The American Airlines / US Airways Merger: Winners and Losers
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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.
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.
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 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 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.
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.
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.
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.
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.
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.
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.
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