Thu February 14, 2013
How The American-US Airways Merger Might Affect You
Originally published on Thu February 14, 2013 4:24 pm
American Airlines and US Airways on Thursday announced they plan to merge to create the country's largest airline, with a route network stretching from coast to coast, and covering large swaths of Latin America, Europe, Canada, the Caribbean and Africa.
The merger would knit together American's parent company, Fort Worth, Texas-based AMR Corp., and Tempe, Ariz.-based US Airways Group Inc. to form a new company worth about $11 billion. The combined carrier — with more than 6,700 daily flights to 336 destinations in 56 countries — would leapfrog over its competitors in terms of passenger traffic, and would retain the name and logo of American.
Here are answers to common questions about the merger:
Why are airlines always pushing for mergers?
Airlines have a very, very hard time making profits. US Airways endured a couple of round trips to bankruptcy court, and American is still trying to pull out of a bankruptcy filed in 2011.
Airline analysts say that by creating a robust route structure with hundreds of destinations on four continents, the two carriers may be able to attract more frequent fliers and boost revenues. For example, the new American would be able to cut redundancies in service, and become a major player in Boston's Logan International Airport, New York's LaGuardia Airport and Reagan National Airport outside Washington, D.C.
Would the merger violate antitrust rules?
The proposed merger would need the approval of both the bankruptcy court and the U.S. Department of Justice. Successfully completing a smooth merger also would mean winning the cooperation of creditors, bondholders, unions, Congress and regulators.
In recent years, with airlines in such dire financial shape, mergers typically have faced some scrutiny but no real roadblocks. The Obama administration already has approved two mega-mergers: United and Continental in 2010, and Southwest and AirTran Airways in 2011. The Bush administration signed off on Delta's merger with Northwest in 2008. Given that history, this latest merger likely would be approved.
What would the new company be called?
The combined carrier would be known as American Airlines, and would use the new logo and color scheme already unveiled by American. The updated logo looks like a sleek eagle with one red and one blue wing. And American's planes are being painted with new red, white and blue stripes on their tails.
What's likely to happen to fares?
With oil prices generally heading higher, airlines are looking to nudge up fares this year. If American and US Airways were to trim the dozen flights where they overlap, passengers would see less competition, which could create even more upward pressure on fares.
But the number of carriers isn't the only factor in pricing. During the Great Recession, airline consolidation increased but fares ticked down. That's because travelers were staying home and oil prices were easing.
In any case, with this merger, the Justice Department probably would try to minimize harm to consumers by insisting American give up some airport slots to competitors. For example, the Justice Department is widely expected to insist the combined carrier surrender some of its slots to competitors at Reagan Washington National Airport. American and US Airways together would be too dominant at that airport if they were allowed to keep all of the operations they now have there.
Also, airline mergers are complicated because of labor contracts, and they tend to play out over many years, so changes come slowly. Any fare hike may well be a couple of years away.
What will this mean for frequent fliers?
This merger could have upsides. Whenever customer-loyalty programs get combined, there are lots of details to work out, so the exact outcome is far from clear. In a news release, the companies said: "All miles in both programs will continue to be honored. Upon merger approval, additional information will be provided to customers of both frequent flyer programs ..."
It seems likely American's AAdvantage program would survive, and the new company would honor mileage accrued through US Airways' Dividend Miles program.
So if you had lots of miles on each of the carriers, the combined total could get you rewards more quickly. And because of the huge route structure, you'd have more places to go on your free reward trips.
Would there be any improvement in service?
Whenever airlines merge, there can be lots of short-term problems as staffs and customers get used to the new order. For example, combining online booking systems can produce glitches. But eventually bugs can get worked out.
Surveys suggest service has been poor at American in recent years amid union troubles. With US Airways CEO Doug Parker emerging as the combined company's leader, American's service may eventually improve. Under Parker's leadership, US Airways has put together a notably better record than American in terms of on-time arrivals.
What would a merger mean for the hub cities?
American has hubs in Dallas/Fort Worth, Chicago, Los Angeles, New York's JFK airport and Miami. US Airways has hubs in Phoenix, Philadelphia and Charlotte. Of those locations, the one most likely to see service cuts in coming years would be Phoenix. With major operations in Dallas and Los Angeles, a Phoenix hub may lose importance.
At the very least, Arizona would take a hit in terms of employment and prestige because the combined company's headquarters would be set up in Fort Worth, not Tempe.
How would this affect international flights?
Both US Airways and American have flights to Europe, Latin America, and throughout North America and the Caribbean. But they lack service to Asia, the world's fastest-growing travel market.
Would this merger end industry consolidation?
It would mark the end of the big deals. Since terrorist attacks shook up the airline industry in 2001, U.S. carriers have been going bankrupt, merging, cutting and doing whatever they can to survive. Assuming this latest merger goes through, the industry will have seen 10 big carriers boil themselves down to just four — American, United, Delta and Southwest — in a dozen years.
Still, there are smaller carriers out there that could be involved in yet more mergers, such as Alaska Airlines and Frontier Airlines. So this latest deal wouldn't necessarily end the industry's move toward fewer competitors with bigger route systems.