DOJ Settles With American – Merger Moves One Step Closer to Approval
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While American Airlines and US Airways announced their plans to merge in February, the Department of Justice and Attorney Generals of several states attempted to block the merger in a surprise suit filed in August claiming the merger would not be good for consumers. In a release issued today, it appears that American has settled with the DOJ and Attorneys General in a way that has quelled their antitrust concerns. This allows the merger to go to bankruptcy court for final approval as soon as this December.
Key details from American’s press release:
· Under the terms of the settlement, the airlines will divest 52 slot pairs at Washington Reagan National Airport (DCA) and 17 slot pairs at New York LaGuardia Airport (LGA), as well as certain gates and related facilities to support service at those airports. Each slot pair entitles the holder to one departure and arrival.
· The airlines also will divest two gates and related support facilities at each of Boston Logan International Airport, Chicago O’Hare International Airport, Dallas Love Field, Los Angeles International Airport, and Miami International Airport.
· After completion of the required divestitures, the combined company expects to operate 44 fewer daily departures at DCA and 12 fewer daily departures at LGA than the approximately 290 daily DCA departures and 175 daily LGA departures that American and US Airways operate today. Each is a departure and arrival.
· The divestitures required by the settlement are not expected to impact total employment at the New American.
· In the settlement agreement with the state Attorneys General, the new American has agreed to maintain its hubs in Charlotte, New York (Kennedy), Los Angeles, Miami, Chicago (O’Hare), Philadelphia, and Phoenix consistent with historical operations for a period of three years. In addition, with limited exceptions, for a period of five years, the new American will continue to provide daily scheduled service from one or more of its hubs to each plaintiff state airport that has scheduled daily service from either American or US Airways. A previous settlement agreement with the state of Texas will be amended to make it consistent with today’s settlement.
In agreements with various state Attorney Generals, they’ve agreed to continue service to a number of smaller airports such as Yuma, AZ and Wilkes Barre/Scranton, PA.
All in all, this merger looks like it will be approved since bankruptcy judges have already signaled their willingness to approve since the boards of both American and US Airways have approved the deal and the merger is expected to produce over a billion dollars in annual synergies beginning in 2015.
I selfishly didn’t want the merger to go through because I like American and the path they are on. US Airways senior management, including CEO Doug Parker will head the new airline and I personally think the service culture and overall quality of US Airways is significantly inferior to American. Additionally, I like being able to leverage both frequent flyer programs for their sweet spots (like American’s off-peak awards and US Airways super generous business class awards to North Asia (90,000 miles roundtrip) and South Africa/Australia/ South Pacific (110,000 miles). Once the merger is finalized, the US Airways Dividend Miles program will begin to merge into American AAdvantage and their award charts will likely be “synergized” (read: devalued).
Additionally Barclaycard will likely lose the US Airways credit card contract, so there will be less credit cards to leverage. American’s Citi products are decent, but the US Airways Mastercard is one of the most lucrative credit cards with award discounts and elite status earning potential.
From a loyalty/mileage earning perspective I see less options and with the relatively insignificant slot forfeitures, I see less competition in the future and thus can’t help to think airfares will increase as well.
However, American has been mired with financial troubles for years and many in the industry think that this merger is the best possible option. I personally think they are already on track to emerge as a profitable stand-alone carrier, posting record revenues these past couple months and will likely continue to do the same as the economy improves.
I still need to let this sink in, but I can’t help be a little disappointed at the news – at least from a consumer/frequent flyer perspective.
What are your thoughts?