American-US Airways Merger Reportedly a Done Deal. Good or Bad?

The Dallas Morning News aviation blog sums up the deal, pretty much as expected:

[I]t looks like this is the way it’ll go down:

– 72 percent for AMR creditors and other interests, 28 percent for US Airways shareholders.

– Doug Parker will be the chief executive officer.

– Tom Horton will be the non-executive chairman, for only a limited period before he departs post-merger.

– The plan is to announce the deal in the pre-dawn hours Thursday, followed by a 7:30 a.m. CST call with the analyst community, a Dallas/Fort Worth International Airport press conference in mid-morning, a 1 p.m. Dallas/Fort Worth Airport presentation to AA employees, with the video and audio broadcast to other locations.

– After that Parker and his entourage will return to Phoenix to meet with US Airways employees.

The thing sure took long enough. I was skeptical at first because I didn’t think it made business sense (that US Airways would have to overpay to get it done, and that the projected synergies wouldn’t actually materialize). But I predicted in July that it would happen anyway.

Any deal will take perhaps 6 months to close. The airline will be called American, be a member of the oneworld alliance, and be headquartered in Texas.

What this means for the frequent flyer program

Once the merger happens they’ll get to work letting us move miles back and forth between US Airways and American frequent flyer accounts. US Airways and America West did that, Delta and Northwest did that, and United and Continental did that.

They’ll begin to honor reciprocal elite status as well, eventually including upgrades, the challenges here are mostly technology.

We’ll get four elite tiers, lifetime status will survive (folks will either get the 25,000 or 50,000 mile tier — which will be worth less since both are farther from the top under a four-tier system).

And most of the better award values under each program will ultimately be diluted a bit, we’ve already seen the end of the 55,000 mile business class award to Europe during off season from US Airways.

Frequent flyers will benefit in the short-term though from a honeymoon period where the airlines don’t want to anger each other’s loyal customers by taking away benefits or making award tickets more expensive. And frequent flyers will also find it easier to maintain their elite status — with more flights to more places.

Here are the rest of my predictions for the combined frequent flyer program.

And here’s my discussion of whether you should get the signup bonus for the US Airways credit card now, before it’s too late.

What it means for travel on the airlines

It’s a huge challenge to combine airlines, especially corporate culture and IT. United and Continental made a mess of it in 2012, leaving huge numbers of passengers delayed or stranded and with very long telephone hold times to get help. Hopefully American and US Airways will learn from those mistakes.

Over time elite flyers at American will worry about the tendency of US Airways to offer fewer first class seats on their planes and not to offer meals even on 3 hour long flights.

Fares probably won’t be affected, at least in most markets. American and US Airways don’t compete on very many non-stop routes at all. Connecting routes will still mean competition from Delta, United, Southwest and others domestically, and a slew of international carriers for travel abroad.

In the DC market, though, I’d expect they’ll have to divest themselves of slots at Reagan National since US Airways is already the major presence there and American has a strong operation as well (US Airways had to give up some slots when they did a deal with Delta to trade rights at LaGuardia for more rights at National).

Integrating two major airlines is never easy. United went through real pains with the technology in 2012, and this meant delayed and cancelled flights and stranded passengers. The US Airways and America West combination was a total meltdown the day they combined computer reservation systems as well (online and mobile checkin didn’t work, long airport lines, delays).

Combining cultures is tough, American has a real service culture that’s friendly while US Airways employees have been through two bankruptcies and changes in control. It will be a real challenge for that culture not to undermine the service that American has become more known for.

So What Do You Think Now That it Seems Real?

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. One unmentioned change: Which computer system? AA has Sabre. US has Shares. As we know, UA transferred to shares and its been a disaster.

  2. Airfares definitely will go up considerably, even though both airlines do not compete on many routes. Synergies will result in significant capacity constraints or “right sizing” as the airlines call it.

    The AAdvantage program will be diluted considerably. If it weren’t for AA’s paltry route network [especially internationally] and OW, I would be with AA.

    Only time will tell, but those two things are a sure bet.

  3. I doubt the DOJ will approve the merger. There have been so many airline mergers. The industry is getting more and more consolidated every day. There’s no way that airfare prices aren’t go to rise.

    In 2007, there were over 10 major US airlines. No airline had more than 15% of the market share. After the AA-US merger, there will be only 6 major airlines, with 4 of those 6 having over 15% market share. The 4 biggest airlines will hold about 75% of the total US market share.

  4. I suspect the AA program will crash and burn under Parker
    US Air and Delta Sky Pesos are the worst in the nation
    I expect Americans program sadly over time to mirror the same 🙁 translation: fees to redeem awards
    higher redemption costs less award availabilty higher fares welcome

  5. AA and US are my biggest balances. I’m looking forward to moving my USDM to AAdvantage. Booking award tickets online is so much easier than over the phone. I’m keeping my fingers crossed hoping that the value of those miles won’t plummet.

  6. @golfingboy One thing I dont agree with is the comment about rising fares. Airlines have found that demand is greatly impacted with higher fares. The airles need leisure travelers in order to fill seats. If you make fares too high, you lose them. In the business community you can also have demand drop if fares are too high. There is plenty of competition already in the airline business. On every merger people make claims about higher fares. I am an AA lifetime plat for what that is worth. I have plenty of Delta miles which I am spending this year. From the various milepoint get togethers I was under the impression that US Airways was a pretty decent program especially for overseas flights?

  7. @Gary — Based on what happened in past mergers, how long before we can expect to get a roadmap for the AAdvantage and Dividend Miles programs going forward?

  8. Just got news alert that its will be announced tomorrow and that the boards approved. Sometimes the news alerts are late so i’m not sure if its any difference from what you posted

  9. @robertw, it is inevitable. A few years ago $199 transcon fares [or $99 one way] were pretty common, now anything below $300 is a decent deal. Take United for an example, if you look at many of the Saturday flights, a lot of routes downgauged to A319s/A320s or regional jets.

    Since 2008/9 we have seen 3 mergers [DL/NW, WN/FL, and UA/CO]… This will be the fourth one so the domestic airfare trend:

    2008- $346
    2009- $310 [mostly attributed to the financial crisis]
    2010- $336
    2011- $364
    2012- $375 [thru 3Q]

    This merger will only help accelerate that trend. Keep in mind, yes they do need leisure travelers, but they will “gut” the ultra cheap ones. There are plenty leisure travelers that will pay whatever is the cheapest at that time even if it is $500+. Simple economics supply and demand, as the supply [# of ASM] shrinks, the price point goes up. Airlines would rather have 80% load factor with the average fare paid being $600 than 98% with the average being $350.

    Source: http://apps.bts.gov/programs/economics_and_finance/air_travel_price_index/html/annual.html

  10. Any idea how long we will still be able to use our dividend miles on star alliance? Or will it be more adventageous to save them for one world?

  11. @redcat255 let’s say roughly 6 months but could be longer before the airlines actually close the merger transaction. They have to get bankruptcy court approval… DOT and DOJ approval… EU approval… My best guess is the airlines themselves combine in March 2014. But they may not hit that. I’d say we start to get word of what some things will look like around September/October

  12. Going to wait and see. They can say that everything will work out just fine but things can always go wrong. UA/CO merger still has unresolved issues, not sure how DL/NW merger went but at least eventually things got sorted out there.

    Just curious how the fleet integration will work out since AA just got their 777s and the two carriers operate mostly different aircraft (737/A320). And the ones that they do have in common are the old 757s/767s I believe. Out with the MD 80s i guess?

  13. @TST – I disagree, hard to imagine that the government WON’T approve this though as I’ve written I expect they may have to give up some slots at Washington National airport.

  14. @Robertw, my response regarding airfares is under moderation as I posted a link in my post.

    As for US Airways’ DividendMiles program for overseas flights, it is decent for two reasons:

    1. Some gems where the mileage amount is generous [i.e. USA-North Asia in Business class for 90K or in First for 120K and their saver USA-EU awards in biz for only 60K in the low season, but they just took that away. US to South America is still there.]

    2. Star Alliance. Plenty of partners and options. It is a bit of a challenge to redeem miles on US Metal itself. Award space is there, but mostly close-in. However, thanks to Star Alliance it made redemption options with US more plentiful. I enjoy this flexibility as well when redeeming my United Miles.

    That is my observation. For #2, I expect they will adopt AA’s distance based award chart if they don’t go for a $$$ based model.

  15. I agree with the four-tier system, (although I don’t like it), since it aligns with domestic-based competitiors, but wonder how you think it will line up with OW? Ruby at 50K instead of 25? Two AA tiers at one OW level? Emerald at 75K instead of 100?

  16. “We’ll get four elite tiers, lifetime status will survive (folks will either get the 25,000 or 50,000 mile tier — which will be worth less since both are farther from the top under a four-tier system).”

    Why would the addition of a 75K tier be a negative for an AA lifetime GLD? Those folks are currently PLT and already ahead of me on upgrade and standby lists.

  17. Being based in Phoenix, appears that this might actually work for me, although I don’t really like the idea of switching alliances.

  18. @FlyingBear I wouldn’t be surprised to see Phoenix lose some service given American’s strength at LAX, and that East Coast connections headed West tend to route through DFW.

  19. @golfingboy- FLL to LGA?JFK has been a competitive route for many yrs. $200 roundtrip has always been a low fare for that route, in that range. MIA/FLL to LAX can be had for 300-350.00. To me that is a pretty good fare. International fares seem to have less pricing pressures. Many leisure flyers are true penny pinchers. When American raised MIA to LAS (AA was non stop)to outrageous levels, I found lower fares on Delta and US Airways. Now AA lowered those MIA-LAS fares. And from South Fla there are not many non stops to Vegas. There has always been strong demand as well on the route. I know the theories about load factors and such. Airlines know they can always fill seats when the pricing is right. On the smaller airports and routes with less traffic, that is where you find some of the highest fares.

  20. Many years ago I had to go to Charlotte for a meeting. US Airways wanted $500.00. I said screw that I wont pay that rate. FLL to Charlotte- Pittsburgh was much less. I got a cheap ticket to Atlanta. Got a cheap rental car, and drove. I watch the pennies for my business.

  21. @Golfingboy :

    Distance-based charts usually suck, esp for the really long hauls (the ones where people actually want F and J).

    Dollar-based redemptions suck even more, since the program becomes a straight up cash rebate, and you can pretty much forget about aspirational awards. Those work for LCCs with only Y, but for a full service carrier, the last thing I want is a B6/WN model.

  22. My feeling on this is to just choose and International airline FF program to join and become elite with them. Currently I am *A gold thru Turkish Airlines, OW Ruby thru Cathay Pacific and also Silver status with Virgin Atlantic which has not alliance affiliation (not yet at least until their merger with Delta is finalized and approved).

    I have given up on all elite status with USA based airlines and giving my mileage accrual and status with International airlines.

  23. What do you think will happen with the Amex Centurion elite status benefit with US Airways — do you think Amex will continue the benefit with AA status or will it vanish? I’d be inclined to think the latter since Citi is pretty deep under the covers with AA. On the other hand, there’s no way Amex can afford to lose another elite status for Centurion, so I wonder what else they could/would come up with?

  24. @Farhad when US Airways was acquired by America West, the deal was funded by changing co-brand credit card issuers. The deal with Juniper Bank (Barclays) required US Airways to no longer be an Amex transfer partner. And yet both American and US Airways do lounge access with Amex, and as you say there’s US Airways status to Centurion. No inherent reason that would have to end but it’s a risk and we don’t know yet.

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