US Airways (LCC) and American Airlines (AAMRQ) have announced they are merging forces to become the world’s largest airline operator.
The new entity will retain the American name; be based in Dallas-Fort Worth, Texas; boast a workforce of nearly 100,000 and have a repertoire of 1,000 jets in its fleet. The deal, which has been in the works for at least a year, values the new airline at $11 billion.
US Airways CEO Doug Parker will run the combined company as chief executive and AMR CEO Tom Horton will become nonexecutive board chairman until 2014. If the Justice Department and American’s bankruptcy judge in New York sign off on the merger, the new carrier would be 2% bigger in terms of air traffic (as measured by the number of miles flown by paying passengers worldwide) versus the current No. 1 carrier United Continental Holdings (UAL), Reuters reports.
The merger is expected to be completed in the third-quarter of this year.
Consolidation in the airline industry over the last decade has shrunk the pool of major U.S. carriers to just four – Delta (DAL), United Continental, Southwest Airlines (LUV) and now the new American entity. According to Barbara Peterson, senior correspondent for aviation at Conde Nast Traveler, previous airline mergers have resulted in outsourced customer service, capacity cuts and more crowded planes as well as sharp service cuts in some airports and smaller communities. Even though mergers are usually regarded as bad news for fliers, Peterson doubts that the US Airways/American deal will be blocked by federal regulators.
“Ten years ago, eight or nine major airlines, plus a host of smaller regional and upstart lines, offered consumers a serious choice," Peterson writes on the Conde Nast Traveler site. “Now, four huge airlines would control roughly 85% of the domestic airline traffic in the U.S., giving them a huge say in where we fly and what we pay. While U.S. antitrust regulators should look at this closely, no one expects it’ll get turned down outright after so many other airline deals have gone through.”
Whether or not airline mergers ultimately increase the price of plane tickets and fees has been a hotly debated topic. According to TravelNerd, a Web site that helps consumers make decisions about travel planning and booking, worldwide airline fee revenue in 2012 totaled $36.1 billion, an 11% jump over 2011. The major U.S. airline carriers have attempted to hike domestic airfare 15 times in 2012.
Yahoo! Finance’s Jeff Macke argues in the accompanying video that prices are unlikely to rise even though there’s less and less competition in the airline industry.
“Ticket prices don’t go higher because there are only four carriers,” Macke tells The Daily Ticker’s Henry Blodget. “Price gouging is not going to happen.”
Consumers should be more concerned about the reduction in flights to and from smaller airline hubs across the country, Macke notes.
US Airways CEO Doug Parker said on a conference call with analysts that the combined carrier will service more U.S. cities and will offer 6,700 daily flights to 336 destinations in 56 countries. Existing American and US Airways hubs will remain open and both airlines will continue to operate independently until the deal is completed. Current loyalty programs for each carrier will be maintained and existing miles. Moreover, American customers can still earn AAdvantage miles with participating companies.
The new entity will have the world’s largest loyalty program and the youngest and most fuel-efficient fleet among its U.S. airline peers within five years, according to the US Airways Web site.
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