CLEARING THE AIR ON THE MERGER
By Joe Brancatelli
November 13, 2013 --What does the U.S. Department of Justice's decision to allow the merger of US Airways and American Airlines really mean? What do the carve-outs and concessions portend? Here are seven points to think about while you wait to board your next flight.
Win-Win and Washington
Since the settlement with the Justice Department allows the merger of US Air and American, you must conclude that the carriers won the day. But the Justice Department can claim it won, too, especially if you assume its purpose all along was to force the merged carrier to have a smaller footprint at Washington/National Airport. US Airways already had 54 percent of the take-off and landing positions at National and the carrier's chief executive, Doug Parker, once agreed to cap its presence there. The Justice Department settlement essentially forces all of American Airlines' slots at National to be sold off to smaller competitors such as JetBlue Airways and Southwest Airlines. That'll mean dozens of new, competitive flights from National.
Wait 'til next year
If all goes according to airline plans, the two carriers will officially become one company before the end of the year. But passengers won't see any substantial day-to-day flying changes until well into the new year. So have a nice holiday and check back in January for travel practicalities.
Make hay while the Star shines
Even before US Airways and American Airlines can adopt a joint marketing identity, US Airways needs to exit the Star Alliance and join American in the Oneworld Alliance. If you've been collecting US Airways Dividend Miles credits to claim awards on its current charts, which include Star Alliance carriers such as Lufthansa and All Nippon Airways, cash out now. The moment US Airways exits the Star Alliance, those award opportunities (some of them quite reasonably priced by current standards) will be gone.
United, not United
It will probably be the first weekend of March, 2015 before the two airlines attempt to merge its passenger-service computers and begin to operate like a united carrier under a single brand name. One can only hope US Airways and American have learned the lessons of the debacle that occurred when United and Continental airlines merged systems in March, 2012. But since airlines rarely learn, make a note on your calendar. Don't schedule any flights on American or US Airways during March, 2015.
Doug Parker, media darling
Get ready for a cascade of coverage about Doug Parker, chief executive of US Airways who will take over as top man at the combined carrier. He'll justifiably be lauded as the brains behind the merger and media reports will track his impressive rise to the top of America West, his reverse merging it into the old US Air and his reverse merging US Air into American. What the stories probably won't mention: Parker took over a dysfunctional America West hobbled by the cost-cutting of William Franke, who became the money man behind Spirit Airlines and who's about to clinch a deal to buy Frontier Airlines. It didn't take much for Parker to make America West look better to passengers. And Parker's first years atop US Airways were incredibly rocky. The airline botched its merger of passenger computers in 2007 and it ran a despicable international operation for years. Even today Parker has never solved all the labor issues resulting from the 2005 combination of America West and US Airways. But victors get to write the history and the business media has rarely excelled at challenging the creation myths that companies craft for themselves.
Beware of getting what they wished for
Parker pulled off the American merger after fumble-fingered earlier efforts to combine with Delta and United because he assiduously wooed American's disaffected labor unions. Given Parker's limited success in dealing with US Airways unions, you have to wonder why American's work force sees him as a savior. But airline unions have always been awful at picking allies. In 1985, desperate unions at TWA turned to corporate raider Carl Icahn to save them from an assault by notorious union-buster Frank Lorenzo. Icahn stripped TWA of assets and eventually put the airline in bankruptcy. By the time Icahn was ousted in 1993, TWA was in far worse shape than when he took over. A failing TWA was merged into American Airlines a few years later. Meanwhile, unhappy unions at Eastern Airlines took Lorenzo as their savior in 1986. He upstreamed revenue to his private company and transferred key Eastern assets to other carriers he controlled. Eastern employees eventually went on strike in 1989 and Lorenzo retaliated by putting the carrier into bankruptcy. Lorenzo was replaced by a court-appointed trustee in 1990, but Eastern was dead by the end of 1991.
What will the new American become?
Nothing much has been said about what kind of carrier the "new American" will become under Parker and his US Airways management crew, who will largely displace American's C-suite executives. The combined airline will leapfrog United and become the world's largest carrier. But size isn't a strategy and Parker is best known for not competing and not investing in the US Airways product. Around 98 percent of US Airways' existing flights touch one of its hubs, shielding it from aggressive competition. Alone among U.S. carriers, US Airways doesn't have a premium-economy section. He's dragged his feet on the installation of in-flight WiFi. He slashed benefits for US Airways' elite frequent fliers and drove many to other carriers. And you'll find few business travelers who say they prefer flying US Airways over another airline.