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Does US Air-American Merger Give Flyers ‘What They Want’?

Does US Air-American Merger Give Flyers ‘What They Want’?

In his testimony before a Senate Judiciary committee on Tuesday, US Airways chief Doug Parker made two stunning statements in support of the all-but-certain merger of his airline and American.

First, according to a Phoenix Business Journal report, he claimed that the merger gives travelers “what they want.” What they want, in Parker’s mind, is a larger route network.

By combining American and US Airways, the new American Airlines will build the network that passengers have told us they want, one that will compete more effectively with the other networks airlines, as well as low-cost carriers. By combining these networks, we will provide thousands of passengers better alternatives by creating over 1,300 new connecting opportunities and the potential to access numerous cities worldwide served by one carrier but not the other.

Parker’s self-serving analysis notwithstanding, more flights to more destinations ranks pretty low on the wish lists of most travelers, far behind such items as comfort inflight, responsive customer service, and low fares.

And whatever they do want, a majority of those polled on FlyerTalk were opposed to the merger.

Second, according to USA Today, Parker asserted that the merger would lead to more competition, not less.

That flies in the face of simple math and Economics 101. With the merger, the number of mainline carriers will fall from four to three. And it is practically a law of free-market economics that fewer competitors will ultimately lead to higher prices. (It’s worth noting the lack of opposition to the merger by other U.S. carriers. They fully expect to enjoy more pricing power and higher airfares in the post-merger era.)

Parker’s silly and disingenuous assertions are par for the course. He’s operating in salesman mode and will say whatever he has to in order to get the deal done.

But if he’s truly as out of touch with travelers and as ignorant of the basics of economics as his comments suggest, customers of the new Parker-led American will be in for a bumpy ride.

Merger Summary

  • The new company will 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 expects 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 94,000 employees, 950 planes, 6,500 daily flights, and nine 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 shouldn’t 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%).

Reader Reality Check

What are your hopes and expectations for this merger?

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  • http://twitter.com/first2board first2board

    It will be fascinating to see what happens to Phoenix – the current home and key hub of US Airways. There’s quite a bit of trepidation and fear amongst Phoenicians in terms of lost jobs, fares, availability, options, etc. Only time will tell…

  • jim

    I hope the merger will make it easy to use AA miles on US! AA no longer serves my airport, but US does.

  • Mordock

    I recently filled out a survey from USAir that was obviously designed to feel out customer loyalty to the Star Alliance. It didn’t even mention OneWorld. I made it clear that IMHO that Star Alliance was worth 10 times what OneWorld is with partners such as United and Scandinavian Air.

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