Saturday, February 24, 2018
Business

Now the hard part: Merger of US Airways and American Airlines faces hurdles

DALLAS — US Airways CEO Doug Parker has landed the big merger he sought for years. Now the soon-to-be CEO of the new American Airlines has to make it work.

Planes need painting. Frequent flier programs have to be combined. And the new airline will still be weak in Asia and need to win back business travelers who have been drifting away to other airlines.

The two airlines announced an $11 billion merger Thursday that will turn American into the world's biggest airline, with about 6,700 daily flights and annual revenue of roughly $40 billion. It's a coup for Parker, who runs the much-smaller US Airways and has long pursued a deal like this one with the strong belief that airlines would have a better shot at consistent profits if they bulk up through mergers.

If the airlines retain their current presence after the merger, the combined airline would become Tampa International Airport's second-largest carrier after Southwest Airlines, said airport spokeswoman Janet Zink. It would have 38 flights a day out of TIA, accounting for about 18 percent of the daily flights.

The latest deal will mean that the four biggest U.S. airlines are all the product of mergers that began in 2008. Those deals bring benefits, but they also show that putting together two airlines smoothly is not easy.

Some of the work on the latest combination has already been done. Pilots from both airlines have agreed to the outlines of a deal that should make it much easier to get a final, joint contract. And Parker said he is inclined to use American's computer systems. He said past mergers have shown that it's easier to use the bigger airline's technology.

Noting those factors, JP­Morgan analyst Jamie Baker predicted a "relatively smooth" transition.

The combined carrier is going to be called American Airlines and be based in Fort Worth, Texas. The deal is expected to close by the end of September, as part of American's emergence from Chapter 11 protection.

Even after that, travelers on American and US Airways won't notice immediate changes. It likely will be months before the frequent flier programs are combined and years before the two airlines are fully integrated.

Parker sought a merger almost as soon as American parent AMR Corp. filed for bankruptcy protection in November 2011.

As Parker pushed ahead, creditors forced AMR's management to consider the value of a merger compared to a plan for an independent American. Eventually they concluded that the best return for stakeholders, and the best chance to compete with bigger rivals United Airlines and Delta Air Lines, came from a merger.

The deal also caps a turbulent decade of bankruptcies and consolidation for the U.S. airline industry.

Since 2008, Delta gobbled up Northwest, United absorbed Continental, and Southwest bought AirTran Airways. If this latest merger goes through, American, United, Delta and Southwest will control about 70 percent of U.S. airline traffic.

The rapid consolidation has allowed the surviving airlines to offer bigger route networks that appeal to high-paying business travelers. And it has allowed them to limit the supply of seats, which helps prop up fares and airline profits.

That concerns some consumer advocates, but Parker sought to assure travelers that the merger helps them too — by creating a bigger rival to United and Delta.

"There are two very large airlines right now, and this creates a third," Parker said. "It provides good competition to those two."

Most airline mergers have resulted in a reduction of flights and shrinkage at some hubs, but Parker said this deal will be different because US Airways and American overlap on just 12 routes.

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