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The American Airlines / US Airways Merger: Winners and Losers

by on November 13, 2013 · 30 comments

in American, US Airways

With yesterday’s announcement that American and US Airways settled in the suit brought against them by the US Department of Justice, the merger looks sure to meet with approval by the bankruptcy judges American is dealing with, and should start proceeding at pace again. That’s a mixed bag, though, and as an American Executive Platinum and US Airways Dividend Miles devotee (well at least a frequent purchaser of cheap miles), there are several reasons why I personally was hoping that the merger might be called off – especially ones related to consumers.

The proposed merger will have massive ripple affects across both markets.

The merger looks like it’s back on – that’s a good thing and a bad thing depending on who you are.

As the process gears up again, there are still a lot of questions, but in the near term, here are the winners and losers as I see them. We still don’t know the details of the combined frequent flyer program, so I’ll update this as those come to light.

WINNERS

Shareholders- American shareholders stood to lose everything if the airline didn’t become profitable. The new carrier stands to reap a billion a year in “synergies” (read: less costs = employees) and if the economy continues to improve, stock could rise exponentially, creating a windfall for current American and US Airways shareholders.

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

US Airways flyers will get to take advantage of American’s new planes.

American Flyers: Domestically American only partners with Alaska, so you have relatively few airline choices if you’re trying to achieve/maintain elite status. With the US Airways route network they will now have a lot more flight options to both earn and redeem miles.

US Airways flyers: The US Airways fleet is probably the dumpiest of the legacies with old planes without in-flight entertainment, sparse WiFi, surly flight attendants and other compromising factors. Now they get to look forward to all those new American planes coming online without having to change allegiance and Doug Parker has stated that the new airline will continue to focus on nicer planes and premium in-flight product.

US Airways Chairman’s Preferred elites: Once the US Airways Dividend and American AAdvantage programs are combines, US Airways’ top-tier elites could potentially get American’s benefit of 8 annual systemwide upgrades on any published fare instead of the 2 they currently get with US Airways.

American Airlines Elite Status

American Airlines Elite Status

American Platinum elites: Well, some of them. The segment of folks who fly over 75,000 miles per year but less than 100,000 are currently stuck at AAdvantage Platinum status along with the folks who just hit 50,000 miles each year. But US Airways has a four-tier system where 50,000 miles equals Gold while 75,000 miles equals Platinum, which means higher priority for upgrades (which would be complimentary for non-Executive Platinums finally), select seating and more.

Mid-tier elites on both: US Airways offers unlimited complimentary 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), so those low and mid-tier elites could see some upgrade love post-merger, though with more flyers and elites in the mix, those chances are slim and some may actually prefer the old system where you pick and choose the upgrades you really want without having to battle a huge upgrade list on every flight.

Buying Choice Essential or Plus fares means waived ticket change fees.

American’s Choice Essential and Plus fares come bundled with extra benefits.

Flyers looking for bundled benefits: I think the new airline will implement American’s Sabre-based IT systems and fares, including the new Choice Fares platform, which I think are a great value for consumers who change their flights and don’t want to pay for full refundable fares, as well as bundling in extras like checked bags, priority check-in, boarding and mileage bonuses.

US Airways award flyers: I suspect the new airline will keep American’s policy of allowing one-way award tickets for half the price vs. US Airways’ current policy of charging roundtrip award mileage no matter what. US Airways also charges for all changes and you can’t change an award once travel has commenced- hopefully those draconian rules change in the new program.

Those With oneworld Miles: With the addition of US Airways there will be more opportunities to redeem miles on oneworld partners. Those with huge British Airways Avios may see more opportunities to redeem for valuable short and mid-haul domestic awards out of current US Airways hubs. Those expensive Philadelphia- Toronto tickets? Only 4,500 Avios one-way- drastically cheaper than the 12,500 miles most programs charge.

Elite flyers in both programs: American and US may allow frequent flyers to combine miles and elite qualifying miles as early as December, meaning if you currently fly both carriers, you may be able to achieve a higher elite status than you ever could with both programs running separately. This also may bode well for those chasing lifetime elite status. Lifetime totals form both airlines will likely be merged meaning that those who may have been hundreds of thousands of miles away from earning lifetime status on either airline may suddenly get bumped over a threshold.

LOSERS

Consumers: Fewer airlines means fewer choices and less competition. Although airfares have only risen about 2% year over year for the past decade despite several large airline mergers, with only three legacy carriers left, there’s bound to be a huge effect on airfares because there will be fewer choices on more routes, but also because airlines will be more prone to match prices when one of them raises its fares. In a healthy marketplace with plenty of competition, even if one or two airlines raises prices, others can still keep them low, but with fewer competitors, flyers will end up paying higher prices. Even if neither airline is your main carrier, if you fly them at all, you’re still going to have to deal with the headaches of integrating two independent airlines, grumpy employees, more crowded check-in stations and airport terminals as well as planes, and all manner of systems integration issues which, if past mergers are to be taken as examples, will be many, ongoing and extremely frustrating.

American flyers: Welcome back to the past where planes are old, loud and don’t have WiFi, and the crew might (or might not) be happy to help. Thanks, US Airways management. If Doug Parker trims service levels, we could see the overall quality of service decrease, as it did back in 2008 when Parker introduced paid soft drinks and water on US Airways (they were forced to repeal that policy in 2009 thanks to customer complaints). American has done a great job at revamping catering and overall service levels and I would hate to see that go down the tubes.

Want WiFi on your flight? Not if you're flying one of US Airways' old planes.

Want WiFi on your flight? Not if you’re flying one of US Airways’ old planes.

Employees: Now that the merger is back on, on the condition of cutting several routes, as well as the fact that there’s bound to be a lot of consolidation of routes, aircraft, customer service and more, there are a lot of employees whose jobs are either up in the air or going to be cut altogether. After three years the carrier will likely downgrade and dehub several current hubs (potentially Phoenix/Charlotte/Philadelphia). You don’t achieve $1 billion a year in “synergies” by operating route networks of both airlines. We’ve seen dehubbing/downgrading service with past mergers (ah hem Memphis and Cincinatti in the aftermath of the Delta/Northwest merger).

Award flyers on both airlines: A merger means the likely disappearance of award chart “sweet spots” on both airlines.  On US Airways, that includes 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 huge 150,000 miles to Africa. American flyers will likely witness the discontinuation of Off-Peak Saver awards like only 40,000 miles for roundtrip economy award tickets to Europe and Southern South America at certain times of year.

Sweet spots on the US Airways award chart will vanish.

Sweet spots on the US Airways award chart will vanish.

US Airways award flyers: No more Star Alliance redemptions on 27 other carriers including ANA, Singapore, EVA, Lufthansa and South African – you’re stuck with Oneworld now. You’ll also probably see bigger fees on awards – like the carrier-imposed surcharges American has started charging on some partners and some awards like flying to/from London – and no more international stopovers.

American Platinum elites: Those who fly between 50,000-75,000 a year will now drop a tier to just middle-lower elite instead of solidly middle thanks to US Airways four-tier elite status system. I don’t think that will actually impact you that much since American Platinum and US Airways Gold status don’t have too many differences, but there will be more flyers in front of you for benefits like upgrades now.

Lucrative 100% buy miles bonuses will likely disappear.

Lucrative 100% buy miles bonuses will likely disappear.

Those who buy cheap US Airways miles: One easy way to rack up US Airways miles without having to fly a ton or pay huge amounts of money has been to take advantage of the airline’s frequent buy and share miles promos, some of which have bonuses of up to 100%, meaning miles only cost about 1.9 cents each (or as low as 1.1 cents with share miles promos). American’s buy miles bonuses run around the 30% mark though sometimes up to 50% and are usually tiered, so you only get the full bonus when you buy the maximum amount of miles (usually around 40,000). Not nearly as good a deal. Granted, the new airline could continue to offer sales similar to what US Airways currently offers, but I’m skeptical.

US Airways Credit Cardholders: In June, American agreed to have Citibank as their credit card issuer going forward. Subsequently, Barclaycard, the current issuer of US Airways’ credit card, will have to eventually stop offering it, and probably convert existing US Airways Mastercard holders into Arrival cardholders. The benefits of the US Airways credit card add up to a lot including 5,000-mile discounts on award flights, 10,000 Preferred Qualifying Miles after $25,000 spent each calendar year, waived award processing fees, two roundtrip companion tickets annually, $75 Club membership discount voucher and more. 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, it will eventually mean the end of the US Airways World Mastercard.

If the merger goes through, it will eventually mean the end of the US Airways World Mastercard.

Flyers in certain hubs: It’s almost always the case with mergers like these that certain cities get de-hubbed. If I had to bet, I could see Phoenix and Charlotte being wound down in favor of LA/Dallas in the west and Miami in the east.

US Airways Flyers Who Also Fly United and Air Canada: United has a huge route network and currently US Airways frequent flyers can fly United flights and bank those flights to to US Airways. After the merger US Airways will leave Star Alliance so US flyers lose the ability to flyer partners like United and Air Canada and bank those flights towards elite status. This may be particularly painful for those in the Philadelphia/New Jersey region who have the flexibility of flying United out of Newark or US Airways through Philadelphia. After the merger, the usefulness of United flights out of Newark don’t become an option if you’re aiming to bank them towards American elite status.

For more information, check out these posts:

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

How To Prepare for a US Airways American Airlines Merger

Maximizing a Potential US Airways American Airlines Merger

The Potential Winners and Losers of an American Airlines US Airways Merger

American Chooses Citi As Post-Merger Credit Card Partner

Top 10 Reasons I Don’t Want a US Airways American Merger To Go Through

US Justice Department Suing to Block American US Airways Merger

DOJ Settles With American: Merger Moves One Step Closer to Approval

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author.s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through the credit card issuer Affiliate Program.

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  • Mike

    Thoughtful article.

  • tigermark82

    Great article. I live in CLT and fly united a lot for work because it’s much cheaper than the pricey non-stop flights on US. I’ll have to start accumulating United miles now instead of having them post back to my US account. For me the biggest benefit is the avios angle. I will be able to use avios to go just about anywhere. This means 15,000 avios RT to some caribbean destinations.

  • Michael Rasmussen

    Is there a slight win for travelers to South America with Oneworld’s LAN inclusion?

  • Laura Hartman Roland

    One BIG thing I hope you are wrong about is the discontinuation of the off-peak saver awards offered on AA. I really liked those and have used them several times to go to the Caribbean in Sept/Oct for only 25K miles. Maybe if they keep AA’s one way awards, they will keep the off-peak awards too?? One can dream….

  • Two Coasts

    You mentioned the movement of US Airways dividend miles to American and the possible effect towards Million Miler balance on AA. I am close to hitting 2 million mark with AA lifetime. I also have a 50% bonus offer on US Airways miles until the end of the month. Do you think these ‘purchased’ miles would count towards million miler bonus on AA. If so, it is a steal and possibly a great article for you to write about. Thanks for all your help.

  • Jonathan Brewer

    I was planning a honeymoon to Jamaica next Dec/Jan and nearly every United flight routes through CLT via USAir. I hope I don’t get screwed out of that option before I book.

  • ryan

    Goes to show how this can mean many things to many people. I am sitting on a boatload of BA Avios and I do frequently need to fly Toronto > Philly, so for me this is great.

  • Brian S

    I’ve got the older US Airways card that also gives you 10,000 miles each year on your anniversary (plus the other yearly benefits). Going to be sad to see those go away, cause I’m sure they will.

  • Tony Childers

    How will this affect the ability to use Chase Ultimate Rewards redeemed as Avios for short hull flights within the U.S? I have found great deals by using Chase UR to book short one-way flights on American through British Airways. Will this now change? Does it make UR / Avios more or less valuable?

  • Goat Rodeo

    I doubt that will happen. (I’ve thought about this as well). Even thought about the churning aspect of the Barclay’s card and trying to get a spin in prior to the merger.

  • iahphx

    You severely damage your credibility as an “airline expert” when you say something like “the carrier will likely downgrade and dehub several current hubs (potentially Phoenix/Charlotte/Philadelphia)”. I presume you are completely unaware of the fact that CLT has the fourth highest profit margin of any airline hub IN THE WORLD. So it’s obviously not going anywhere, and will likely expand over time as the combined airline leverages what is one of only two hubs in the entire southeastern U.S. There is almost certain to be more Latin flights out of CLT, as AA takes advantage of it’s leading network to that region, and CLT makes a better connecting hub than MIA.
    Philly is similarly not going anywhere as it’s a fortress hub in one of the largest metro areas in the U.S. and also one of the country’s largest transatlantic hubs. That traffic can’t be routed through JFK. I’d expect traffic at PHL to grow after the merger.
    Phoenix Is in a more difficult spot because DFW is definitely a better east-west connecting hub. It also faces intense competition from Southwest. But Phoenix (and Arizona) is in a good spot economically over time, and can serve as a good hub for lots of SoCal cities where travelers are not going to want to fly through LAX. The city might also get more int’l flights after the merger. We’ll have to wait and see on this one, but the idea that it will be de-hubbed seems remote.

  • thepointsguy

    The point is that in order to get 1 BILLION a year in synergies, they won’t operate as they currently do. A key way to get cost savings is to bulk up in one airport and scale down in another as seen in other mergers. I’m not saying any certain airport will be dehubbed, but my guess is one or more of them will see a decrease in service. Do you disagree?

  • thepointsguy

    There will be more opportunities to redeem Avios, so I see this as a boost in value for UR points

  • thepointsguy

    Yes- oneworld has a better presence in South America than Star Alliance

  • Paul

    When would you expect US Airways to leave the Star Alliance?

  • Fat Ted

    “The US Airways fleet is probably the dumpiest of the legacies with old planes without in-flight entertainment, sparse WiFi, surly flight attendants and other compromising factors.”

    Certainly US Airways has an aging fleet, but the newer A321 and A330′s are very nice. I’d sure hope brand new A319′s would be nice, what about the old MD-80′s?What’s so bad about no in-flight entertainment? That argument has been had many times over, but I think a better complaint would be no power outlets. Sure, gogo wifi isn’t great, but US has great coverage of gogo with it being on all of the big planes. There are bad flight attendants with every airline, hard to argue objectively. Other compromising factors…

    I agree with your overall article and there are a number of losers, but you don’t have to be so negative about US Airways just because big, important people at AA now have to share with the lowly losers at US.

  • iahphx

    Well, the trend in all recent mergers (UA/CO, DL/NW, WN/FL) is to reduce capacity and thereby increase unit revenue. I would assume some of that will go on here, too. But I wouldn’t be surprised if more of the capacity cuts come from the AA side, as US management is going to come in and figure out what doesn’t make money over there (they are already managing the US side, with excellent financial results). I don’t see CLT taking any capacity hits, and PHL is probably pretty safe, too. I would think that PHX might see some reduced capacity, but it’s too early to say, and I am certain that your “alarmism” about reductions is unwarranted.

  • AAExPlat

    I love how everyone cherrypicks these fare increases over time and cites the stats like the airlines are altruistic entities. The reality is that one cannot compare fares from 5-10 years ago with today’s fares. Today, the average flier will have hefty bag charges, seat selection charges, bob food charges, drink charges, etc attached to their fares. These additional fees are NOT included in these far studies. Please don’t use these numbers…they are propaganda from the airlines and their unions.

  • Paul

    Want to know a quick way to reduce capacity, which you just mentioned was the trend with all recent mergers?

    de-hubbing, which has also been a trend in all recent mergers.

    Brian’s assumption isn’t far-fetched

  • Goat Rodeo

    not only that, but gutting the SG&A for the two airlines merged together will probably add quite a few bucks to the 1B goal. You’re basically going to cleave one half of the HR/sales/marketing/etc team off and toss them to the wind.

  • Charterboy

    One downside I don’t think you mentioned was United or UR points users losing the US airways option. Often when there are no saver rewards for United, US Air will have saver awards available.

    I also think of the opportunity to further build up AA miles by signing up for the US Air barclay card and both AA cards-business and personal, you could potentially end up with 135k AA miles by the end of the year.

  • Cameron

    Have any decisions been made regarding Elite tiers? It seems like a lot of this post operates on the assumption there will be 4 tiers going forward, which I don’t think is a given. Suzanne Rubin is still in charge of AAdvantage going forward, and I think it is less likely it will add a 4th tier than if someone from PM US was running it.

  • Freddie

    If you are betting, I will take you up on your bet. I hate to break it to you, but CLT will not go away as a hub. If anything, it will be your home airport of MIA that will lose that coveted status. When AA is paying, roughly, $20 bucks a head for each John/Jane Doe out of MIA & US is paying, roughly, $1 buck for those same John/Janes, this is where you get the “synergies” you spoke.

    http://www.charlotteobserver.com/2013/11/13/4463653/business-leaders-hope-to-see-more.html

    Yes, I understand that MIA is a bigger city and bigger destination. However, do not underestimate the leadership out of Metrolina. Jerry Orr, the man who with an iron fist has single-handedly led CLT for almost a quarter of a century and would still be leading if not for a party tuff battle between the new Republican leadership in RDU and the Democratic leadership in CLT. Jerry has built an airport that makes $$. From building expressways solely for the benefit of the airport to massive expansion project, such additional runways and parking decks to low fees & taxes, CLT is the jewel in the cap of US’s business strategy. As a former US Express employee, whenever talks of mergers/changes were in the air we always heard from corporate: “This is CLT. You’re not going anywhere.” That’s not what they told our colleagues in LGA, PIT or BWI…

    I agree that in a new AA DFW will remain the #1 hub as there is too much politics/investment for that to change. PHX will probably remain the West Coast hub, as it also has a fairly low cost structure on the airlines. CLT will be the East Coast hub with MIA & PHL feeling most of the pain post-merger.

  • Freddie

    Agree that CLT isn’t going anywhere and someone who claims to be an airline expert making such suggestions does damage his/her credibility. Disagree that PHL will not be spared. US has been talking of gording that “Brotherly Love” for years now…

    It’s nothing personal, but when they tell you it’s not about the money, it’s ALWAYS about the MONEY!

  • Vaca Rent

    I use usair because is one of the few flying nonstop to Barcelona Spain. I do,it often I work for http://www.barcelonarentalsvacation.com and we have in new york.

  • Tyler

    Here here. I am a UA 1K in Northern Virginia and enjoy having earning and redemption options with both UA from IAD or US from DCA. Once US goes to OneWorld I’ll have to trek it out to Dulles a lot more often. In addition to the low cost airlines petitioning for slots at Reagan I’d like to see United increase its presence there to make up for the loss in Star Alliance slots.

  • AnotherAndroidKid

    Where I think you’re wrong is in the 4 tier system. I do not in any way see them keeping 4 tiers. It does not mix with any of the rest of OW.

  • Josh

    You are not giving any credit to the revenue side of synergies. Yes, there will be cost synergies, in the form of a rationalized network and a reduced (mostly centralized) headcount – but there will also be increased revenues by creating new single-airline markets and becoming a new competitor in hundreds more.

  • Josh

    what dehubbing occurred with UA/CO? Capacity will be reduced where it makes sense, but this merger is not about spilling to low end of the yield curve – it’s about completing the two networks.

  • Josh

    Where do you propose the new AA relocate the flights (or even a significant number of them)? JFK is slot-restricted and hyper-competitive, ORD is (generally) saturated in the markets that you would be dumping capacity in, and CLT doesn’t have the local market to support the type of transatlantic hub that PHL is. People do not realize that Philadelphia is one-fourth the size of New York, and there are four airlines trying to establish/maintain a hub in NYC. That would suggest that the PHL hub could be about the same size as any one of the hubs in NYC, but without the competitive landscape of four carriers. Why would the new American walk away from that?

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