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Official American Airlines US Airways Merger Announcement and What It Means For Consumers

by on February 14, 2013 · 35 comments

in American, US Airways

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There’s a new power couple on the runway. In a whimsically appropriate Valentine’s Day announcement, American Airlines and US Airways officially announced their merger today in a press conference from American’s hub at Dallas-Fort Worth DFW. You can find information on the new merged airline on a site that went live today.

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Financial analysts and media were invited to listen in on the announcement on a conference call with American’s Chairman and CEO, Tom Horton, who will be the Chairman of the new combined airline, and Doug Parker, the Chairman and CEO of US Airways, who will take over as CEO of the new airline.

Along with their comments, the two went through slides exhibiting various figures like new route networks, market share, statements of support from their unions and more materials, and you can see slides from the presentation here.

Some of it includes my predictions about potential winners and losers of a merger that I covered in my post yesterday when media outlets were reporting that the boards of both airlines had agreed to a merger, as well as in my advice for frequent fliers on maximizing a potential merger from Monday and aspects of both airlines I covered in a post on how to prepare for such a merger.

The conference call did not shed a ton of new light on the specifics of how a merger will take shape and affect flyers, but they did share some interesting facts and figures about a new, combined airline, its routes and the financials of the deal, which is reportedly worth $11 billion.

Both Horton and Parker gave opening remarks. Parker also noted (much like Jeff Smisek did during the Star Megado) that he is a major proponent of airline industry consolidation  because it allows airlines to be “intensely competitive but also sustainably profitable.”

Parker said that there would be a one-time cost of integration estimated at $1.2 billion over the coming years, including integrating technology, standardizing aircraft and merging management and services.

The new airline will fly over 6,700 flights a day to 336 destinations in 56 countries. Some of the more interesting slides of the presentation included a look at both a new combined domestic route map:

Domestic Routes

And a new combined international route map:

International Routes

Parker noted that the airlines only overlap on 12 routes, and that 130 cities served by American but not US Airways and 62 cities served by US Airways but not American would be available to flyers of both once the merger goes through and that the new merged airline will be a part of Oneworld.

This complementary aspect of their route maps is one reason they expect the merger to be approved by the government without any major issues. They also noted that they have the support of unions at both airlines, which should also help speed the merger along.

There is also a a colorful (if vague on numbers) graphic showing the anticipated increase in the new airline’s market share in terms of seat miles that should make it the largest airline in the world once everything is consolidated:

Marketshare

Not including regional fleets, the new airline will have a total of 801 narrowbody planes and 147 widebody jets totaling 948 mainline aircraft.

In the midst of its bankruptcy restructuring, American has an order for 517 new narrowbody and 90 widebody international aircraft deliveries over the coming years, and will retrofit its existing 777-200 and 767-300’s to include the new premium seating and classes of service, and US Airways plans to update its fleet with the new classes of service as well eventually.

American will install these new business class seats on both international and some domestic flights.

Both airlines will bring their premium seats up to the standards of American’s new aircraft.

The new airline plans to keep its aircraft orders on track, Baker explained, because there is a lot of opportunity for aircraft replacement on both airlines (as anyone who’s flown a domestic US Airways flight lately can tell you!). Plus the combined capacity of new fleet and its flexibility to move aircraft around will aim ensure there’s plenty of room to absorb the new planes and put them on the most profitable routes.

In terms of frequent flyer programs, there were hardly any details at all apart from the fact that combined the two airlines have over 100 million members in their programs (though that number is probably inflated due to overlap between the two). American Airlines did send out an announcement that for the time being, each airline will maintain its current loyalty program — the American AAdvantage program and the US Airways Dividend Miles with the assurance that existing AAdvantage and Dividend miles, elite-qualifying miles and elite status ware secure, and that lifetime status granted under the Million Milerprogram will remain intact.

In response to questions about the fate of the two airlines’ hub cities, neither was ready to talk about network rationalization just yet, but said the plan was to maintain all hubs currently served by both companies. However, they recognize that as market conditions change they must be careful to make decisions that yield highest return for shareholders and there will probably be changes to their network, but they expect those changes to be built on notion that the airline will maintain and build upon existing hubs.

Though it is still a ways in the future, the likely plan now is to implement American Airlines’ technology and reservations systems on the new airline since as Baker noted it’s usually easier to put the larger airlines’ systems in place at the smaller airline during a merger than the other way around.

No credit card deals have been made yet, so if you haven’t already already gotten in on the Citi AAdvantage cards or the US Airways World Mastercard (the higher Chairman’s Preferred credit card offer is no longer available, but the general one with a bonus of 30,000 miles after your first purchase is), now is the time to do so before the frequent flier programs merge. Update: The current best offer on the card is for 35,000 miles after first purchase and 10,000 miles on each subsequent account anniversary and first year’s $89 annual fee waived.

What This Means For Consumers

Airline CEOs like Doug Parker of US Airways (and now the new airline) and Jeff Smisek who oversaw the merger of United and Continental claim that airline consolidation is a good thing both for the industry and consumers because it makes airlines both more competitive and profitable. Consumer advocates usually spread gloom and doom about them, though, claiming that these mergers will drive up the cost of airfares across the board.

I don’t think we will see a huge increase in airfares since there is still a lot of competition in the marketplace not only from the other legacy carriers but also low-cost carriers like Southwest, and newer entrants like JetBlue and Virgin America, which are highly competitive on some of the same routes that newly merged airlines like this one and United fly. Not only that, but there is also a ton of competition on international routes from other carriers, as well as a lot of other factors that go into airfare pricing like the cost of oil, that mergers seem to have little actual impact on airfares. In fact, as this CNN Money article points out, a PricewaterhouseCoopers study found airfares have only risen 2% per year on average since 2004, and there have been several major mergers including those of Delta and Northwest, and United and Continental, since then.

That said, I’m sure the airline will cut some routes so there is less capacity and consumers in some marketplaces will see airfares rise in the future. However, since the two airlines only overlap on 12 routes, hopefully that impact will be minimal, and this is also why the merger might get government approval pretty quickly.

Rather, the real problems with airline mergers tend to be the huge hassles they create for consumers including increased incidents of reservations errors, flight delays, lost baggage, as well as the tensions that arise from combining two distinct workforces. According to the same CNN article, after US Airways last merger (with America West in 2007), passenger complaints about the airline to the Department of Transportation doubled, and complaints about United skyrocketed by 60% after its merger with Continental last year. So it seems we’ve got some more headaches in store.

On the positive side, the goal is to create a stronger, more competitive airline and to improve the experience of flying the airline both in terms of service as well as the airline’s new aircraft and seating products, so hopefully that will all mean a better experience for consumers on nicer, newer planes.

A Timeline?

There’s no way of predicting exactly how long this process will take, but Parker and Horton expect the merger to go through by the third quarter of 2013, and then the two airlines will start the effort to combine fleets, workforces and operations in earnest. That could take years, though.

Delta and Northwest announced their merger in April of 2008 and closed on it in October 2008 after receiving all the government approvals necessary, but it wasn’t until January 2010 that the two airlines officially started flying as a single airline – over a year and a half after the initial announcement.

With Continental and United, the two airlines announced their merger in May of 2010 and merger closed in October, about five months later. It wasn’t until May of 2011 that the two started combining some airport functions, and the new airline didn’t announce details of merging the two frequent flyer programs until September 2011. The FAA granted the new airline a single operating certificate in November 2011, and in March 2012, the airlines finally combined their website into a single United one and the new frequent flyer program rules go into effect – nearly two years after the original merger announcement (and that’s not even counting the fact that merger discussions between the two started way back in 2008!).

The other major current merger underway is the takeover of AirTran by Southwest, which was announced in September 2010, but which is still not complete – in fact there are only a few codeshared flights even at this point.

So although the merger today is big news, it will probably be at least two years until the new, single airline emerges, and there are bound to be a lot of complicated integration steps between now and then – and only time will tell what this means for consumers.

Do you think the US Airways American merger is good for consumers?

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Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.

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  • http://twitter.com/Goat__Rodeo Goat Rodeo

    In my opinion, I think its far too early to really tell. For people who read this blog, I think the proof in the pudding will be once the details on how they merge the two programs (4 vs 3 classes, redemption costs, CC bonuses, MM status rollover, etc).

    Beyond that, Im really not concerned about a drift up in prices of flights – heck, they should probably do that anyways as an industry to remain solvent. Prices will remain in check because there will always be revolving competition with airlines expanding. (VA’s intrusion into DFW last year – for example). I think that competition will keep flights normal. Its not like US Air and AA were competing on many segments, so its not like any competition has gone away.

  • calbear77

    Here’s a quote from a person I know close to the situation:

    “It’s like the Titanic and the Hindenburg combined with Penn State administrators overseeing the whole mess.”

    This person did not have a positive outlook. Coming from a points earning perspective, there could be some positives, however.

  • thepointsguy

    Please,please don’t let this be worse than the UA/CO merger!

  • http://twitter.com/reuthermonkey Jon

    Frankly, my only concern is service. I know many people aren’t fans of AA for whatever reasons, but due to atrocious service with United and remarkably worse service at Delta, I pretty much stick to AA now. Their service has been great for me – with MUCH happier flight attendants and gate agents – and they’re FINALLY upgrading from those damn md80/88/95′s.

  • http://gotravelzing.com/ Jeff Broman

    I do not have much hope that the merger will go smoothly. The US/AW merger was not smooth at all and I doubt that it will be this time. I could tell you a story of how bad they screwed me up when they were integrating computer systems that is unbelievable.

    I am surprised that they only have 12 overlapping routes. The problem for me is that I fly one of those (PHX-DFW) a lot and expect fewer flights and higher prices. The only thing that will keep fares down is that Southwest can begin flying direct to DAL next year.

  • PhatMiles

    The presentation link seems to be broken Brian

  • http://www.milestothewild.com/ Miles To The Wild

    I hope they take some of the planes from the 12 overlapping routes and send them to Australia! Both BNE and SYD; maybe add AKL to keep the Kiwis happy too.

  • thepointsguy

    Fixed!

  • thepointsguy

    I would love to see AA add Sydney service with their new 777-300!

  • andrew

    Since almost all of my travel is business-related, I’m not too concerned about cost increases.. More with the potential for additional competition for seat upgrades.

  • thepointsguy

    I remember being stranded in San Juan on the day of the US/AW switchover.. it was pandemonium

  • Guest

    The AAdvantage card says Apply by 1/31/12. Will that link still work for the $50k Bonus miles and $150 statement credit?

  • Guest

    To say that there will not be fare increases is an irresponsible one. Looking at the Domestic Airline Consumer Airfare Report by the U.S Department of Transportation shows a picture a bit different. Every hub of Delta or airport where Delta is dominant the prices have all gone up dramatically. Who paid for the PWC study??? The airlines???

  • Wbarish

    I plan to fly to South Africa in Spring 2014. Considering the potential merging of Dividend Miles and Aadvantage, do you think I should book using oneworld alliance airlines or do you think they would honor a booking made through US Airs present alliances? I was hoping to fly South African Airways but they are not part of the oneworld alliance. Since the merger will probably take place AFTER I hope to book my flight, what are the odds the booking would be honored?

  • T Cohn

    What I want to know is when they’re going to fill that Montana-sized hole in their combined route network…

  • Charlie

    Perhaps there will be even better opportunities in the near future for big CC bonuses. Is CITI backing this deal with $ for AA miles as Chase did with UA/CO?

    If you’re reading this CITI: I spend $200K/year with Chase and Amex; please let me give you some business too!

  • jim

    cancel them all i guess

  • AAdvantage Member

    Your reservation will be honored, but you may not get Dividend Miles.

  • AAdvantage Member

    Glad to hear! But AA does not have any MD-88s or MD-95s. I’m not sure if AA ever had MD-88s, but the MD-95s (Boeing 717s) it did have from its purchase of TWA were sold a long time ago.

  • http://www.facebook.com/profile.php?id=100000544922379 Marcus Worth

    It’s clear that the 2 airlines will have a lot of work to do in order to keep their best customers happy. I saw a good interview with several AA/US execs earlier where they talk about that from the frequent flyer point of view:

    http://www.frequentbusinesstraveler.com/2013/02/interview-with-american-and-us-airways-executives-impact-of-merger-on-frequent-and-premium-flyers/

  • thepointsguy

    It all depends on when the final merge of the frequent flyer programs happens. I wouldn’t bank on being able to book Star Alliance and hope that the miles will become AA eventually. I bet they will move quickly to consolidate the programs, but you never know. At this point, I’d wait and see before booking anything

  • thepointsguy

    I never said there wouldn’t be fare increases at all- just that there isn’t sufficient data to prove as a whole there have been huge increases in airfares with the recent industry consolidation.

  • thepointsguy
  • Wbarish

    I’m sure you’ll be watching this like a hawk and letting us all know what you learn. So thanks for now.

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