Lots of folks are going to be complaining about this merger — consumer activities who will say that fares are going to go up, frequent flyers worried about losing their benefits. Most of the scare stories won’t come true.

Fares probably won’t materially change as a result of the merger although once the merged airline shrinks relative to the size the two airlines would have been on their own the reduction in supply may have an effect on price.

But it’s important to realize that mergers are both good and bad, and which arguments you find persuasive probably depend on who you are and how you will interact with the changes.

American frequent flyers.

  • Nervous because US Airways has fewer first class seats on their narrowbody aircraft and doesn’t provide meals on 3 hour flights.
  • Worried because US Airways has done a lot of study of revenue-based programs.
  • Worried because US Airways customer service agents just don’t seem all that professional or happy, at least in the Northeast.

US Airways frequent flyers.

  • Hopeful they get those gorgeous 8 ‘eVIP’ systemwide upgrades that American Executive Platinums get (while American’s 100,00 mile flyers worry about losing them).
  • Salivating over actual food on airplanes (bags of chips don’t count). Those US Airways elites are HUNGRY!
  • Sad that they’re going to lose 90,000 mile awards for business class to Hong Kong but they were going to lose that anyway with the coming devaluation. (If anything a merger puts off some of the bigger devaluations they would have seen, for awhile anyway.)

Travelers writ large. Are going to have to suffer through another IT disaster from combining the two carriers. Even Delta-Northwest wasn’t pretty, although it was the best of the recent big mergers. America West-US Airways was really rough. But United-Continental, most recent in our minds, was an absolute meltdown. There won’t be fewer delays because of the merger. Telephone hold times won’t be shorter. And there’s a real risk that those metrics could get much worse when they actually try to combine the airlines.

American’s creditors. Pretty sweet deal with 72% of the company.

US Airways shareholders. Getting kind of hosed. Parker overpaid because he wanted to be king and rule the biggest airline. American has value but probably not at the price, and many will wish they had just grown organically rather than merging and bringing with the deal much higher labor costs for the whole operation (including the legacy US Airways operation).

Doug Parker. Homeboy gets to run the biggest airline. Feels like the king of the world. He’s superman, as-described by Jason Lee in a Kevin Smith film.

Horton. Gets a Who. Or a golden payout. Deserves to be remembered for the good job he did in restructuring, and in negotiating a great deal for his creditors. But in the end probably won’t be remembered at all.

Long-term viability of the assets. Phoenix will shrink. Charlotte is at risk. Those US Airways hubs weren’t so great after all. Costs will rise, all of the pilots will be making more money but fare probably won’t rise enough to cover it. The costs to combine the airlines will be greater than anticipated, the savings less than anticipated.

In the end, “we” will all survive. But some of us will be better off than others as a result of the merger, and in some cases we just have fear of the unknown with fairly educated speculation giving us an idea of whether we’ll likely be better or worse off. Our view of the merger, though, really does depend on what hat we wear in all of this.

  1. Jorge said,

    Do you recommend burning US airways miles asap or wait for those to be merged with AA?

    I am interested in the famous 90K R/T to Hong Kong via EU but in November.

  2. Gary said,

    @Jorge if you want the 90k business class award to Hong Kong via Europe you should book that sooner rather than alter

  3. Jorge said,

    Thanks Gary, one more question that can assist other readers:
    Since the Star Alliance is expected to be out of the picture soon, does this affect the award value? I assume cancellations/changes will not be allowed…not sure if you could lose the miles in case you get sick or job/family issues etc

  4. josh said,

    i disagree with charlotte being at risk, it is the cheapest airport cost wise to expand, and has tons of room to grow and is growing now at an exponential rate, atlanta is overburdened and charlotte will easily grow not shrink with this merger, it is quickly becoming one of the largest and busiest airports in the country. just my opinion.

  5. Harnold said,

    I used the 90k for LAX-TPE twice. The agents were “smart” enough to stop me routing the trips via Europe. I was told only trans-pacific flights were allowed. Apparently the agents knew that LAX is in west coast……

  6. Nguyen said,

    Hi Gary, with this merger, may I ask if you have any thought(s) on the BankDirect earned AA miles? Thanks.

  7. Minos said,

    Once again, a limited insight post. If you had seen how the fares went up in Atlanta after the AirTran / Southwest merger, you would not post such a senseless piece of information.

    Fares will go up as the inherent cost structure of the more costly of the two airlines will be infused into the lower cost one. Add into that the propaganda-sweetening potion presented by Doug to get the Unions on board and you have a recipe for higher fares.

    And obviously, there will be less competition too.

  8. Pete said,

    I think the biggest issue would be (a) unresolved TLV quagmire, (b) US brings nothing new to AA’s already weak TPAC network, and (c) AA+US would have WAAAY more employees than DL despite only carrying a handful more pax.

    Even if they lower variable (per hour) costs to LCC levels, the fixed costs like healthcare and pensions will kill any synergy.

    Luckily it’s DP running the show, so he won’t treat the existing 5 AA cornerstones as sacred cows (which was the old AA management mentality).

  9. goodguy said,

    what you left to answer is what about our AA miles and US airways Miles?

  10. Nicholas said,

    So, will US Airways Star Alliance awards be suspended as of tomorrow, next week, etc. –or– will they wait until after the initial government approval in 4-6 months or so?

  11. VM said,

    In order to exit Star Alliance an airline has to give a minimum of 6 months notice, that’s unless they are kicked out ;) Look at LAN & TAM both have agreed to merge (TAM is with OW and TAM is with STAR) Just because they announce a merger it won’t change anything over-night.

  12. VM said,

    Sorry LAN is with OW

  13. iahphx said,

    In our little frequent flyer world, some huge winners are US travellers based in PHL and CLT who get get hold of some BA Avios points (hello, Chase!) and now redeem for short haul award flight at very little cost. Currently, it’s usually insane to buy these tickets for leisure travel because they’re often insanely expensive.

    Some benefit for the folks in PHX, too, but 650 miles doesn’t get you many places from there (and those fares tend to be cheaper anyway thanks to WN).

  14. Patrick said,

    Any chance they’ll have some amazing sale this week to try and win customers over? Also, any idea when the two airlines will be one in so far as earning AA miles on upcoming US Airways flights and vice versa?

    Thanks Gary for the great post!

  15. viguera said,

    I’m curious what’s going to happen to PHL itself though. That’s a US fortress, but I doubt it will stay that way with the close proximity to NYC, and I seriously doubt AA would give up New York for Philly.

  16. Andrew said,

    Gary, you’re leaving out the “saddest” part for us current elites on US: despite having fewer F seats on narrowbody planes, we have even fewer elites on a proportional basis, so upgrade percentages are fantastic, even for mid to lower tier elites. I fear this will end when the system gets flooded with AA’s elites.

    Also, I still don’t see how CLT is at risk. US has over 600 flights a day at CLT–if you look at a lot of the flights that feed the hub and where they’re coming from, I just don’t see how you shift that traffic all the way down to MIA or up to ORD, and definitely not to DFW. I just think the geography and cost structure (CPE of $.77 last year) makes too much sense. They may lose some international flights, but I just don’t see how they won’t remain as a strong domestic hub.

    @Viguera, I’m having trouble understanding those who say PHL is at risk-I don’t see why it’s proximity to NYC has any impact. Both LGA and JFK are slot controlled-they just don’t have the ability to incorporate the 20 million passengers a year going through PHL on US Airways, even if the airline wanted them to.

  17. Zz said,

    Biggest losers may be AA elite members. Very little upside.

  18. chemist661 said,

    AA lifetime Gold here. I was not able to find AA saver inventory LAX-BUF for August travel (I used to find decent AAsaver times the last few years but not this year). Ended up using 50K of my wife’s nonstatus 110K UA miles for my wife & I for our BUF trip.

    I believe that things will get worse (FF redemptions) as the merger takes place.

  19. Hellohello1226 said,

    I am AA exp, I think I will not win from that merge, I have 370000miles with Aa and 300000miles with US

    US is worse carrier, I always try to avoid them, now I will be US elite plus, haha. Sigh……..

  20. Miles said,

    Also, a lot of US FFs seem don’t want to pay for stickers, like AA (non-EXP) FFs do.

  21. Gary said,

    @Miles bet strongly you won’t have to

  22. Gary said,

    @Andrew I don’t see CLT going away but I do see it losing service. The city itself isn’t larger than STL or RDU or a bigger O/D market. It’ll be useful for mid-Atlantic North-South connections. But it’ll be relatively weak. And the PHL issue is that you don’t make money overflying your hubs.

  23. Gary said,

    @Nicholas US Airways will remain a member of Star Alliance for a year I would guess

  24. Gary said,

    @Minos sorry this was a ‘limited insight post’ I will try to do better next time! :)

    But there’s really very little overlap in non-stop routes so I don’t think it will drive a meaningful increase in fares. Marginally less competitive. And eventually the combine carrier shrinks a bit so marginally less capacity. This isn’t going to lower fares, for sure! But I don’t see it as a driver of higher prices in a material way, either.

  25. Gary said,

    @Nguyen – I don’t see anything to worry about v-s-a-vis BankDirect

  26. Gary said,

    @Jorge once US Airways leaves Star Alliance you won’t be able to make changes to existing tickets onto other Star flights but presumably they’ll be able to accommodate you onto oneworld flights.

  27. Andrew said,

    Great analysis Gary. One of the main reasons I keep coming back to your blog.

  28. Len said,

    Great post, but I do disagree that AA customers can look forward to a lower level of service. This may have been true ten years ago, but as an elite (Chairman Preferred), I’ve seen huge strides in US’ service operation over the past several years. The dedicated customer service desk has been very helpful, and service up front has been a lot more hit than miss.

    Agents being informed and knowing the rules is another matter, but that’s why we can get away with such crazy award bookings :)

  29. Zz said,

    Will the airline be associated with citi or Barclay?

  30. Gary said,

    @Zz we don’t know yet

  31. Andrew said,

    @Gary, I still don’t understand where the traffic from PHL would go if it were no longer a hub. There’s just no way to absorb it at LGA/JFK because of slot limitations. And out of LGA/JFK/PHL, PHL would be by far the biggest hub operation of the three, based on current passenger numbers, no?

  32. Mason said,

    I have a star alliance award to South Africa booked for this summer with US miles. Are there any implications for me if they leave the alliance prior to the start of the trip? What happens during irregular ops?

  33. Brendan said,

    What about Alaska (AS) flyers?

  34. Gary said,

    @Mason this summer US Airways will still be US Airways, no implications at all

  35. Bob said,

    Currently, my flights on United earn me miles/segments toward my Dividend Miles Chairmans status. How far into the future should I book United flights with the expectation that US will still be part of Star? Aug-2013? Or later? And do you have a suggestion for the best way (website, etc.) to stay on top of this myself, so I can keep monitoring the situation as I start booking flights for late summer & fall, which I am thinking about now. Thanks.

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