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Big July Profit Belies American’s Urge to Merge

Big July Profit Belies American’s Urge to Merge

One of the recurring arguments in the P.R. campaign to justify the merger of American and US Airways has been the claim that American simply couldn’t compete against the likes of Delta and United without the tie-up.

But in a financial report issued this week, American reported a record monthly profit for July. Here’s an excerpt from an internal note from American chairman and CEO Tom Horton to the airline’s employees:

Today is a very good day. This morning we reported our financial results for July and here’s the headline: we are completing one of the most successful turnarounds in aviation history. We are building a strong, competitive and profitable new American poised to lead again.

Thanks to your hard work, American earned a net profit of $352 million in July, excluding reorganization and special items — a record for any month in our history. In fact, our July profit alone nearly equals the $357 million record profit we reported for the entire second quarter. Our consolidated, passenger and unit revenues also set all-time highs for any month. That’s extraordinary — congratulations!

Hyperbole aside, that is extraordinary. It suggests that Horton’s turn-around efforts have been highly successful, a fact that has gone mostly unnoticed amid the hubbub surrounding the merger’s widely reported ups and downs. But it also gives the lie to the contention that American’s very survival depends on merging with US Airways to become the world’s largest airline.

American is doing just fine as a stand-alone carrier.

Merger Cheat Sheet

  • The new company would retain the “American Airlines” name and be based at American’s Ft. Worth headquarters.
  • US Airways chief Doug Parker will be the new CEO. American chief Tom Horton will be named chairman of the new board and remain in that position until the spring of 2014 when the company’s first annual shareholder meeting will be held. When Horton departs the board, Parker will assume his position as chairman.
  • American’s creditors would own around 72 percent of the new company; US Airways shareholders would get the rest.
  • Based on 2012 results, the new company would have generated $38.7 billion in revenue.
  • The merger is expected to generate around $1 billion in combined extra revenue and cost savings for the new company.
  • The new company will be valued at around $11 billion.
  • Combining the third- and fifth-largest U.S. carriers will create the world’s largest airline, in terms of passenger traffic.
  • Prior to any post-merger rationalization, the two airlines will have around 120,000 employees, 950 planes, 6,500 daily flights, and eight major hubs (American: Dallas, Miami, Chicago, Los Angeles, New York; US Airways: Phoenix, Philadelphia, Charlotte). Although the carriers promise to maintain all current hubs, Phoenix and Philadelphia are likely to be downsized in the post-merger “rationalization.”
  • The new American will be a member of the oneworld alliance, not the Star Alliance.
  • The merger is subject to review and approval by U.S. regulators. That wasn’t expected to be a problem since there is relatively little overlap between the two airlines’ networks.
  • The actual merger won’t happen overnight. United and Delta required five and seven months respectively to secure the necessary approvals for their mergers.
  • It was 22 months after their merger closed before United and Continental finally merged their frequent flyer programs. Expect a similar post-close interval before American and US Airways consolidate their programs.
  • Comparisons between American and US Airways’ current mileage programs are probably moot since there’s a high likelihood that an entirely new revenue-based program (like Southwest’s) will be introduced to replace both programs.
  • After the merger, 83% of U.S. domestic air traffic will be in the hands of just four airlines (American 26%, United 19.3%, Delta 19.2%, Southwest 17.3%).

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  • TravelingProfessor

    It’s nice to hear they are making a profit – they deserve it. However, I am a bit perturbed to hear they are going to add a fuel surcharge when redeeming FF miles.

  • Phil Hutchison

    I can understand why they made such a huge profit, they have the worst business class of any airline I have travelled on, this obviously cost peanuts, hence the huge profit

  • gammyjill

    The most interesting point to me was the probability of a “new” mileage program once the merger goes through. As a life-time Platinum – with 2.8 million miles – I hold that ranking ONLY through the “life time of the (current) program”, and I assume AA would change that
    designation in a heartbeat if they could.

  • justeconomics

    Loose my miles and I sue so get ready for me now.

  • justeconomics

    Next time you go to the airport they will grab you by the ankles and shake out any loose change too.

  • justeconomics

    That was business class? with those narrow seats? it should be called Monkey Business class.

  • Charles

    First airline Uncle Sam ever put me on was Braniff. Second one, so I could catch the boat to RVN was AA. Have watched them ride the roller coaster over the years. Since the bankruptcy has loomed over their shoulder, they have improved. I have issue with them now that my health is keeping me from directing. The woman who first offered to be happy to help me, withdrew the offer. It is simple matter of there reinstating AA miles for failure to keep their agreed flight promise.

  • Nicolas A Tempestini

    We have to be careful about this analysis. Just because an airline was profitable one month doesn’t mean they will be profitable every month – a lot of variables come into place whe it comes to operations effectiveness, cost of service, among others.

    You have to see why was July so special in terms of profits?

    Was it the the oil hedging?
    Was it the low number of cancelled flights?
    So many more questions abound before you can say that a company does not need a merger to survivd because they had one good month.

  • booch221

    So based on ONE month of profit, American is declared a success?

    Not even one quarter–ONE MONTH!