Although the corporate teams at both American Airlines and US Airways seem to be just as strongly committed to the proposed merger of the two airlines as ever, and it was proceeding smoothly until the US Justice Department’s announcement last week that it would be suing to block the merger, a lot of people have been speculating about the current prospects for the merger to go through and whether or not that would be a good thing.
Though there are several positive aspects to the merger, there are also bound to be a lot of drawbacks – especially when it comes to consumers. So for today’s Top 10, I wanted to look at reasons why the US Airways American Airlines merger might not be such a great idea.
As I’ll point out, some of my reasons echo the DOJ’s claims, but most of these have to do with the consumer experience, changes to the airlines’ frequent flyer programs, and other flyer-based concerns. Change isn’t always a bad thing, and I’m not saying all of these will certainly come true, but if they do, it’s bound to hurt flyers and that’s why I see these as reasons that the merger might be bad news.
1. Less Competition Means Less Choice: The crux of the DOJ’s case is that it rejects American and US Airways’ claims that the overlap of their two airlines is limited to a mere 12 routes and asserts that they compete on over a thousand routes with connecting services and direct competition on nonstop routes worth over $2 billion in annual revenues. Then there is the matter of airport slots, with one major example being that the new airline would control over 60% of the gates at Reagan National DCA, which would constitute a monopoly. Beyond just the two airlines, though, after the merger, the new American, along with Delta, United and Southwest would operate over 80% of domestic commercial airline services, the DOJ contends, which would almost certainly result in higher prices thanks to fewer choices of airlines. While you can quibble with the numbers in the DOJ suit – and many do, noting that the DOJ is holding this merger up to a lot more scrutiny and many more criteria (including that connecting route one I cited above) – there is little doubt that a merger this big would mean a lot less competition in many parts of the country and that will have a ripple effect that I’ll get into below.
2. Higher Airfares: This goes hand-in-hand with #1 in that less competition leads to higher airfares. Although airfares have, for the most part, only risen modestly over the past decade (about 2% year over year) despite several large airline mergers, with only three legacy carriers left, there’s bound to be a huge impact on airfares. That’s not only because there will be fewer choices on more routes, but also because there will be less incentive not to price match when one airline raises its airfares. With a healthy, competitive marketplace with lots of airlines flying, even if one or two airlines raises their prices, others can still keep theirs low for a competitive edge. With fewer competitors, though, there is less incentive to keep airfares low, and flyers are the ones who will end up paying.
3. Higher Ancillary Fees: Also as a corollary to less competition, one of the other major reasons the DOJ cited when making its case was the fact that with fewer airlines, there would be less resistance among the major airlines to raising ancillary fees for services such as checking bags or making changes to tickets – that would result in more frequent fee hikes across all the major airlines. In fact, we’ve already witnessed this when, in May, first United, then US Airways, Delta and finally American all raised their domestic ticket change fees from $150 to $200 over the course of a few weeks. With one less major airline in the mix, airlines will probably coordinate their pricing structures more and more – and it’s the consumer who will feel the brunt of it.
4. Award Chart Sweet Spots Will Disappear: One major concern for folks with miles in either or both programs is what the award chart of a merged airline will look like. In the best of al possible scenarios, the two airlines would take the best of both their award charts and combine them, but the pessimist in all of us has to suspect that the new airline will incorporate the more expensive option in every case. That means the likely disappearance of “sweet spots” from both charts. For US Airways, that means no more flying to Asia in business class for just 90,000 miles, or the South Pacific or South Africa for just 110,000 miles – instead we’ll be stuck at American’s higher levels of 100-110,000 to Asia, 125,000 miles to the South Pacific and a whopping 150,000 miles to Africa. For American’s part, we might see the disappearance of its off-peak saver awards that mean paying only 40,000 miles for roundtrip economy award tickets to Europe and Southern South America at certain times.
5. US Airways Might Stay In Star Alliance Without The Merger: One of the more disappointing aspects of the merger was the fact that the new airline would continue in American’s alliance, Oneworld, and that US Airways would exit the Star Alliance. A recent announcement had that coming as soon as the end of the year, which meant that many people were rushing to book last-minute Star Alliance awards while they still could – or to rack up the US Airways miles necessary to do so in the next few months before the ability to was taken off the table. If the merger doesn’t go through, that means US Airways could potentially remain within the Star Alliance, which has 28 current airline members – including some of my favorites like ANA and Lufthansa – as opposed to Oneworld’s comparably few 12 member airlines.
6. No More Cheap US Airways Buy Miles Promos: One easy way to rack up US Airways miles in a hurry without having to pay through the nose is through their frequent buy miles promotions, with some of them carrying up to a 100% bonus (including the current one that runs until the end of August). That means you can buy miles for about half price at just around 1.9 cents apiece. If you know how to leverage the US Airways award chart (see “sweet spots” below), that could mean deeply discounted award tickets all over the world. On the other hand, although American runs similar promotions on purchased miles, the bonuses lately have only been up to 50% (and more frequently around the 30% mark) and you only get the full bonus when you buy the maximum amount of miles (usually around 40,000), so it’s not nearly as good a deal. Once the two airlines merge, it’s likely that cheap buy miles promotions will dry up as well, which has led many people to speculatively max out US Airways’ promotions for now.
7. The Disappearance of Great Elite Benefits From Both: Though there’s no knowing exactly what the new elite status system of the merged airline would look like, but it would likely take on US Airways’ four-tier structure, which means unless you’re a top-tier elite, you won’t earn that valuable 100% mileage bonus (as both Platinums and Executive Platinums with American do now). Another major benefit that’s likely to be impacted are Systemwide Upgrades. As of now, American Executive Platinums receive eight per year, which they can use on any paid fare class. US Airways top-tier Chairman’s Preferred members only get two, though they can bring along a companion, so there’s no telling how many SWU’s top-tiers will get post-merger and who will be able to use them. In terms of complimentary upgrades, US Airways offers unlimited free upgrades to First Class within the continental US, Alaska, Canada, Central America, Mexico and Caribbean to all elites whereas with American that’s only an option for Executive Platinums (all others have to put in to use 500-mile upgrade vouchers).
Both airlines also offer elites who surpass the qualification threshold for their elite tier and go above and beyond. American recently unveiled a new set of Elite Rewards that include lucrative bonuses on miles, systemwide upgrades and flight discounts, whereas US Airways’ Special Dividends program is a bit more limited but includes perks like gifting elite status and US Airways Club membership. Although American Airlines just introduced its new suite of Elite Rewards, leading many to speculate that it would unlikely change them soon after a merger, there are no guarantees, and it’s possible that a new elite gifts program would be much more limited in scope post-merger.
8. AA Elites Won’t Have To Fly US Airways’ Old Planes: While US Airways has a great international premium product with its Envoy class, many of its domestic planes are old and outdated. I even read one passenger review that claimed to have seen duct tape on a crack in the window! US was also lagging behind when it came to in-flight WiFi but it has fortunately been catching up lately, with 1,293 of its daily flights offering service, according to the Routehappy survey released in June. All Airbus A321 aircraft are equipped with Gogo WiFi, and the service will expand to the Embraer 190, 170 and 175 aircraft come fall 2013.
However, overall they are still far behind several of the other domestic carriers, and American is setting a new high standard with its massive order for new aircraft, which will phase out some of their old clunkers and include new business and first class seats as well as updated economy offerings. Their new Airbus 319 arrived in Dallas last week (for the full details, check out our sneak peek) and will begin service on September 16, 2013, from Dallas/Fort Worth to select cities, and then will increase throughout the year. The A319 joins other members of the new fleet, which includes the forthcoming A321T, which is scheduled to begin service from New York JFK to Los Angeles and San Francisco in early 2014. The A321 will have a three-class cabin, plus fully lie-flat First and Business Class seats. The A320neo aircraft with next-generation engine technology will begin service in 2017. AA Elite flyers are naturally excited to be flying in the new stable of planes and will be disappointed if they end up stuck on an old US Airways dinosaur instead if the fleets are combined.
9. Without the Merger, the US Airways Credit Cards Wouldn’t Go Away: In June, American agreed to have Citibank as their credit card issuer going forward. Subsequentaly, Barclaycard, the current issuer of US Airways’ credit card, will eventually stop offering that product, and I suspect that Barclaycard will ultimately convert existing US Airways Mastercard holders into Arrival cardholders. The benefits of the US Airways credit card add up to a lot so it would be sad to see it go, here are the key ones that I like and will miss:
- Redeem flights for 5,000 fewer miles (when redeeming for US Airways operated award tickets)
- 2 miles per $1 on US Airways purchases
- 10,000 Preferred Qualifying Miles after $25,000 spent each calendar year
- Waived award processing fees: $25 per domestic ticket; $35 per Mexico or Caribbean ticket; $50 per Hawaii or international ticket.
- Two roundtrip companion tickets each year. Companion is $99 tickets plus taxes and fees. Valid for round-trip coach class travel within and between the contiguous U.S. and Canada when the Primary Cardmember purchases a qualifying ticket (minimum fare purchase of $250 required).
- Preferred check in and Zone 2 priority boarding on every flight
- One complimentary US Airways Club day pass every year
- $75 Club Membership Discount Voucher
- the US Airways brand (and credit card product), will cease to exist at a certain point.
The current best offer on the US Airways Mastercard is 35,000 miles after first purchase, $89 annual fee waived the first year, 10,000 miles at account anniversary. If the merger goes through, the US Airways brand (and credit card product), will cease to exist at a certain point. For the top Citi AA offers check out this post to get up to 50,000 miles per card.
10. Some Cities Will Be De-Hubbed: Combining the two airlines could mean less flights to the respective current hubs and an increase in the fares to the existing routes. Past mergers have resulted in airlines aborting unprofitable services and reducing schedules, such as American eliminating St Louis and Delta cutting back in Cincinnati in 2008. With a combined nine hub cities – Charlotte, Chicago, Dallas, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington DC – some are likely to get sacrificed. The two most vulnerable according to a Wall Street Journal assessment are Philadelphia, because of its proximity to New York (which is key to scoring the lucrative business and premium international market), and Phoenix because it serves similar markets to Dallas and Los Angeles. It could also be bad news for regular travelers out of Charlotte due to American’s hub in Miami, as 56 of the 116 U.S. airports that US Airways serves from Charlotte are also served by American.
I personally see US Airways winding down their Charlotte and Phoenix hubs in favor of American Airlines bases like Los Angeles and Dallas while maintaining Chicago and New York to match what competitors like United have going.
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