Don’t Panic! The Hitchhiker’s Guide to the US Airways-American Merger

Here’s what I told Conde’ Nast’s Daily Traveler — that essentially we don’t know enough yet to have any basis for worry.

The frequent-flier programs of US Airways and American will also merge, bringing the AAdvantage membership to a whopping 100 million members after it absorbs US Airways’ program. But considering that the airline is going to be bigger too, miles expert Gary Leff (a top travel specialist and a contributor to CondeNastTraveler.com), doesn’t think that number is out of proportion. “It’s only about 10 to 15 percent bigger than United’s program, and probably 30% bigger than Delta’s,” he says. How will the union affect fliers? Leff lays out the pros of each program as it stands now: “US Airways doesn’t seem to have as many elite members as the rest of the legacy airlines, and they do a great job upgrading their elites as a result. American has more rows of first class though and also is much more generous with their premium product (US Airways doesn’t serve meals on three-hour flights, American serves meals DC–Chicago).” As a result, he explains, “Plenty of American flyers are nervous about losing the frills they’ve become used to.and the generous international upgrade policy extended to top elite flyers. Whidonle US Airways flyers are nervous that they’ll lose some of the sweet spots of their program like cheap business class awards to Hong Kong and Australia.” However, he concluded, we don’t know much about how the programs will end up working, so while there will likely be winners and losers, it’s hard to tell much yet.

Interestingly, Horton gets $20 million when he walks away from American plus lifetime flight privileges.

Earlier I characterized the merger, and ability to do it before emerging from bankruptcy, as requiring paying off existing interests. Now we know the price to avoid insider opposition and even to get an incumbent Chairman and CEO as a cheerleader for the deal.

I do wonder about making a payment to someone on their way out the door, the company has already capitalized the gains made under Horton’s leadership so I’m not sure the value in paying $20 million for something they’ve already gotten and when they don’t even need to (and are explicitly not going to) retain his services.

But he may well have earned the money both for success in driving through cost reductions at the airline, taking all of the heat from unions so that new management could come in and make a fresh start, and navigating what I consider to be an amazing deal for American’s stakeholders. I have to believe that US Airways is overpaying for American, and this represents a very small commission to Horton for making that happen.

In any case, Horton sure knew where his towel was!

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. Let’s not kick Horton for making a “small $20 million” exit package…..he is probably the smartest dude in the deal!

  2. Show me a corporate merger, and I’ll show you a very wealthy displaced executive. When has it *not* happened?

  3. On the topic of the merged FF program, I haven’t seen anyone comment yet on this … AA offers a great advantage to me because they allow one-way award bookings. US Air doesn’t, and I’ve had great problems using their miles because of it (love a good open-jaw trip, and/or the possibility of using 2 different carriers). Any thoughts on which way the new program will go?

  4. Yeah, I’m thinking along the same lines. Horton is getting a nice chunk of change here. By comparison, Doug Parker’s annual salary is reported to be only $1.08 million. Sure, he’s pulling down some more benefits and variable comp, but I don’t think he’s making $19 million off this deal. And he’s the main guy here, along with being the industry’s long serving and most-respected CEO.

    Of course, you’ve got to pay what you’ve got to pay, and if that price is $19 million for Horton’s acquiescence, it’s money well spent. I noticed that one of the reporters asked the pilot’s union spokesman for his reaction to the payout, and the spokesman said his members were focused on the new management team and the future. So there you go.

  5. these merger related payments are supposed to incentivize management to put the company ahead of their career and take merger offers seriously (even if it means they get pushed out). If you believe that, then the logic in the post is a bit backwards: the golden parachute incentivize him to do a good job in getting the AA ship in order for a merger

  6. It’s no surprise. Glenn Tilton was reported to walk away from UAL with full pocket and lifetime privileges, and continue his career as chairman of JPMorgan Chase Midwest business and executive committee member.

  7. @raf – but the golden parachute came AFTER he had done a good job, so what are they buying for their $20 million that they haven’t already obtained?

  8. I agree, Gary, too soon to tell what AAdvantage will look like one year from now. However, spend a little time at FlyerTalk in the USAir and AA forums, and you would think the sky was falling. Amazing how many people think going to UA is the best thing to do right now!!

    I would think Doug Parker has got to know that he needs to retain as many AA and US elites as he can, so trashing the FF program has to be the last thing on his list. I suspect some changes, not all elite friendly, but I think AAdvantage will be little changed in substantive details. Worst case scenario is redemption hikes or YQ or copays. At least I HOPE that is worst case!

  9. Tell me why someone who is getting $20 million needs lifetime flight priviledges? I can’t imagine running into him in coach.

  10. It will be a great day when the boards of directors of these public corporations are put in prison for their breach of fiduciary duties and fraud related to these so-called deals. Yeah, I know they screw the owners by having the owners pay for their insurance policies to cover their crimes (at least the financial liability), but still. They are legally obligated to represent the interests of the owners, yet in my decades of professional experience, I have yet to see it. Prison, at least, until the next revolution 😉 Justice.

  11. I have been Churning the Barclay US card since the talk of the merger started. I’m Chairman with US and PLT with AA. Barclay is much easier to get the miles than Citi, so instead of whining about who is making the money, this blog is about miles and travel. Start churning the correct card and get the miles.

    BTW, for those who flamed me for saying that this merger was a done deal before it was announced, guess I was right..

  12. The biggest & least efficient (or mots inefficient) corporate entity in America, and one would bankrupt right now but is the least bit worrying about it is – why dont we point there? hard working smart dude getting rich is crime, hardly work low wits getting rich is your G.

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