US Airways seeks different landing
US Airways startled the airline industry in recent days with the announcement that it has agreements with three of American Airlines’ labor unions to support a proposed merger.
Management at AMR Corp., American’s parent company, wants no part of this merger. CEO Tom Horton has said his company intends to exit its ongoing bankruptcy as an independent, stand-alone entity.
AMR Corp. retains the exclusive right to file a reorganization plan through Sept. 28, so it has time to plot its future.
American, once the world’s largest carrier, now lags behind United, Delta and Southwest. American avoided bankruptcy during the recession, but wasn’t able to reduce its labor costs as its rivals did. That’s the No. 1 reason why it filed for Chapter 11 in November when, ironically, the market for air travel was improving.
American stunned its unions by outlining plans to shed up to 14,000 jobs. US Airways appealed directly to the workers, promising that its merger plan would save 6,200 of those jobs. The unions expect to lose jobs either way, but they are betting their members will get a better deal in a merger than in court.
US Airways needs a merger. It is undersized in a marketplace of giants, despite having combined with America West in 2005. Combining its operations with American, which has a robust global network, would be a coup for US Airways’ aggressive chief executive, Doug Parker. American is feeling the same pressures. But Horton has set out to reduce costs and revitalize the company’s aging fleet through the extraordinary powers available in bankruptcy. "These developments in no way alter our course," Horton wrote in a letter to employees after US Airways made its move.
Most travelers view airline mergers with skepticism. If competition is eroded and monopoly pricing allowed to flourish, the public will pay much higher fares and have fewer flight options. And no one with frequent-flyer miles wants to see program rules change to their disadvantage.
Airline consolidation has sped along for more than three decades now. As commercial aviation deregulated, bringing down costs for passengers, some of the most famous brand names disappeared: TWA, Eastern, Pan Am. In the not-too-distant future, the U.S. may be down to four major air carriers.
A deal here could work to the advantage of consumers. Keep in mind that on a stand-alone basis, American and especially US Airways lack the scale to excel. A combination would create a powerful competitor to United and Delta for domestic as well as international routes.
The new company would be better positioned to compete for emerging-market routes as well. Don’t count it out.