This past week, the three major unions at American Airlines agreed to support a merger with US Airways Group, the parent company of US Airways. This does not, of course, mean that a merger is definite, but it’s an important step on the way to combining the two airlines.
It’s a remarkable twist in the history of the United States airline industry since deregulation, and most likely means that only a single major airline will remain from the days before the 1978 deregulation.
Oh, sure, there are a handful of familiar names painted on the sides of aircraft. But United was recently bought by Continental, who kept the more-familiar United name. And Continental itself was bought by Texas International, a small regional player, in 1978. In terms of corporate heritage, then, United is merely a renaming of Texas International. Similarly, US Airways (formerly known as USAir, and even earlier as Allegheny) was bought by America West Airlines in 2005; America West was a child of deregulation, starting service in 1983. Only Delta and American of the old guard airlines have “pure” lineage.
The route structures of the two mesh fairly well, since American’s strengths lie in the east-west markets centered around the Chicago O’Hare and Dallas/Fort Worth hubs, plus Central and South American markets from Miami; while US Airways is concentrated in the west at Phoenix, and in the east at Philadelphia, Charlotte, and Washington National. American also has a strong trans-Atlantic route network, which is one of the few somewhat profitable areas of the old airline market. A merger would give the American name more strength in the southwest (though would still be weak in the northwest), plus a better north-south route structure in the east.
But the two airlines have (for now) completely incompatible fleets. US Airways is dominated by Airbus narrowbody aircraft, while American has no Airbus aircraft in the fleet. Rather, American is predominantly an aging fleet of McDonnell-Douglas MD-80s and Boeing 757s, plus a newer fleet of Boeing 737s. American has, however, already ordered 260 Airbus narrowbody aircraft to replace many of the MD-80s and 757s, so the corporate fleet directions are already convergent.
American built and maintained its long dominance in the industry by excruciating attention to revenue margins. This manifested itself in exceptionally sophisticated market segmentation software (SAABRE), a huge loyalty program (AAdvantage), and predatory market practices. With those tools, American managed to weather several recessions, each of which vanquished one or more competitors. This last one, however, led to a Chapter 11 reorganization, American’s first. With that filing, there are no longer any legacy carriers that have not filed for bankruptcy.
This history differs tremendously from US Airways’s history. America West was built on a model of starting from scratch, building entirely new business models with little regard for the industry’s past. In its early days, the airline focused on cross-utilization, having every employee be trained in multiple roles, so as to be more flexible in allocation and create greater harmony by ensuring that every employee has walked a mile in the moccasins of the people with whom they had to interact. The goal was to reduce the “not my department” attitude that dominated at the legacy airlines. At the same time, employees were paid far lower salaries, but compensated with equity in the company. Despite these innovations, America West consistently lost money, and filed for bankruptcy in 1991, rendering all of the employees’ stock worthless. When America West finally emerged from bankruptcy in 1994, it had become an entirely different airline — lean and mean, which enabled it to be the first airline to survive a head-to-head competition with Southwest Airlines. In the merger with US Airways, the America West business model survived.
Thus, the greatest differences between the two airlines lie in the corporate culture. American is the classic old-guard, depending on higher revenues per available seat-mile, while US Airways is much more focused on the cost side of the ledger. American’s employees will have a very hard time adapting, and so will American’s customers, who have become accustomed to a higher grade of service than the one provided by US Airways. It’s unlikely that this merger, if it happens at all, will go smoothly for anyone.
And what about the domestic airline industry? On a national scale, we’ll be down to United, Delta, and American as the only nationwide classic airlines. In the past ten years, we’ve lost half of the remaining classic names: TWA, Northwest, and Continental. A similar cut over the next decade would leave us with two, or maybe just one.
Don’t get me wrong. I’m not worried that we will have a single airline. We’ll still have plenty of competition. Domestically, we’ll get to choose Southwest, or Alaska, or JetBlue, or Frontier, or Virgin America. Internationally, we’ll be able to choose Air France, or Singapore Airlines, or JAL, or SAS. But it’s sad to see the behemoths of yesteryear fade away.
- US Airways, American Airlines move toward merger (rawstory.com)
- Rumors flying of US Air, American Airlines merger (cbsnews.com)
- Unions OK deal for US Airways-American merger (travel.usatoday.com)
- What Would a US Air Merger Mean for AZ? (myfoxphoenix.com)
- US Airways CEO oversaw rescue, merger of airlines (star-telegram.com)
- Takeover bid for American Airlines is more likely (star-telegram.com)
- Deal With AA Unions Could Open Door To US Air Merger (dfw.cbslocal.com)
- Why so glum? Airline merger could be good news for North Texas (star-telegram.com)
- Behind the Worker Revolt at American Airlines (businessweek.com)
- What Would Post-Merger American Airlines Look Like? (dfw.cbslocal.com)
- US Airways makes deals with 3 American Airlines unions (wcnc.com)
- American merger could mean higher fares, analysts warn (travel.usatoday.com)
- AMR unions ink deal with US Airways (ifenews.wordpress.com)