Friday, August 31, 2012

US Airways/American Airlines Merger: A bad idea that probably has to happen

American Airlines, US Airways merger talks start. Scott Mayerowitz, AP via

American Airlines and US Airways are one step closer to a potential merger.
The companies said Friday they signed legal documents allowing them to confidentially exchange information. But a deal is still far from reality.
"It does not mean we are merging — it simply means we have agreed to work together to discuss and analyze a potential merger," US Airways CEO Doug Parker said in a letter to employees Friday.

A merger will fold together two airlines that already have a lot of duplicate operations and, presumeably, place US Airways management in charge of the new company.  There doesn't seem to be many strategic reasons for following through with this merger other than the fact US Airways CEO Doug Parker wants, desperately, to be in charge of a big airline.

I've a feeling that's all it's going to take.  Given the size of competitors Delta and United economies of scale suggest that, if there is no merger, or if one player is left out, they're doomed long term.  This will leave three giant airlines and a bevvy of small, low-cost, poviders battling it out of the consumer dollar.  It will also signal a retrenchment in the North American airline industry.  The big three will dominate their hubs with reduced competition which will result in higher consumer prices.  Ironically, although it will anger the consumer, this will be healthier for the remaining players in the long run.  Higher prices = increased profitability.  In order to find low fares passengers will be faced with ticketing at fee-based airlines such as Spirit and Allegiant, with Southwest remaining the outlier. (advertised as low-cost -but not really- with (for now) fewer fees).

While there's still chatter out there, from industry analysts and bloggers that this merger is unlikely to occur, I firmly believe that it will.  I also believe that Federal anti-trust approval is almost a given.  Were there any concerns on those fronts they would have arisen in the United-Continental tie.

A "new" American Airlines is coming, whether or not it's an "improved" AA remains to be seen.  I'm doubtful on the latter.

1 comment:

  1. i know it likely has to happen for them to survive long term.

    but i don't have to like it happening.


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