How’s the American Airlines Merger Doing?

American Airlines CEO Doug Parker gave good marks for merger progress so far with plenty of work to do.

He cited progress implementing “the world’s largest code-sharing arrangement” between American and US Airways; US Airways joining oneworld and the transatlantic joint venture ith British Airways, Iberia, and Finnair; and re-banking the Miami hub to make for more attractive flight connections.

They’ve co-located facilities for the two airlines at 80 airports are “are negotiating for new contracts covering workers from both carriers.” (I’m not sure how it’s an accomplishment already to be negotiating as opposed to, say, ‘have negotiated’).

The airlines are profitable, though there are certainly some gaps in the operation like weakness in South America that American has bet heavily on.

I’d paint a slightly different picture. If the standard were simply, are flyers better off now than they were a year ago? the answer would clearly be no.

It’s not all bad, some news is mixed. US Airways is serving more food than before, while American is serving less.

And some changes were inevitable — which is why a simple ‘before and after’ comparison really isn’t fair. The death of the double miles award was going to happen no matter what. American was the last holdout charging ‘only’ double for extra (last seat!) availability on (most of) its flights. There was no way that was going to be sustained.

And the merger has probably given us at least a temporary reprieve from the programs going revenue-based. US Airways supposedly had such a program in the queue, shelved due to the pending merger. And now they’re more focused on integrating than changing.

The downsides for flyers are not all consolidation-driven per se, it’s that

  • American was probably too generous. Anything that’s more than one standard deviation better than the median in the industry isn’t going to last. The America West-ization of US Airways grows to American. Doug Parker sees little value beyond safe and on-time, and Scott Kirby sees little value in things that can’t be quantified clearly. That’s what gave us US Airways – a profitable on-time bus in the sky that used to charge for water. They know American is a different beast with different customers but they also believe (probably correctly) that American was wasteful and bloated.

  • Mergers don’t actually deliver. There are big promises to customers and to investors, but it’s very rare that a merger materializes with the potential promised — it’s like an IT project, I have never seen one that was delivered under budget and before deadline. Mergers don’t usually produce the ‘synergies’ they’re sold under. And they will always disappoint members from both airlines, members choose their frequent flyer programs in many cases because of the characteristics of those programs so necessarily changing to “take the best from each” (cough) is going to disappoint members that had chosen the benefits that they find changed, whichever direction most changes go.

I never saw a particularly strong legal case against the merger and I said so, because the rule of law matters and being honest rather than just self-serving matters. But I expect many more unhappy campers to come because that’s what airline mergers deliver.

That said, I still choose American because Delta runs a good operation but a lousy frequent flyer program and doesn’t work well for my routes, and United runs a lousy operation and a program that’s less good for my needs than American’s.

  • The best top tier status, delivering upgrades and 8 confirmed international upgrades valid on any fare.
  • The best first class awards with partners — United’s are too expensive, and there’s little availability in first class on Star Alliance partners to and from the US outside of the occasional Asiana flight and Air China. American’s awards are cheaper and first class is doable on several partners.

I always expect regression towards the mean, I’m glad I started flying American right before United and Continental’s big bang of their programs and passenger service systems. And I will keep focusing there at least until the current value proposition shifts materially.


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. Think you meant to say Asia is weak, not South America.

    Further, the “bloated” American Airlines with an excellent on board product produced $1.9B in profit before “allignment.” There was nothing actually bloated about it. It worked.

  2. There seems to be a lot more *A availability 2015, flights that would not have been booked prior to the deval. Check out ANA availability for example.

  3. @Bill–dang right those SA/CA prices are high, compared to what they used to be 2 years ago (when fuel costs were higher)

    Flew to GUA 3 years ago 2x and it was $323 first time, $378 the second trip–off-season. The past couple of years I haven’t seen it dip below $500!!! and that is for a measly 2.5 hour flight. And even more ludicrous is SAP, just 2 hours (under 2 if the winds are favorable) and over $500 r/t, dead-season. And MIA-CUN is just 1.5 hours non-stop, for $400+? The strangest part of all this is if I fly TPA or MCO to NIA and then pick up that very same MIA>CUN flight, I pay at least $100- LESSjust $281 r/t from MCO thru MIA.

    Up until recently AA was charging $800+ r/t MIA>LIM. Just a short time ago the price dropped, and now it’s $400–substantially less than the much closer and shorter CA flights.

    So yeah, when I see $800 to LIM I think twice about going there, I’ll head to Europe or SE Asia instead.

  4. @Mark – Apparently you have nothing worthwhile to share in comments, so you waste everyone’s time with recurring complaints about Gary’s food references. Guess what, many of us are interested in food, which is one reason we read this blog. Obviously you are not, so move along and find another blog where you can share your inane observations. Yeesh.

  5. Every time I look at moving from UA to AA, I look at awards to the places I travel. I can ALWAYS get where I need to go via *A, sometimes through odd routings, but I can always get there. Looking via AwardNexus, AA and BA, the awards just aren’t there – especially for Asia.

  6. @Gary, when you say AA is getting “killed” in Venezuela, you need to put it in context. fares to Venezuela are sky high and demand between the U.S. and Venezuela is at levels that have never ever been seen before, but the money can’t leave Venezuela.

  7. I’m not sure why keep painting the award changes as merely elimination of the double mikes AAnytime. The new prices are far above and beyond anyone else, especially UA. I can get a DL business award US-Brazil for example for “merely” double miles while AA is often quadruple.

  8. The only postive way to look it is more flights to more places and hope better schedules. Living in ORD and visiting LAS several times a year I’m glad that I can arrive at 9am or so .

  9. I can’t think of a merger in the history of corporate America that was done “for the customers.” Oh, sure, everybody likes to say the customers will benefit, but we all know that’s not the point of a merger. The point of a merger is to make money.

    On that score, the new American Airlines is doing exceedingly well with record profits and more forecasted. Some of those profits are undoubtedly obtained by charging customers more and giving them less when that’s what “the market” says will be the profit-maximizomg strategy. It is what it is, and I think your strategy of continuing to fly AA until it no longer provides you enough “value” is the correct one.

  10. Gary,
    I am not sure what qualifies you to make the statement you never saw a strong legal case agains the merger. This was a textbook case of substantially lessening competition in quite a few markets, as well as foreclosing future competition. Justice hates airline mergers because they have a history of doing this.
    Of course there’s nothing “cough” preventing Justice from suing for divestiture of routes after the merger has been completed.Merely clearing HSR and being allowed to merge doesn’t give the combined entity the right to do exactly what the government was concerned about. I’ve witnessed some of these post-merger lawsuits in the past–in other fields.

  11. You don’t get more anti-competitive than the AA/US merger. If free markets always lead to oligopolies and monopolies we’re in trouble.

  12. Statements like this are hilarious: “American Airlines CEO Doug Parker gave good marks for merger progress so far with plenty of work to do”. Smisek says/said the same thing about his train wreck of a merger.

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