American and US Airways merge: Will fares go up?

Getty Images

Getty Images

FINALLY, American Airlines and US Airways have agreed to a marriage that will make it the world’s largest airline, surpassing United which hooked up with Continental, and Delta which merged with Northwest. The new airline will retain the American name but be headed by US Airways chief Doug Parker. The new airline will be headquartered in Dallas-Fort Worth

American which went into bankruptcy more than a year ago had initially resisted the merger while profitable US Airways was keen on the proposal, having been missed in the wave of mergers among compatriot carriers.

So what changes will the US$11bn merger bring?

The rationale for mergers must be more efficient operations, which can be translated into a tighter ship; hence some job redundancies are expected. It can also mean reduced capacity to some destinations, hence more crowded planes and fewer choices for the customer. American and US Airways will consolidate their operations in nine hubs: Dallas-Fort Worth, Miami, Chicago, Los Angeles, New York, Phoenix, Charlotte, Philadelphia and Washington.  The first five are American’s major hubs, and the other four US Airways’ dominant hubs.

Both airlines are expecting savings of more than $1bn a year. Mr Parker said: “The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace. Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go.”

An interesting development pursuant to the merger will be US Airways’ exit from Star Alliance since American is a partner of OneWorld. As the alliance partnership goes, the transition is not likely to cause any major upsets one way or the other. But with reduced competition, the one question on most customers’ lips is apt to be: Will the fares go up?

No doubt American and US Airways together will be in a stronger position to raise fares, but as a general trend across the industry, fares are expected to head north this year, supported by increased demand for seats in the expected, albeit slow, economic recovery and against a background of reduced capacity, and of course there is always a ready trigger if fuel prices continue to rise.

Initially, the merger may be more about American’s revival and the partnership’s competitive edge against the other big three: United/Continental, Delta/Northwest and Southwest which bought rival discount operator AirTrans Holdings in 2011. There is no more surprise left in the bag.

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About David Leo
David Leo has more than 30 years of aviation experience, having served in senior management in one of the world's best airlines and airports. He continues to maintain a keen interest in the business, writes freelance and provides consultancy services in the field.

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