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Delta’s Possible American Airlines Acquisition and the Impact For Frequent Flyers

by on January 12, 2012 · 44 comments

in American, Delta

Details are scarce, but it looks like Delta has engaged Blackstone to advise it on a potential American Airlines acquisition. Separately, private equity firm TPG Capital (no, not related with this blog :-) ) has also started to look into a potential acquisition.

Blackstone was the firm that helped turn Delta around their bankruptcy and TPG did the same for United. I think the biggest challenge would be for Delta getting regulatory approval since Delta and American are the #2 and #3 largest US airlines and they have a decent amount of route overlap, especially in NYC, and Delta has been growing a mini-hub in Miami.

American has indicated that it wants to remain independent, but they have a long road ahead of them to getting back to financial health and becoming a major player. They recently announced route cuts, like their only flight to India (Chicago to Delhi) and I just flew them today from Beijing to Chicago in business class and the flight was half empty and their product severely lags behind most other carriers operating from the US to Asia.

I’m not an aviation industry analyst so I won’t play armchair CEO on this one, but as a frequent flyer, I hope American and Delta stay separate. American AAdvantage is a far superior frequent flyer program to Delta SkyMiles and I’d hate to see less options when it comes to miles. Also, as a New York and Miami flyer, I can only imagine fares increasing as Delta wipes out competition.

I’d personally rather see a reinvigorated and independent American emerge with a focus on becoming a leader in in-flight product and service. That’s a tall order from where they stand now, but many airlines have made turnarounds with the assistance of bankruptcy protections.

These are all preliminary reports, so I’m sure there will be much more to follow in the coming months. You can read about it on Fox Business and IBT.

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  • PJ

    oops I am still long 175K AA miles.. Hope they dont get devaluated into delta miles ; on a normal day it takes at least 10K over AA or CO to fly Delta NYC-SFO/LAX

    also it will put a cramp on Avios’ short haul magic.. MIA NYC 7.5K on AA with Avios what a treat same with ORD-NYC 7.5K

  • http://twitter.com/jlbiad Jason Lee-Bakke

    Huh. Somewhat surprised US Air isn’t in the mix.

  • JA

    What was half full on the PEK-ORD flight – coach or business? AA rarely shows any award availability in business but usually has availability in F for more miles. And I wouldnt waste it on AA First class.

  • Michael

    This would be horrible news for the reasons you stated — one can only assume that AA miles which are valued highly, would now be skypesos. But what would kill Executive Platinums like me would be the lack of domestic upgrades (as competition would be lessoned leading to fuller planes and less upgrade opportunity) and the ability to upgrade from any fare using evips. I shudder to just think about it.

    Why not USAIR? They would compliment each other better and the FF programs could merge easier too.

  • PanAm

    Yeah that would really screw up the alliance structure, eliminating either ST or OW from the U.S. unless USAirways switched

  • Asdfasdf

    TPG capital is involved! Damn you making some coin TPG! lol

  • SteveWynn

    They are now….just announced on CNBC

  • mangoMan

    “…since Delta and American are the #2 and #3 largest US airlines …”

    I think you meant “#1 and #3 largest”.

  • Zzzzone2003

    I can’t see BA/IB letting AA go down the proverbial loo – to lose basically most of North America & a large chunk of the Caribbean from OW would be a disaster for the alliance

  • Lauren

    This WSJ reporter has great coverage of the possible acquisitions:
    https://twitter.com/#!/PreetaTweets

  • David

    Gosh, if American Airlines gets bought out by some airline with a subpar frequent flyer program like Delta, or US Airways, I’d be severely bummed out!! Pull it together American, we’re rooting for you!

  • Mike

    Think an acquirer would honor lifetime AAdvantage status?

  • Samuel

    I think United is #1, or will be when the merger is complete.

  • Mooper

    Analysis I’ve seen suggests that Delta would have the *easiest* time with regulator approval, which is why Blackstone is likely to push them to pursue. I’d love to see them combine. I think the economics of airlines support the case for an oligopoly, as we’ve seen what happens when we have a half dozen or more smaller weaker competitors. Prices might be a bit higher, but stability, service, and networks will improve.

  • PJ

    one of my college classmates have been flying from Dallas to CHina 10 + round trip in 20+ years>> 5+ millions of points he is long !! plus millions from his wife’s floral shop when the flower suppliers take CITI AA cards..Hope he can appreciate my push to get him into Sapphire Preferred , Ink Bold fly partners

  • PJ

    CO rocks : 65 K( LAST CLASS) EWR-TPE( STOPOVER)-CTU( STOPOVER)-PVG (SHANGHAI) -EWR with silk smooth connection in and back similar deals found to PEK

  • http://twitter.com/aadvantageGeek AAdvantage Geek

    I’m a big fan of Delta (excepting SkyMiles) but I wouldn’t want to see them acquire American. A profitable, growing, and independent American Airlines is much better for competition, it’s better for fares, and (selfishly) for the the community I live in (Dallas).

    My guess is that if American truly wishes to remain independent, then it’s unlikely a buyout will happen. AMR entered bankruptcy with $4.1 billion cash on hand, so they’re in a much better position to decide their own fate. Not to mention they have some powerful political allies in the Texas, California, and Illinois congressional delegations, so it’s difficult to imagine the Justice Department approving a takeover without AMR’s cooperation.

  • Asdfasdf

    Shareholders would be happy. Long term workers would be happy.

    Prices would go up. Stability (from the airlines’ POV) would go up.

    Service would go down. Networks would be at the whim of UACO and DLAA.

    Customers would suffer, especially NY’ers and Miami.

    It looked like DL was chasing the Aerolineas “AA”, but now we see why they didn’t need to chase a SA partner, because they had the other AA in mind

    Not investment advice

  • Asdfasdf

    what to do with 350k BA miles now :(

  • Asdfasdf

    Ok PVG is Shanghai, got it.

  • Brad

    I’d be very surprised to see an American-Delta merger (or almost any other business combination) happen. AA’s chapter 11 filing is not an invitation for a takeover, especially given the company’s strong cash position. Instead, it’s the latest step in AA’s plan to revitalize its operations and improve its going-forward ability to compete with the other large legacy carriers.

    AA has consistently stated that it plans to remain independent. In fact, the bankruptcy should only serve to bolster the efforts AA’s made in recent years (e.g., the plans for an almost-all-new fleet). Any restructuring scenario piques the interest of certain financial (TPG) and strategic (Delta) investors, but it doesn’t mean the company is in play. Maybe we’ll see TPG put in new money and take a stake of the reorganized company, but I doubt we’ll see any merger.

    On top of that, I don’t think Delta’s business would be a good fit (for either airline). U.S. Airways would be even worse. Alaska (and its west-coast route network) is the only player that would really improve AA’s operations, but it’s also consistently said it plans to stay independent.

  • Matt

    Interesting news. I wonder if delta is primarily trying to push up the price or if they’re a serious contender to buy AA.

    Where does delta stand to gain most?

  • Nyyanks9191

    Given the recent T MO/AT&T result, safe to say the govt wont allow this merger even with significant concessions.

  • Benthelefty

    You can always book some flights for me :)

  • Benthelefty

    I thought SW was #1 after joining w/ AirTran?

  • Carberrie

    How are they in the mix now? TPG, can we another update now with US Airways? ;)

  • Carberrie

    I think I would cry if my AAdvantage miles turned into Skypesos…

  • tassojunior

    I suspect DL is trying to up the stock of AA to keep US from getting it. Then again, AA may be trying to get a better price from US.

  • Bobo

    Agreed. It’s very unlikely the FEDs would ever allow this one. US Airways or Alaska Airlines are really the only 2 candidates. Now if Alaska was allowed this would be a real blow to the Delta partner network.

  • Anonymous

    This is the same analogy I thought of when I heard this story. Pretty sure they wouldn’t have had a problem allowing Sprint to buy T-Mobile, though …

  • http://pulse.yahoo.com/_YRK6JIEMWGNDBGXDBDUC7ZRAMI AA

    Delta’s premium class service leaves a great deal to be desired. Their attendants are gruff and untrained. On a trip on their two floor 747 two weeks ago, I asked a FA to help me with my carry on upstairs [to my 73A seat]. We don’t do that Sir, was the sole response. Generally US airlines lag behind their European counterparts in premium classes so don’t hold your breath for American to make a great success of emerging with a focus on becoming a leader in in-flight product and service, if indeed that is the road they go down.

  • Tpg

    I could see alaska and American working, although this would be super risky for alaska. If they did it then delta would buy probably try to buy virgin America to restore west coast connectivity.

  • Tpg

    If this happened : delta takes Miami and Dallas and lax plus lhr slots terminal 8 at JFK and some NYC routes. But wait, delta also must take Chicago bc there’s no way they can politically get away with dehubbing it. Aas laguardia operation must be sold to a low cost carrier (antitrust reasons). Delta will end up eliminating Detroit, minneapois, cincinatti, Memphis, and maybe even slc. Ploitical realities being what they are, they will end up with an embittered unionized workforce and huge medium term deterioration of their operations. Would this be worth it? Probably not…and that’s assuming regulators will let it happen- they wont.

  • Phillbs

    They want lax Mia and dfw and they probably wouldnt mind taking Chicago. They also want JFK t8 and the London slots. They also want to eliminate capacity and replace some second tier city hubs (like minneapolis) with cities that have big business travel markets like Chicago. This inst about the stock, unlike the morons buying the stock right now, deltas management knows that in the end it is worthless. So does Tpg and usair. Now this could be a ploy to frustrate the reorg in other ways, but I’m not so sure. My guess is that dls management is just ahead of their time: they are envisioning a deal that could make sense in 5 years (AAs second bk?) but which is currently unfeasible. They also could be preparing for a liquidation scenario which is where they could really have some fun, but that is many years off too…

  • David

    I…. probably would too. Not to mention Avios!

  • David

    I mean…. if you 5 million points with an airline, and they fly in/out of your airport, it really doesn’t matter what airline – you’re not going to have a problem getting free flights for at LEAST 3 years!

  • Mooper

    Wireless involves spectrums that are government-controlled and finite. Also, the government argued that the TMO/ATT merger would prevent competition in many areas. Not the case with DL+AA. The air isn’t finite (not in a practical sense) nor would competition be prevented (most areas would still have multiple airlines, and the few that do not could still have new entrants and/or alternative modes of transportation compete). There are no real anti-trust concerns here. One fewer airline and a stronger, more stable and profitable set of competing remaining ones would be a good thing for consumers, too.

  • Mooper

    Your basis for service quality declining is? Stronger, more stable, more profitable airlines that are still competing should yield even better, not lesser, service.

  • Binghamtonthom

    It seems like the Ryanair/ Southwest business model is what’s working in aviation right now. I imagine American Airlines, if they choose to remain independent that is, doing what Aer Lingus did a few years back and turning into another discount carrier of sorts, focusing on a low-cost, no-frills domestic network and possibly keeping a few core international routes (i.e. JFK-LHR, MIA-GIG, etc…)

  • Binghamtonthom

    Delta-fying VA would be very unfortunate, they’re one of the only US based airlines I can actually say I enjoy flying on. That said, out of the mainline legacy carriers, DL is the one I mind the least.

  • http://www.facebook.com/profile.php?id=1537783757 Daniel Victor

    A Delta/A.A. deal will never get approval. Anti-trust issues will come in to play as this new colossus would/could control and raise the cost of flying. It’s not going to happen.

  • Sean797

    Get over it , come on are you 80 years old or just lazy , in my opion Delta is a far much better airline then American would ever be, American can’t even pay their bills. and on that note how come American didn’t think to buy out another air line to stay afloat in the avaition world ” oh they did TWA and look what happend to that” carry your on carry on …… American Dosent even have 747′s in there fleet anymore…… if you didn’t like the company why fly on them

  • Schmenge

    AA FF program better than Delta’s? Seriously? AA wants 25K miles and a $350 co-pay for a ONE-WAY biz class to europe on crappy 767 cattle cars–REGARDLESS if I’m a PLATINUM or not.

  • Anonymous

    And have you researched how much delta charges for an upgradable YBM coach fare? You may rethink that statement once you see how much delta charges to upgrade internationally