Behind the headlines on the AA/US merger


There are plenty of opinions out there right now about the future of the aviation market in the USA in light of this week’s announcement about US Airways and American Airlines finally coming to terms on their merger this past week. I’m only slightly dismayed – though not at all surprised – to see so many bloggers announcing that they know what the loyalty program is going to look like and what to do about points right now (here’s a hint: they’re all guessing). I’m not at all surprised, however, to se so many pundits speaking to what the net effect will be for the traveling public. Anyone on the industry side is lauding the stability and efficiencies of the larger route network and more flexible fleet. From the consumer side, however, the views are a little less positive. In some cases, VERY much so.

Here are two headlines which made the rounds a few days ago shortly after the announcement came out. One is from The Onion, a satire site which plays on real news. The other is from Salon.com, something more akin to a real news site. Though from reading the headlines it isn’t entirely clear which is which:

American Airlines, US Airways Merge To Form World’s Largest Inconvenience

U.S. Airways and American Airlines, two crappy airlines, are merging to form one mega airline — the biggest in the world — with a $11 billion deal agreed Thursday.

 

American, U.S. merge to form biggest, crappiest airline

American Airlines and US Airways stunned the aviation industry Thursday upon announcing the two air travel titans have combined in an $11 billion merger that sources say will unite the industry powerhouses into the world’s largest and most complete pain in the ass.

Even with the first line of the story included it is not clear which one is satire. If you keep reading it becomes clear reasonably quickly, mostly because the Onion article includes some rather entertaining "quotes" attributed to American’s current CEO. But that would require actually reading past the headline.

It does raise the interesting question, however, of just how challenging the merger will be over the coming years for consumers. Higher fares are almost a certainty; that’s what happens when competition is reduced. And while the two carriers were quick to point out that only a tiny number of their routes overlap they skipped the part where they serve many of the same markets, just via different hubs. The combined carrier will still have woefully limited coverage to Asia and the Middle East (odds of the TLV route sticking around given the open TWA-related judgment against AA??) and Europe isn’t all that much better. Africa and Australia are complete black holes on the map. Their domestic route map is pretty good, except on the west coast where they’d still need Alaska Airlines to fill in the north-south shuttle service and provide coverage to a number of markets. The combined carrier will be a beast in the Caribbean and Latin America, but that’s another situation where the benefits to consumers are questionable; the two were, in many cases, the main competition for each other and that’s disappearing.

There is no doubt in my mind that the stability of the industry will improve from this merger and that is, in general, a good thing. That doesn’t mean I’m not just a bit worried about how it will impact my personal travel patterns. After all, I’m on a pretty tight budget and I cannot get enough time in the air.

Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.


Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, LinkedIn and .

19 Comments

  1. I agree about the less competition equals higher prices but I hope the other airlines – jetBlue, Southwest, Alaska – will still provide a stabilizing effect in their regions. Or at least I hope they can

    Yes it does not solve their Asia problem but I think the Latin America move is a big deal. It may not be as profitable as Asia but there is still potential for it in the future if the region can achieve more stability politically.

    But that is just my subjective, completely gut feeling about it, so I am probably wrong.

  2. Do you think the Alaska and Jetblue relationships will be challenged (by DOJ/merger officials)?

    Jetblue will be less necessary to the new USAA (and only RDM’s anyway). But a loss of AS would leave a big hole in the West that USAA would have to quickly fill…

    What are you referring to here? (odds of the TLV route sticking around given the open TWA-related judgment against AA??)

  3. Hopefully AA-US can actually complete this merger and all the new agreements with their unions before making a run at Alaska. US Airways reminds me of a kid who keeps biting off more than he can chew.

  4. In addition to the reduction in competition, the other disappointment that came first to mind is the lack of any improvement in service to key world regions as Seth mentions. UA and even DL still have them beat in important areas, for the near future at least.

    A lot of chatter talks about how US FFP members will gain this or that improvement with AA (or in limited cases, vice versa). But I think that’s whistling past the graveyard. Eventually the combined program will water everything “good” down as much as they can get away with…which is probably a lot.

    Who else will you turn to – only two legacy choices now. OK, plus Southwest and a few others if you happen to live in certain cities and fly to their serviced destinations.

  5. @Lark : I’m not an expert in the matter, but i recall that AA didn’t pay some severance pension thing to Israeli employees when they bought TWA and ditched the route …. That’s the main reason why AA doesn’t fly there today despite it printing cash for UA DL and US : it’s alleged that as long as AA doesn’t pay back what they owe, the moment they land a plane there it Eli,d be impounded

    1. Here’s a link explaining the Israel situation, at least a little bit: http://www.airliners.net/aviation-forums/general_aviation/read.main/429611/.

      Basically TWA laid off a bunch of employees and shorted them on severance per the claim. There was a lawsuit and TWA lost:

      TWA spokeswoman Julia Bishop-Cross said it decided on the action after the workers’ group took TWA to court seeking a liquidation of TWA’s Israeli assets. The court ruled in favor of the employees on Wednesday.

      So there is a very real concern that any plane owned by AMR would be impounded to cover the debt.

      As for the AS/B6 relationships, that’s a very good question. I’d be surprised if AA/US wants to keep them going forward. The north-south service on the west coast is an important market and there could be a blood bath if the new AA tries to get in directly. At the same time, it would be a bit strange for the largest carrier in the country (and in the world by daily flights from what I can see but not by ASMs) needs a partner to fill out such a big a chunk of their domestic feed. The JetBlue relationship was all about getting feed to BOS and JFK. The BOS feed is no longer useful and the JFK feed can be replaced with AA/US planes. I see that as a done deal just as soon as they actually have the conversation.

      I am entertained by the suggestion that US keeps biting off more than they can chew. It may not be particularly pretty, but the current US operation is arguably a lot better operationally than other domestic carriers. And that is in spite of labor issues. if they get those figured out things could get way better in a hurry.

  6. AA is not going to be making a run at Alaska without DL getting in the way (and last I checked, DL has a checkbook, too).

    Oh, and AS’s management is perfectly fine being an independent, thankyouverymuch, and unlike AA and US, hasn’t been through Chapter 11 and has a nice long record of return on invested capital that blows everyone else in the industry away, so they can make a very good case to shareholders that a merger is NOT in their best interests. Unless AS goes into the tank, the shareholders are going to need a lot of cash to convince them to surrender a well-run midsize company in a merger with a clunky behemoth, and with DL capable of bidding up the price too… I think AS stays independent for the foreseeable future (and once we get 5-10 years out, very little is foreseeable).

    1. I don’t think AA would even consider buying AS; sorry if that’s what it sounded like. I meant make a run at them in terms of competing with them on the north-south traffic which AA currently has effectively outsourced to them.

      Alaska and JetBlue are not going to be swallowed into one of the majors. JetBlue might try to pick up the pieces of Virgin America if they fall apart but otherwise it is going to be organic growth for those two for the foreseeable future.

  7. Oh, and on AA ditching AS…

    The problem is it would be adding SEA/PDX/etc. feed would be expensive (especially since AA has things to do in NYC/LAX, oh and in 2014 WN gets to fly ANYWHERE in the US from DAL), and it would drive AS into DL’s arms (note that SEA is an international focus city for DL). Which is exactly what AA does NOT want to do here- try to enable an AS/DL merger. They are better off with AS codesharing with anyone with a pulse.

  8. DL has such a headstart on AA/US, look at DL evolve SEA into more FOCUS mini-hub w/ Alaska at that premium market to JFK & Europe grows. DL not AA/US would be in a position with its strong market cap to pay a premium to shareholders at Alaska. Both DL & AA/US have to sort out LAX, as PHX relates to it for AA/US, and SLC w/ SEA long term – premium O&D v. transfer hubs.

  9. I think this will be not so good news for the US consumer and the employees. Redundancy will certainly cause layoffs and if you look at Canada, where I live, we have Air Canada (which has governement backing and is considered too big to fail so in essence politically subsidised to survive) and some competition from private, employee owned Westjet. That is it. Look at what we pay for domestic flights and you will cringe. That is the result of little to no competition

  10. Seth,
    Do you think the merger will help those of us in BOI, who currently are without AA service? I like to use miles to go to HI but currently I have to use my AA miles to book on AS which is not ideal. If they keep the BOI-PHX-Hawaii route that would seem like a very good thing.

  11. while the holes in the route map remain, isn’t that what alliances are for? To fill in the holes in your route map with partner airlines?

    1. Yes, partners fill holes in the route maps. But there are so many such gaps in the map of the so-called largest carrier that it is hard to see where the real value is for the customer. There are enough differences in policies when on partners – even ATI/JV partners – that it is confusing for passengers. That’s not a good thing.

  12. I could see AA starting up LAX-GEG/BOI/SEA/PDX on RJs (DL has started most of those routes, and AS no longer flies LAX-GEG/BOI). That’s basically all they need to do.

    I’ll point out, though, that AS tried a lot of LAX routes to places like RDM, with planes that are pretty fuel efficient (Q400s via AS), and dropped the service, and they haven’t flown LAX-GEG/BOI for some time. I find it hard to believe that RJs with F are going to be very profitable on a lot of the smaller West Coast markets like EUG, RDM, STS, MRY and so on.

  13. My bad, AS no longer flies LAX-GEG. They do fly 1x LAX-BOI. Still suspect AA would start another frequency or two to BOI and AS wouldn’t mind so much.

  14. I hope AA/MQ does start, actually restart, a BOI-LAX route. Would make us Hawaii lovers happy. But they need a plane with a FC section. 🙂

    1. I think the odds of something like BOI-LAX showing up are tied directly to whether AA chooses to drop AS and really build out their own west coast operations. I think that they probably can and should but I also don’t have the numbers nor any real life experience running an airline so my views might be slightly skewed.

Comments are closed.

BoardingArea