American Airlines and US Airways have, to the surprise of no one, finally announced that they will be merging into the world’s largest airline. Although the American Airlines name and brand will survive and the American creditors will own the bulk of the company the new airline will be run by Doug Parker, currently the CEO of US Airways. American’s current CEO, Tom Horton will be the non-executive Chairman of the company. The merger of these two carriers is the latest move in more than 30 years of consolidation in the industry and will leave the US market with three mega carriers, plus a handful of smaller players.
The deal will still need to pass muster with regulators. US Airways failed that step in mid-2001 in a proposed deal with United Airlines. Similar troubles are not expected this time around, though there may be some concessions required. And the timing of the integration is still uncertain. Recent efforts by between US Airways & America West, Northwest & Delta, and United & Continental have not been without their problems; customers are likely in for a similarly bumpy ride over the coming months as these two plan and implement their integration.
Beyond the integration bumps, it is likely that the merger will have a somewhat negative overall impact to customers. The combined carrier will reduce overlapping routes and there will be less competition in most markets; these conditions generally lead to higher fares. From a route map perspective this merger seems less valuable than the prior three mentioned above. In those cases the general strengths of the combining companies were in different regions. In this case both are strong in Latin America and there are some benefits to the combined domestic network. Service to Europe and Asia will still lack well behind the current Delta and United options.
Finally, from a frequent flyer perspective, US Airways will eventually leave the Star Alliance group and be folded in to American’s membership in oneworld. There are pros and cons to this depending on where you loyalties lie and still many details yet to be announced. Just recently American announced a deeper partnership with Alaska Airlines for west coast service; it is not clear if that partnership will survive the merger.
The merger of US Airways and American Airlines is not a surprise. And the terms are in line with what has been expected from most of the rumors circulating around the negotiations recently. The only remaining question is just how much customers lose with less competition versus gain from a more stable aviation industry.
Photo courtesy of American Airlines