airline's staff could make changes.

Problems with the integration of their frequent flier programs angered many loyal road warriors and computer glitches caused repeated flight delays.

It could be months, if not years, until all American and US Airways planes get a uniform paint job.