Charisse Jones, USA Today
A new, supersize airline may be on the horizon, with the potential to revitalize two iconic brands while creating an "East Coast fortress" for American and US Airways passengers.
The two airlines have been discussing a potential merger for weeks, and reports in The Wall Street Journal, Dallas Morning News and other media outlets indicate that the deal could be completed as soon as next week. A person familiar with the talks but not authorized to discuss them publicly told USA TODAY that a decision on a merger has not been made.
Yet if the deal is finalized - and many observers suspect that it will be - the newly merged carrier would edge out United to become the biggest carrier in the world by revenue, have an initial combined workforce of more than 113,000, and a loyalty program membership of at least 69 million fliers across the globe who would likely take a particular interest in how such a union plays out.
What such a marriage would mean for those consumers is less clear.
In an age when air travel has become a daunting escapade rather than an exciting escape, industry experts say that a merger could give the combined airlines a fresh start and the chance to create a better travel experience.
"Neither company has an industry-renowned service culture," says Henry Harteveldt, travel industry analyst for Hudson Crossing, a travel and hospitality industry consulting firm. "This is a wonderful opportunity for the leadership of American Airlines to say, 'We've got a green field. How do we serve people efficiently, professionally (and) courteously?' "
A US Airways spokeswoman, Liz Landau, says a non-disclosure agreement the airline entered with American to discuss a potential deal prevents it from commenting. Sean Collins, a spokesman for American Airlines, also declined to make a statement. The confidentiality agreement expires on Feb. 15, thus feeding speculation that a decision could arrive within the week.
A marriage has appeared to some industry observers to be all but inevitable - and necessary - for both carriers. American filed for bankruptcy protection in November 2011 and is looking to strengthen its brand to compete with the other behemoths. Likewise, smaller US Airways stands to gain from the partnership.
While American lost roughly $10 billion over a decade, US Airways has been more consistently profitable, hitting a record last year with a net profit of $537 million, not counting special items.
The deal is so appealing to American's employees that their unions have already forged tentative agreements with US Airways should a tie-up occur.
"The sooner they can get started the better," says Vicki Bryan, senior high-yield analyst at Gimme Credit, an independent research service on corporate bonds. "We need to look toward preserving and growing a world-class-caliber airline."
Price hikes in the wings?
The strength of a merger - in addition to the usual cost savings and other efficiencies - might be in the relatively light overlapping of routes. American and US Airways overlapped on only a dozen non-stop routes as of January, and hardly at all on routes linking the nation's busiest markets, such as New York's LaGuardia and Chicago's O'Hare.
But fares have been on the rise over the past two years, and some price-watchers say that yet another merger would give airlines even more leverage to bump up the price of tickets, particularly on routes where the newly joined carriers once competed.
"It does remove a future competitor from the mix ... which will ultimately drive prices up," says Rick Seaney of price-tracking site FareCompare.com, noting that a combined carrier would likely lead to a paring of seats and flights. "Bottom line is, prices will go up long range and capacity will be cut if it follows the lead of other megamergers."
An analysis of the industry shows otherwise. A report, released in December by professional services firm PwC US, found that while the average domestic ticket price increased slightly each year from 2004 through 2011 - a period when four major airline mergers occurred - consolidation did not cause a significant increase in fares across the board or dramatically winnow passengers' choices for flights.
A marriage of US Airways and American would be the U.S. airline industry's fourth megamerger in five years. Delta and Northwest linked up in 2008, United and Continental merged in 2010, and low-cost giant Southwest completed its purchase of AirTran in 2011.
Doug Parker, US Airways' chairman and CEO, said at the National Press Club in July that a merger shouldn't affect ticket prices because United, Delta and Southwest would remain competitors. Parker also said that there wouldn't be a need for a newly combined airline to cut service because their networks didn't mirror each other. US Airways has been focused on the East Coast, and American has a stronger presence in the Midwest and on international routes.
"Our networks are extremely complementary," Parker said at the time. "There's very little overlap and thus no need to scale back the service that either airline currently offers."
Instead, a merger would mean American and US Airways passengers would gain easier access to a larger network of destinations, particularly along the Eastern Seaboard, and in Europe and Latin America. American would be able to strengthen its footprint in New York while benefiting from US Airways strongholds in Charlotte and Philadelphia.
"That's quite an East Coast fortress for a combined American/US Airways," says Harteveldt, the travel analyst.
For instance, a flier on American who starts out in Buffalo would be able to get to Philadelphia, Washington or Charlotte directly, rather than having to fly through Chicago as passengers do now, Parker said in his presentation last summer.
Frequent fliers, don't fret
George Hobica of Airfarewatchdog.com says that fewer airline options for passengers give carriers the leeway to not only raise ticket prices, but to tack on additional fees and make other changes that fliers will have less power to challenge.
"There are fewer places to go," Hobica says. "There's less consumer choice, not just in airfares but in the whole fee structure."
After American parent company AMR filed for bankruptcy protection in 2011, Chairman and CEO Tom Horton said repeatedly that he wanted the company to continue to go it alone, emerging from the restructuring as an independent airline. Just last month, the carrier revealed a new logo and look for its fleet. It was the airline's first external redo in more than 40 years.
But American Airlines officials appeared to gradually become more open to the possibility of joining with another carrier, finally entering into the non-disclosure agreement to discuss a potential deal.
If a merger should occur, Parker has said that the company's headquarters would be in Fort Worth, American's current base, and the combined company's fleet would bear American's storied name.
"We are well aware of the fact that of the two airlines, the stronger brand is the American brand," Parker said last summer.
As with other high-profile mergers, frequent fliers shouldn't worry that their miles earned on one carrier would disappear if it merges with another. A newly merged airline would be loath to lose the most loyal customers. Accounts would be combined, likely under American's AAdvantage program.
Ultimately, says Hobica, US Airways and American would be stronger together than they are apart, and that could be good for passengers and the industry.
"When the airlines are stronger, they'll be able to provide better service," he says. "We could've lost some of these airlines anyway if they continued to bleed cash. What's better? They file (bankruptcy) or they merge?"
Contributing: Bart Jansen, Ben Mutzabaugh and the Associated Press