The announcement of the coming merger by American Airlines (AA) and US Airways (USAir) was released. The airlines, as expected, touted the benefits of their merger. There is only one problem — they aren’t claiming any net benefits for consumers.
This is a merger that, even the airlines involved, don’t claim provides a net benefit to passengers. However, it clearly reduces competition and it focuses on financial stakeholders. Here’s a rundown on the merger benefits claimed by AA and US.
AA/USAir Claim #1: Customers to Benefit from an Expanded Global Network and Investment in New Aircraft, Technology, Products, and Services.
Reality: There are no new destinations, no new planes being ordered and no new technology created by this merger. Whether or not there will be new products and services is yet to be seen.
Some customers will accrue benefits, others will lose. AA passengers may see new routes and destinations, but United Airlines passengers will see their code-sharing opportunities shrink. USAir passengers will simply see a change in destinations offered by a link with United Airlines replaced with those destinations served by American Airlines. I haven’t counted the total destinations of United + USAir vs. AA + USAir, but my first guess would be that there will be fewer destinations served and USAir passengers will have a reduced rather than expanded global network.
AA/USAir Claim #2: Combined Company to Enhance oneworld® Alliance, Offering a Seamless Global Network.
Reality: This is the truth, but only a half-truth. Any enhancement of oneworld is at the expense of Star Alliance. One “seamless” global network is being traded by USAir for another weaker one. Even if both international alliances were equal, there would be no net benefit for consumers overall.
AA/USAir Claim #3: Will Improve Loyalty Benefits by Expanding Member Opportunities to Earn and Redeem Miles.
Reality: This will reduce loyalty benefits and will reduce member opportunities to earn and redeem miles for all members of Star Alliance. Again, consumers receive no net benefit.
AA/USAir Claim #4: Combination Provides Path to Improved Compensation and Benefits with Greater Long-Term Opportunities for Employees of Both Companies.
Reality: There may be benefits for employees. However, these benefits are not guaranteed. The current USAirways is still operating with separate workforces seven years after the America West buyout of US Airways. Now, a different, bigger, stronger union is being brought into the mix. It will be a long, complex, vicious battle to hammer out seniority issues, work rules and scheduling issues and to bring all employees under one union umbrella — the most complex ever.
Plus, any promised increases in pay for labor will be passed along to consumers in the form of higher airfares and additional fees.
AA/USAir Claim #5: Combined Airline Expects to Maintain All Hubs and Service to All Destinations.
Reality: We’ve heard this before. Speak with Memphis, Cincinnati, Reno, St. Louis and Cleveland among others. They have all been burned or entered into signed agreements to ensure maintenance of their hubs.
AA/USAir Claim #6: Expected 2015 Annual Synergies of More Than $1 Billion, Creating Value for Stakeholders of Both Companies
Reality: This is the same promise made during the merger of United and Continental. These “synergies” come from “rightsizing” the fleet according to the routes. In plain English this means increasing the load factor — squeezing more passengers onto aircraft. This is no consumer benefit.
The United/Continental merger actually resulted in “revenue dis-synergies.”
The United Continental merger is a case in point. As I recently wrote, the company promised revenue synergies totaling $800 million-$900 million due to the combination of the United and Continental networks. However, integration snafus led to technology meltdowns, massive flight delays, and particularly poor customer service (even for an airline!). As a result, United saw revenue dis-synergies in 2012; the company lost ground to each of its major competitors.
Bottom line: Consumers are getting no new net benefits and are losing competition between airlines, which will result in more expensive airfares and extra fees. Every network airline will find itself in a better bargaining position vis-a-vis corporate travelers and leisure passengers. Consumers will be the long-run losers.
No matter what the merged airline claims, no merger has ever maintained all if its hubs post merger. There will be changes and there will be city and regional losers.
Otherwise, this merger shuffles the deck when it comes to passengers. Improved network coverage for oneworld, AA and USAir, is reduced for Star Alliance, United and its partners. Frequent fliers face simply a change in programs whether they like it or not.
There is one benefit — the exceptional US Airways management team that will be taking over the American Airlines operations. They were masterful in improving US Airways over the past years, improving customer service, fleet maintenance, operations and profitability.