Deal would now reduce the number of major U.S. airlines to four
By David Koenig
AP Airlines Writer
DALLAS (AP) — American Airlines and US Airways have agreed to merge in an $11 billion deal that would create the world’s biggest airline.
The combined carrier will be called American Airlines and be based in Fort Worth, but US Airways CEO Doug Parker will run it.
The merger would reduce the number of major U.S. airlines to four: the new American, United, Delta and Southwest.
The deal is a coup for smaller US Airways Group Inc., which pushed for a merger almost as soon as American parent AMR Corp. filed for bankruptcy protection in November 2011.
While Parker runs the company, AMR CEO Tom Horton will serve as chairman until its first shareholder meeting, likely in mid-2014.
The boards of both companies approved the deal Wednesday. The companies announced it early Thursday and expect it to close in the third quarter of this year.
“The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace,” Parker said in a
statement. “Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go.”
AMR creditors will own 72 percent of the new company, with the remaining 28 percent will going to US Airways shareholders. The creditors’ portion includes a 23.6 percent share for American employees and unions, plus a small stake for existing shareholders of American’s parent AMR Corp.
The airlines said they expect $1 billion in combined benefits from the merger. They expect the bigger airline to lure corporate travelers away from competitors, contributing to $900 million in additional revenue. They also anticipate cost savings of roughly $150 million.
They also said they expect to spend $1.2 billion on transition costs over the next three years.
Travelers on American and US Airways won’t notice immediate changes. It likely will be months before the frequent-flier programs are combined and years before the two airlines are fully integrated.
The companies had negotiated since August, when creditors pushed AMR to conduct merger talks so they could decide which earned them a better return: a merger or an independent American.
The deal would need approval by AMR’s bankruptcy judge and antitrust regulators, who have permitted three other big airline mergers to go ahead since 2008.
The rapid consolidation has allowed the surviving airlines to offer bigger route networks that appeal to high-paying business travelers. And it has allowed them to limit the supply of seats, which helps prop up fares and airline profits.
The new American would have more than 900 planes, 3,200 daily flights and about 95,000 employees, not counting regional affiliates. It will be slightly bigger than United Airlines by passenger traffic, not counting regional affiliate airlines.
The new airline will keep all of American’s and US Airways’ hubs.
The companies said the new board of directors will have 12 members: Three from American, including Horton; four from US Airways, including Parker; and five appointed by American’s creditors.
AMR shareholders are poised to get a 3.5 percent stake in the new airline, the companies said. That’s unusual because equity holders typically get wiped out in a Chapter 11 proceeding.
The companies said it’s too soon to know where the new airline’s operations center, reservations, flight training, maintenance and crew bases will be.
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What the merger means for you
By Scott Mayerowitz
AP Airlines Writer
NEW YORK (AP) — While American Airlines and US Airways announced plans to merge Thursday, it will be several months — if not years — before passengers see any significant impact.
Passengers with existing tickets on American or US Airways — and members of both frequent flier programs — shouldn’t fret. No changes will come anytime soon.
American’s parent company, AMR Corp., is still under bankruptcy protection and will need the court to approve the deal. US Airways shareholders will also have to vote for a merger. Then the Department of Transportation and the Justice Department must sign off. Finally, once a deal closes, the new company could operate two separate airlines for a number of years.
When the airlines finally do merge, here’s what passengers can expect:
— AIRFARE
In the past five years, the airline industry has seen the combinations of Delta with Northwest, United with Continental and Southwest Airlines Co. with AirTran. Further consolidation is likely to raise airfares. The price of a domestic round-trip flight has climbed more than 11 percent since 2009, when adjusted for inflation, according to the Bureau of Transportation Statistics.
The merger will give a combined American and US Airways Group Inc. the ability to increase fares. United, Delta and Southwest would be likely to follow. Although it could also pave the way for further expansion by discount airlines such as Spirit Airlines Inc. and Allegiant Travel Co.
— FREQUENT FLIER MILES
Your miles will be safe. After the merge is approved, the two airlines will likely combine the miles into one program and elite status from one airline will likely be honored on the other. That puts the occasional traveler closer to rewards.
The merged carrier will continue American’s participation in the OneWorld alliance, which was founded by American, British Airways, Cathay Pacific and Qantas. Today, it has 12 airlines including Finnair, Royal Jordanian and Japan Airlines. US Airways will leave the Star Alliance, which includes rival United Airlines, Lufthansa, Air Canada and 24 other airlines. Alliances allow passengers to earn and redeem miles on partner airlines.
— DESTINATIONS
A key reason for merging is to link both airlines’ networks, creating a system on par with Delta Air Lines and United, part of United Continental Holdings Inc.
There is little overlap between the two airlines’ existing routes. The combined carrier will offer more than 6,700 daily flights to 336 destinations in 56 countries, making it more attractive to companies seeking to fly employees around the globe with few connections.
US Airways passengers will gain access to American’s international destinations, particularly London and Latin America. American’s passengers will be able to better connect to smaller U.S. cities that US Airways serves.
The combined carrier will have considerable presence in New York, Philadelphia, Washington, Charlotte, N.C., Miami, Chicago, Dallas, Phoenix and Los Angeles. It is unclear how many of those cities will keep their levels of service. In past mergers, airlines have promised not to close any hubs but have gone ahead and dramatically reduced service in once-key cities.
— PASSENGER CONFUSION
The merger of two airlines often means confusion and hassle for customers. Which terminal or ticket counter do they go to for check in? If there is a problem with a ticket, which company should they call? For a while, United and Continental were issuing two confirmation numbers for each ticket so either airline’s staff could make changes. Problems with the integration of their frequent flier programs angered many loyal road warriors and computer glitches caused repeated
flight delays. It could be months, if not years, until all American and US Airways planes get a uniform paint job.
“These things are never as seamless as they seem,” said Thomas Lawton, a professor of business administration at Dartmouth College’s Tuck School of business. “There will probably be some initial teething problems.”
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Little overlap in American, US Airways routes in U.S.
Airlines’ markets are complementary
By Scott Mayerowitz
AP Airlines Writer
NEW YORK (AP) — In the jigsaw puzzle of airline routes, American Airlines and US Airways are two pieces that fit together almost perfectly.
Of the 50 busiest domestic routes, the two carriers compete directly on only one: Los Angeles to Phoenix, according to OAG, a company that tracks airline routes and schedules. And on hundreds of less traveled routes, they only overlap a dozen times, mostly between their hub cities. For instance, both carriers fly Charlotte, N.C. to Miami, Dallas to Philadelphia and Chicago to Phoenix.
The companies announced Thursday that they had agreed to merge. The combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries.
The complementary nature of the markets they serve should help the airlines avoid any major hurdles with antitrust regulators, industry experts say. And it will serve the merged company especially well in today’s airline business, which is all about scale.
Commercial aviation is increasingly dominated by mega-carriers that promise to whisk passengers around the globe with ease. They offer frequent flights to faraway destinations, often with just one change of planes — sometimes none.
The first of these giant carriers was created in 2008 when Delta Air Lines bought Northwest, creating what was then the world’s largest airline. Two years later, United leapfrogged ahead when it merged with Continental.
American Airlines and US Airways languished in the shadows as these new behemoths lured away highly profitable corporate travel accounts. But by teaming up they’ll take the crown as the world’s largest airline and have a shot at winning back business travelers.
Each airline brings something different to the table.
American has a strong presence in Dallas, Miami, Los Angeles, Chicago and New York. It is also the dominant U.S. player in Latin America. In Brazil alone, it has 111 weekly flights to seven different cities. American also has a lock on flights into London’s Heathrow Airport, one of the world’s key financial capitals.
US Airways is the principal carrier in Philadelphia, Charlotte, Phoenix and Washington, D.C. It also has routes into key European cities that American doesn’t directly serve, such as Amsterdam and Brussels.
US Airways doesn’t fly to Asia and American’s presence there is dwarfed by United and Delta’s substantial footprint.
But the real key to the merger is US Airways’ comprehensive service to small cities along the East Coast.
The airline’s CEO, Doug Parker, proudly told investors at the company’s June annual meeting that if his airline combined with American, it would have the largest market share east of the Rockies.
Both airlines need to capitalize off passengers traveling from those small cities, such as Allentown, Penn., Elmira, N.Y., and Lynchburg, Va.
For instance, American can charge high fares for flights to London but can only make money off the flight if it can fill it with enough passengers. Those passengers can come from US Airways’ network.
American would also gain US Airways’ lucrative shuttle service between New York, Boston and Washington D.C.
