Analysts: Change is only certainty in American Airlines merger, and many are pessimistic
BY Staff and Wire Reports
Sunday, March 03, 2013
3/04/13 at 10:57 AM
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As American Airlines and US Airways move toward their $11 billion merger, many business travelers are asking themselves the same question: What does this mean for me?
Change is the only certain answer, analysts say.
And change, according to these airline experts, is not good for business travelers who have grown accustomed to their regular airline routes, connecting hubs and frequent flier programs.
"What I can see is 900 pitfalls," said Joe Brancatelli, a business travel expert who writes a regular online column on the subject. "I don't see an upside."
The deal would create the world's largest airline, serving about 187 million passengers a year.
In announcing the merger, US Airways CEO Doug Parker said the new airline would probably maintain all of the hubs and destinations of the two carriers.
But Brancatelli is doubtful: "When an airline tells you they are keeping everything, that is a lie."
Although the two airlines have very few routes that overlap, Brancatelli said American and US Airways have several connecting hubs in the same region, some of which would have to be eliminated.
For example, he noted that US Airways operates a major hub in Phoenix, and American operates a connecting hub in Dallas. Brancatelli said he suspects the merged airline will cut flights to Phoenix, making Dallas the primary hub for the region.
"These guys didn't merge to make our lives better," he said. "They merged for their own purposes."
Still, executives from American and US Airways stress that the merger would primarily benefit frequent business travelers because, under the combined resources of the new carrier, they would be able to choose from 6,700 daily flights to 336 destinations in 56 countries.
Travelers who have acquired frequent flier miles with either airline can carry them over and redeem them on the new, larger carrier, they promise.
"There are only upsides," said Thomas Horton, CEO for AMR Corp., the parent company of American Airlines.
American Airlines' loyalty rewards program, AAdvantage, is the nation's largest and has been ranked by several publications and analysts as one of the best.
AAdvantage is a three-tier system that rewards travelers for accumulating miles with such perks as seat upgrades, free checked bags and early boarding. Each tier represents a higher status level, such as AAdvantage Gold, AAdvantage Platinum and AAdvantage Executive Platinum.
Most other airline loyalty programs, including US Airways' Dividend Miles program, have four tiers and require passengers to accumulate more miles to reach elite status, according to travel experts.
But how American Airlines' AAdvantage and US Airways' Dividend Miles programs will be merged has not been decided.
"At some point we will have to look at that," said John McDonald, a spokesman for US Airways. "What I can say is that we are going to do what is right."
Alicia Jao, vice president of Travelnerd, a website that analyzes travel deals, said she suspects the rewards program for the newly merged airline would shift to a four-tier system to match the rewards programs at other airlines.
The change may upset American's frequent fliers, she said, but they would probably understand that change was inevitable.
U.S. Bankruptcy Judge Sean Lane will hear AMR Corp.'s motion to merge American and US Airways on March 27. AMR will argue before Lane that it is in the best interest of the company and creditors tied to more than $30 billion for the court to approve the combination.
The court is giving parties opposed to the $11 billion merger until March 15 to object.
The companies also need approval from US Airways shareholders as well as federal regulators, including the antitrust arm of the U.S. Department of Justice.
AMR and US Airways executives expect the merger to be finished by the third quarter, but it could take 18 months to fully combine the two airlines as they seek permission from the Federal Aviation Administration for one operating certificate.
The merged American Airlines and US Airways would employ nearly 120,000 people. American currently has about 6,200 in Tulsa, where it operates its largest maintenance base.
The American-US Airways combination would add to the industry consolidation that also has included Delta with Northwest, United with Continental and Southwest Airlines Co. with AirTran. Further consolidation is likely to raise airfares, analysts said.
The price of a domestic round-trip flight has climbed more than 11 percent since 2009, when adjusted for inflation, according to the Bureau of Transportation Statistics.
Original Print Headline: Change is the only certainty in merger
The Tulsa World Business staff contributed to this story by The Los Angeles Times, The Associated Press and Bloomberg News.
US Airways and American Airlines planes are shown at gates at DFW International Airport in Grapevine, Texas. Change is certain for travelers as the two airlines merge. Associated Press file