Would a US Airways-American Airlines merger be good for travelers?

Will this merger really be a "win-win"? / Photo by Peter Ashton - Flickr
If it happens, the expected union of US Airways and American Airlines could be one of the last big legacy airline mergers. Maybe even the last one.

Together, the two companies would create the largest airline in America as measured by number of employees, and the second-largest in terms of operating revenue.

But forget the “if” for a moment. A more important question, as far as passengers are concerned, is: Should  it happen?

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Just after US Airways announced last month that it had the backing of key employee unions at American Airlines, Kevin Mitchell of the Business Travel Coalition called on the Transportation Department to conduct a thorough analysis of past airline mergers and their outcomes.

His organization, an advocacy group for corporate travel interests, has testified before Congress against several previous consolidations. Mergers, Mitchell says, have allowed some airlines to “ignore the demands of their most valuable customers.”

The US Airways-American hookup is by no means a certainty. So it may be too soon to sound the alarm bells, but not by much. The next chapter in the process is a bankruptcy court hearing, scheduled for next month, in which a judge will determine whether American’s current management has the right to discharge the company’s labor agreements.

No one knows when an actual merger plan would be announced, although it seems clear that US Airways wants it to happen as soon as possible. The Justice Department is responsible for determining whether a US Airways-American combination should be challenged on competitive grounds, with the Transportation Department and the Federal Aviation Administration typically advising the agency. If the DOT has compelling evidence that airlines didn’t keep their promises in past mergers, it could effectively block the deal. But either way, it would be highly unusual for the government to conduct any kind of study before a deal is announced.

A DOT spokesman declined to comment, and representatives of US Airways and American wouldn’t answer questions about the merger beyond their prepared statements.

But the way many air travelers see it, we don’t need any studies to determine whether the merger is a good idea. Most of those I’ve talked to, pointing to the dismal quality of domestic air travel today, say that it’s not.

“There’s less and less competition in the airline industry with all the mergers,” says MaryHelen Maupin, a travel agent in Nashville who has had a front-row seat to every airline combination since deregulation. “One thing’s for sure: It ruins customer service and employee morale.”

Seth Miller is an air-travel blogger who’s closely following the proposed merger. Based on previous carrier consolidations, he says, he expects two results from this one: “fewer choices and higher fares.”

“There’s not a single positive aspect of the merger for consumers,” he says. “At least none that I can see.”

But Michael Miller, vice president of strategy for the American Aviation Institute, a Washington-based think tank, says that the benefits of such mergers are invisible to most passengers. When Delta Air Lines and Northwest Airlines combined in 2008, he says, the process was “seamless” and made sense from an operational perspective. The new airline had a commanding presence in Asia and South America, and its network now serves international customers better. When airlines become more competitive, they become more profitable and reliable, which helps consumers, he says.

But he adds that not all mergers have that result: Customers have yet to benefit from the recent Southwest Airlines union with AirTran, a mash-up of two airlines with different corporate cultures and routes.

How would US Airways-American stack up against past airline mergers? It may be too soon to tell. But some of the numbers are troubling, at least when it comes to customer service. Take the latest scores from the University of Michigan’s American Customer Satisfaction Index, which weighed data for six major airlines in 2011. American Airlines earned 63 out of a possible 100 points, just ahead of US Airways, which tied for second-to-last place with a score of 61. Only Delta, with a 56, scored worse. If the airlines maintain their level of performance after a merger, a combined US Airways-American is likely to be the most-complained-about air carrier in the country.

If the government steps in and denies the couple a marriage license, would consumers be better off?

I’m leaning toward yes. I can’t think of a single airline merger that resulted in happier customers or employees, and for that reason alone, I’d cast a vote against the deal. (Not that it’s up to me.)

But I can also remember a time in the not-too-distant past when American Airlines represented the gold standard in customer service. In 1995, before the carrier fell in love with fees, its American Customer Satisfaction Index score of 71 was just a few points lower than that of service-leader Southwest. I think that under the right management, it can reclaim some of its lost luster.

You may feel powerless to do anything as the merger drama unfolds. But you aren’t. Where you still have a choice in airlines, you can buy a ticket on a carrier that treats you with dignity. And you can tell your elected representatives that you expect more from your government than a rubber stamp on this deal. In an election year, they might listen to you.

Even if the regulators mishandle this merger, they’ll probably have another chance before long. Because this probably won’t be the last airline merger ever. Says the American Aviation Institute’s Miller, “There will always be mergers and acquisitions in aviation.”

33 thoughts on “Would a US Airways-American Airlines merger be good for travelers?

  1. As much as I hate the way the airlines are going, they’re still a business and the last time I checked, the US was still a free (and very much a capitalist) nation. In this economy, mergers often act as a “cleaning house” event. It’s time for the companies to change whatever they’ve been wanting to change (usually offering the customer less in the process). So while I don’t like it, I don’t think there’s much the consumer can do about it. One of these days, these airlines will figure out that most consumers will be happy to pay an extra $25-50 a ticket to be treated with some decency.

    The question is, who’s going to be the first up to actually be decent?

    1.  “most consumers will be happy to pay an extra $25-50 a ticket to be treated with some decency.”
      I disagree with this – it’s how we got into all these fees in the first place. Rather than raise actual ticket prices, airlines just charge fees so ticket price is still in line with everyone else. And most customers (especially infrequent travelers) don’t know any better and certainly would save the $25-50.

  2. Or, here’s a radical concept, the companies can act like they used to. When you are bankrupt, you close your doors permanently and send the employees home. Yeah, it sucks to be unemployed, but that’s how it works for so many other business in this country.  My business has ties with the building industry. When that crashed several years ago, I saw countless numbers of my customers having to close their doors and find work with someone else when they couldn’t run their business anymore. There were no mergers to try to save all their employee’s jobs.

    1.  How is that a better scenario? Lets just let everybody be unemployed instead of saving jobs.

      And your premises are all false and uninformed.  Bankruptcy does not automatically or even implicitly mean closing doors.  Of the common forms of bankruptcy, only chapter 7 means closing doors.  The other two common forms Chapter 11 and 13 both mean restructuring for the purpose of saving business and jobs.

    2. While this might sound like a radical concept, forcing companies to deal with the consequences of their bad business decisions, in a free market economy, that’s supposed to be the way the ball bounces.  If the businesses being run under practices that are fiscally irresponsible, they fail and the good ones rise to the top.

      To require failing businesses to stay in business for the sake of the employee is a bad business decision.  They’ll only go under more and more.  In the airline industry, it’s not just a matter of closing their doors, dusting off their hands and walking away – there are assets to be sold such as gates, routes, airplanes, etc.  the successfully run airlines would purchase these assets, expand and, most likely, hire the majority of the employees.

      No one should be too big to fail.  Making sure everyone feels good all the time (read: fiddling while Rome is burning) isn’t a good idea either.

      1.  But in a free market economy, mergers (as well as dividing companies up etc) are all well and good too. I agree that no company should be too big to fail, but when a company starts failing, they can take action such as merging to get out of it. They shouldn’t get government help or money, but if two companies want to merge, they are certainly free to do so.

      2.  No one is saying that business are required to stay in business just for the employees, but for the consumers as well. All things being equal, less competition is bad for everyone.

        The speculated AA merger is not a government imposed, you must stay in business a la AGI.  If the merger happens it will be a voluntary business decision by the shareholders and Board of both companies.

        While I can only speculate what’s in Monica’s mind, what I took away from her post is that because the business is failing it deserves to close.  It an almost punitive position. I submit it has no merit logically or historically. Ethically, legally, philosophically, metaphysically, whatever, the default position should be that a business should take every legal method to remain in business, whether that means sale, merger, changing business plans, etc.  Closing the doors should be the last option, not the first.

        Consider, an airline merger is generally preferable to it closing, especially for a power house like American Airlines.  If it just closed, we would endure the chaos of the auctioneer’s hammer.  The inefficiency of it all.  Selling all tangible items such as plane and intangible items like routes and gate rights, possibly one by one.  Having hundreds of thousands of employees sending off multiple  employment application.

        An integration into a single airline seems almost a walk in the park by comparison and much easier on passengers.

        BTW:We do not live in a pure free market or capitalist society.  If  we did we wouldn’t have civil rights, minimum wages, OSHA,  etc.

  3. If US and AA don’t merge, what if AA just collapses? I can’t at all see how consumers would benefit. (AA might or might not shut down, but it is certainly a possibility)
    A sudden shutdown would mean a huge drop in capacity which won’t easily be made up in the short-medium term due to other airlines not having the aircraft as well as all sorts of costs and regulatory stuff they have to deal with when starting that many new routes. This means that prices will rise dramatically, and fewer flight options for many people. Employees would be out of jobs, passengers that already have tickets will be out of luck. And in the end, there would be one fewer large carrier, which would be no better than if AA and US merged.

    I simply fail to see how AA shutting down is better for anyone than merging with US. Of course, they might be able to keep going, but that’s not a certainty given their state.

    1. I think to say AA would shut down is an oversimplification of the issue.  I don’t think they are anywhere near that point…From what I understand, they are doing this mostly to get Union contract concessions.  And even if AA were to shut down, the court would auction off their routes to other airlines, meaning few barriers for other carriers able to take on the routes.  Owned aircraft would be auctioned by the court at steep discounts to other airlines, and leased aircraft would need to be be re-leased to other airlines, likely a lower prices. 

      All that said, having AA disappear (either through shutdown or merger) would definitely not be better for the consumer.

  4. Nothing but an industry consolidation

    Why are you so surprised? Consolidation happens all the time. There used to be 10 Regional Bell telephone companies before AT&T. Then deregulation came and MCI, Sprint, and a few others were born. What do you have today? Essentially AT&T and Verizon. Why should airlines be any different? Take a look at Europe. Air France & KLM are one. British Airways and Iberia are one. Lufthansa owns Swiss Intl, Austrian Air and other airlines.

    Last time we looked for a smartphone, the choice was iPhone or Samsung Galaxy and the carrier – AT&T or Verizon. If you don’t like limited choices then you need to lobby for stronger anti-monopoly laws.

    1.  +1
      People are stupid if they actually believe that the government cares about preventing a monopoly or oligopoly. Politicians have been bought out years ago, and it really is down to the DOT/FAA to enforce a random collection of rules regarding air carriers and where/how they can fly.

    2. Anti-monopoly laws wouldn’t affect iphones.  Anti-monopoly laws are more about monopolistic behavior than monopolies.  The distinction is subtle but substantial.

      Also comparisons across industries generally don’t work because the economic dynamics, e.g. barriers to entry, are unique to each field.

    3.  But Tony

      In fairness, the ten regional Baby Bells were exactly that, regional.  I living in Los Angeles at the time, had no choice of but to use the local Baby Bell.  Whether there were 1, 10, or 100, in the country,  for the consumer it still meant one phone company.

      Today we also have VOIP, which would have been illegal previously.

      Regarding Smartphones, I have a Droid I am very happy with it.

    4. You’re forgetting LG, HTC and Motorola, as well as the weaklings Nokia and Blackberry. Sprint and T-Mobile are alternatives to AT&T and Verizon. As far as Europe is concerned, there are a whole bunch of other carriers, such as EasyJet, Air Berlin and the dreaded Ryan which give consumers there far more choices than we have here.

  5. From an insider’s perspective, Doug Parker and his merry band of fools haven’t finished the last merger with America West.  While it may finally look seamless to the consumer via branding, he still hasn’t merged his own unions.  There are still fences that prohibit former America west people from flying on former USAirways aircraft, and vice versa.  So, he’s snubbed his nose once again at his own people and is out hob nobbing with the AA unions.  Let him see how the next union contract vote goes.

    Let’s remember the complete chaos that followed the US/America West merger.  It makes United’s recent issues look like a beach vacation.  Stockholders beware!

    1. Technically, America West and USAirways was a reverse takeover rather than a true merger. Bottom line is, I wonder if the America West group would do it again in retrospect. Perhaps it would have been better to let USAirways fail and then let the remaining airlines choose to serve the abandoned routes, hire the unemployed workforce and purchase the idle aircraft in a environment of true competition.

      They certainly would have had an easier time with the USAirways East pilot group, allowing them to be laid off and then offering to hire them at America West…at the bottom of the seniority list. As it is, the sense of entitlement on the East side is one of the major problems facing that company today. 

  6. None of these mergers should’ve been allowed to happen. Mergers = less competition = bad for everybody.

    Much like with the telecoms and now the banks, all these mergers means we have no real competition, no real choices.

    1.  Mergers are appropriate when the alternative is the failure of the business which can have greater anti-competition results.  When Washington Mutual failed, bank regulators almost had to beg JP Morgan Chase to buy it because such a large failure in the banking industry would have strengthened the other big players too much.

      1. And instead it simply strengthened JP Morgan.

        We had banks too big to fail… so we let them get even bigger.

        Because we didn’t let them fail, they are now just plain too damn big and too much in control.

  7. First, you must define “good for travelers.”  I would side with the JD Power rankings of legacy airlines.  In a business situation with few US airlines consistently making money, asking for lower fares with effective capacity-filled flights is unrealistic.  Low fares are not the only thing good for consumers.  Customer satisfaction is a much better index.

    So take US Airways management, with the last ranked airline on customer satisfaction, and install them as the management of a merged US Airways-American Airlines?  Combine US Airways, which has still not settled all labor issues with their merger seven years ago with America West, with the labor-discord-plagued American Airlines?

    As usual for blog-hyped proposals, this simply makes no sense.

    In the end, the result will be creation of a larger worst-ranked legacy US airline.  Is that “good for travelers?”

  8. The DL and NW merger was seamless?

    I was laughing for five minutes before I could finish the article.  I can only think that Michael Miller – as VP for American Aviation Institute – must only fly privately.

  9. As for the merger – I’ve lost all faith in government oversight into marketplace mergers.  I was always dubious, but when satellite radio providers Sirius and XM were allowed to merge was the final nail in the coffin.  They were the only two providers – how was allowing them to merge beneficial to the marketplace?  The FCC had even only issued the two licenses under the condition they wouldn’t merge.

    Whatever is politically expedient or whichever lobby has the bigger pockets will determine whether or not this merger goes through.  There will be no thought of whether or not it will actually benefit consumers or provide healthy competition within the airline market.

  10. Well, at least it would reduce the number of “bad’ airlines by one! By the way, I LOVED the SWA-AirTran merger…it brought SWA into EWR, one of my “regular” ports-of call, and their customer-friendly gate and flight crews are still the best!

  11. the answer is 2 fold.

    Yes it would be good as then both would survive, shedding less jobs than if one or both collapsed completely.

    Economic news coming out of th USA is ALL bad these days.

    One less carrier means less competition though.

    A LCC like Allegiant would probably expand to fill the void partly anyway.

    LCC are the future.

    Everybody wants full service but very few want to pay for it or can afford it.

    Think the US has no choice but to let foreign carriers fly domestically with cheap foreign crews.

    In the future, if you want to be well paid, DON’T get a job which has anything to do with airlines !!!

  12. Chris, I agree with your assessment and history has not shown that mergers have increased fares.  For an expert (not you!) to say that it would lead to increased fares is so ludicrous, when air fares today are so low in relation to what they were 20 or 30 years ago.

  13. what I would like to see is a simple chart of pay and benefits as well as the top 10% of airline salaries.  Then I would like to know how often and how completely  jets are being serviced and how well they are being maintained in between major service.  this would help me not only decide if I should fly a particular air line but it would help me know if I should fly at all.

    1.  In the US and most countries, maintenance and safety aren’t anything to worry about. All US-based airlines do maintain their planes at standard intervals as decided by the FAA/DOT.

  14. I HATE HATE HATE this idea.  I used to fly United (when I lived in the midwest for a time), they chased me away with their horrid “employee owned” service and airline… so I decided to give AA a try, and I must say, I still think they blow everyone else away in the US.  I have 1.5 mil miles with them since 2000 so I am not just an once in a while flyer.
    I will pay to not fly the new homebased (PHX) USAirways. I grew up on the east coast and I recall how wonderful they were/are!  Like the last time my older parents landed in PHL and waited from 930pm until 215AM for someone  to unload the luggage!  By all means, let’s spread that good wealth through the AA system.
    Not to mention those of us with lifetime status on AA would surely become lifetime NOBODIES after a merge.

  15. We’ve all seen hw the combination of UAL and Continental has gone.  I’m sure AA and USAir wouldn’t be any worse.  The airline I truly hate to fly is Skywest.  In particular, I hate to deal with their Denver staff.  I’ve had several bad experiences with them.  They do not do things properly.  My concerns about AA/USAir etc pale in comparison for my hope that Skywest is somehow gone.    

  16. Mergers at this point in history are not about how much. They are about the gates that AA needs to aquire in different cities around the world. USair basically owns the gates in Charlotte and Philadelphia where there are few to no gates available for lease. AA would get these with a merger. Mergers are bad for the public when it comes to saving money. My father was one of the first travel agents in the country, beginning in 1953. He always said that eventually, there would be 3 major airlines in the country, American, United, and Delta…..BINGO! Time to spare, go by air; get ready for their prices to go up 20% or more. Sales will be far and few, and you will need to book 3-4 months in advance to see those.

  17. As a 34 year employee of US Airways, I must take issue with the oft-repeated comments concerning our customer service. I’m sorry but there is a huge difference between the “customers satisfaction” or the “perception” of the service delivered, and the actual service delivered. As you know, the DOT tracks the airlines performance stats every month. All employees have received in our most recent paycheck, a small bonus for ranking FIRST in on-time performance,FIRST in fewest mishandled bags and THIRD in passenger complaints. We cannot help the fact that a customers perception based on personal biases for whatever reason, do not align with the DOT’s  actual rankings based on the actual service delivered.

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