Hard to believe that only a few years ago, we had six legacy airlines. With the Boards of both US Air (US) and American Airlines (AA) approving their merger, it just needs an expected stamp of approval from the Justice Dept. The new Big Three legacies, plus Southwest, will account for more than 80% of domestic air travel. So who will be the winners and losers after this merger?
American is a winner. Pressure will be off their management, replaced by ‘white knight’ US CEO Doug Parker. At least in the short run, he will (hopefully) offer a brighter future for AA employees, certain creditors, and passengers.
US Air is definitely a winner. For too long they have been the stepchild of Star Alliance. No more looking over their shoulder, wondering when the shoe will drop and they will be dumped. Now they have a chance to enter OneWorld as a combined airline, most likely with Parker at the helm.
Oddly enough, Delta Air Lines (DL) also may be a winner here. Previously, Delta gave up slots at DCA to US in return for the same from US at LGA. The new combined US/AA will likely have too many total DCA slots so Delta has a chance to get back at least some of what they lost while keeping all their LGA gains.
So who loses? Some US frequent fliers feel they are losers because they won’t have access to Star Alliance award possibilities in the future. For some, this will be offset by OneWorld gains and fortunately they will have some time to burn those Star A miles. In the bigger picture, Star Alliance is a big loser. They are losing some key routings with often excellent award opportunities.
Some of the hubs will have reduced capacity, if they even remain as hubs at all. CLT is certainly at risk because MIA is important as a gateway to South America. Though I think PHX is an ideal location for a hub, it may be cut back because DFW will be the home base. PHL is a bit awkward as a base for international travel. It doesn’t offer the flexibility of, say, JFK or even neighboring EWR but it is possible to work around that concern. While ORD might be the home of United Airlines (UA), it will remain an excellent international option for the new AA.
At least for a while, the new US/AA airline will be a loser. From recent experience, we saw that the Delta/Northwest merger took a couple years to get through all their issues. While the Southwest/AirTran merger has been relatively smooth, the United/Continental merger has been anything but, most notably IT concerns.
For the new AA/US, it will likely be difficult. These airlines have very different cultures, concerns, unions, benefits, frequent flier programs, and IT systems. Look for this to take at least a few years to work through. However, this will be good for frequent fliers in the short run.
Another loser will be passengers who are fare sensitive. I have yet to see where airline mergers reduce fares. Instead, look for more fare creep once this deal is settled.
The biggest loser might be the frequent flier programs. While this won’t change much in the near term, it bodes poorly in the long term after this merger settles out. Both Delta and United have already announced FFP changes that are not deemed friendly by some, especially lower level elites. Expect this to only get worse over the next few years.
On the other hand, those who indeed fly frequently and meet the airline minimum spend requirements may be very pleased with the new programs. The FFP’s will be smaller and, well, more friendly toward those who really do fly frequently.
Nevertheless, there may be ‘back door’ FFP opportunities because all of the airlines maintain major ties to institutions, and this will not change anytime soon. Delta, for example, has had a very long relationship with American Express but the others are catching up. United works with Chase and American does the same with Citi. These partnerships should continue indefinitely and may offer some relief to those who will still value a frequent flier program.
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