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American, US Airways agree to merge

6:59 AM, Feb 14, 2013   |    comments
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American Airlines and US Airways said Thursday that they will join forces to become the largest carrier in the world, the last major merger in an industry that's shrunken with consolidation and is now dominated by a few super-sized players.

The boards for the airlines' parent companies, AMR and US Airways Group, voted on Wednesday in favor of the $11 billion deal that will create a single carrier -- the biggest in the world based on revenue and the number of passengers it carries.

The new airline will be called American Airlines and be headquartered in American's hometown of Dallas-Fort Worth while maintaining a significant corporate and operational presence in Phoenix, US Airways CEO Doug Parker will run the company. Tom Horton, CEO of American parent AMR, becomes chairman

Parker told US Airways' employees in a letter this morning that the combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries and was expected to maintain all hubs currently served by both airlines, while branching out to new cities.

American sought bankruptcy protection in Nov. 2011, and its creditors are to have a 72% majority stake in the newly merged airline, Those with shares in US Airways would own the remaining amount.

Parker said that the new airline will be expanding and upgrading its fleet of planes, while flying under American's iconic name,

The merger still must be approved by the bankruptcy court overseeing American's restructuring, and federal regulators will also weigh in, making sure that the latest mega-sized airline doesn't quash competition or service along certain routes.

But if the deal gets a green light, it would be the last significant merger in the U.S. airline industry.

Delta and Northwest joined forces in 2008, United and Continental linked up in 2010, and low-cost giant Southwest completed its purchase of AirTran in 2011. The four carriers together would have 87% of the U.S. Airline industry's seats under their control, according to Seth Kaplan, an analyst with Airline Weekly, an industry trade publication.

US Airways and American, together, would be a stronger match for Delta and United, with a network that would include east coast hubs in Charlotte and Philadelphia, a significant foothold at New York's JFK, and American's international service across the Atlantic and into Latin America.

US Airways' and American's non stop service overlapped on only a dozen routes as of January. And if their combination creates a stronger, single airline, it would be good for passengers and the industry, some analysts say.

"From a competitive perspective you'll have four very healthy airlines and you'll also have some niche carriers such as Alaska and JetBlue and . . . that's still a very healthy competitive environment,'' says John Thomas, head of the global aviation and travel practice at L.E.K. Consulting. "It still gives consumers a lot of choice and there'll still be a lot of competition in the market.''

Less competition may lead to higher fares in some markets, some industry observers say.

"For consumers, you have a smaller, less competitive industry with somewhat higher fares than you would have had the mergers not happened,'' Kaplan says.

But "on the other hand, you have airlines that can now invest in their product,'' like roomier seats in the premium cabins or better entertainment, Kaplan says. "For years U.S. airlines were just trying to get through the day. They didn't have money for those types of things.''

Details of the deal have yet to emerge, but US Airways CEO and Chairman Doug Parker has said that a newly combined airline would hold on to American's iconic name, and locate its headquarters in American's hometown of Fort Worth.

In the wake of a merger, a smaller hub, such as US Airways' foothold in Phoenix, may see some service migrate to a larger portal like Dallas, American's base. But as of January, US Airways and American had overlapping non-stop service on only a dozen routes. That means they likely won't have to pare many destinations.

Instead, passengers on the newly merged airline will be able to fly across a vastly expanded map that would likely include US Airways' East Coast hubs of Charlotte and Philadelphia and American's strong international presence across the Atlantic and in Latin America. The combined carrier will also likely stick with American's frequent-flier program, the industry's oldest and one of its most popular.

"In the short term, frequent fliers will benefit from more routes and more choices, and a management that will likely want to reassure them that the benefits they're used to won't change,'' says Gary Leff, co-founder of the frequent-flier community Milepoint.com and author of the ViewFromTheWing.com blog.

Charisse Jones, USA TODAY

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