The American Airlines merger with US Airways is under fire. The reason is simple: a merger between these two airlines would create the largest airline in the world — an airline that would have the potential to monopolize the air travel industry. The Justice Department, as well as several states, have filed a joint lawsuit in order to halt the merger. According to USA Today, the Justice Department noted that a merger between these two airlines would give the merged airline control over a whopping 69% of departure and arrival slots at Washington Reagan National Airport — that would be six times more control over the air activity of that airport than the closest competitor.
While other airline mergers have been successfully executed (United/Continental, Southwest/AirTran, Delta/Northwest), it seems as though the root of the problem with this particular merger is that it would be too big, perhaps too big to fail. It should be noted, however, that a USA Today article from December 2012 reported that despite gloomy speculations, none of the previous airline mergers raised fares as predicted.
How Frequent Fliers Might Be Affected By Airline Merger
Speculation seems to be running rampant about potential losses to frequent flier accounts via the merger of American Airlines with US Airways. A new study recently analyzed American Airlines AAdvantage program and US Airways Dividend Miles program and found several pros and cons, many depending on which airline’s existing program is adopted for both.
Comparing programs, TravelNerd looked at some possible scenarios and came up with some interesting “what if?” results. Not all are bad either. US Airways members would come out ahead, for example, if the combined airline sticks with American’s meal program, enjoying meals on three-hour flights.
That’s good news. Not-so-good news: increased baggage fees could be a result as well. If the American Airlines program is adopted for both airlines, US Airways passengers will have to pay $25 more for three or more bags, and $10-$25 more for overweight bags
Thinking the new alliance means less countries, TravelNerd says US Airways will say goodbye to Star Alliance and join Oneworld, so Dividend Miles members will lose access to 44 countries.On the other hand, I am a member of both loyalty programs and received emails from each saying not to worry and that everything will stay the same. TravelNerd cries foul.
“Airlines are aware that mergers make consumers nervous and will send newsletters to members to ensure that their miles and status are safe,” Amy Lee TraveNerd Senior analyst told me via email. “This is true there are usually no changes in the short term.”
But Lee believes that change is coming and once the merger is complete and has passed government regulations, the streamlining will begin.
“One way they plan to do this is to bring Dividend Miles members into their AAdvantage program,” notes Lee. “In the American Airlines Merger Investor Presentation, they wrote, “US Airways members join AAdvantage, the first and best developed loyalty program in the world.” This implies that they plan to maintain one loyalty program – presumably AAdvantage since American Airlines brand will be taking the helm of this merger.”
Travelnerd points to the United-Continental merger as an example, noting that merger was announced in May 2010 but frequent flier accounts were not linked until March 2012.
More bad news from the study is the notion that more members equals less upgrades. TravelNerd predicts that with a combined total of over 101 million members, frequent fliers will have a tough time upgrading their seats.
Our first thought: Why? Are they going to sell off a bunch of planes? We’ve heard nothing of decreased capacity.
“Regarding upgraded seats, you’re right there are going to be the same number of seats available,” replies Lee. “However, Dividend Miles members currently enjoy many upgrades due to their smaller frequent flier program (30 million members). Once the merger finalizes, the AAdvantage members (71 million members) will make it harder for the Dividend Miles members to enjoy as many upgrades as they currently do because of the increased number of frequent fliers.”
Admittedly, much of what we have here is speculation. But if Merger History 101 tells us anything it’s that change is inevitable. It will be interesting to see how it plays out.
For a closer look at the merger from an unbiased source, we turn to public broadcasting and their sobering view on the topic:
[Photo Credit- Flickr user the queen of subtle]
British Airways, American Airlines, and Iberia in transatlantic tie-up
British Airways has signed a “tie-up” deal with American Airlines to share passengers and costs between the European Union and North America. Two non-EU nations, Switzerland and Norway, are also covered in the agreement.
BA says the deal will be worth $7 billion a year and will give passengers greater access to discounted fares. They’ll also get better connections and access to the airlines’ global network.
The deal, which has been in the works since 2008, only received regulatory approval this summer after rival carriers complained that it would create a near-monopoly. BA and Iberia merged last year. The current tie-in deal with AA is not a merger, but instead a close cooperation agreement to integrate ground operations and other aspects of the airlines. This will reduce costs by getting rid of overlapping services, and if these savings are passed on to the customers then there could indeed be a reduction in fares. With competition as fierce as ever, BA, Iberia, and AA will want to make this deal as marketable as possible.
The joint venture will being in October. Stay tuned to see how it turns out.
[Photo courtesy Fly For Fun via Gadling’s flickr pool]
Continental and United Airlines approve merger
Two of the nation’s largest airlines, United and Continental have taken one step closer to joining forces to becoming the world’s largest carrier. Early last week, news in underground was that the two airlines were in high level talks to discuss merging operations. Things became more official with the announcement late last week that their respective boards had approved the undertaking.
The new airline, which would be called United Airlines, would have Continental’s CEO Jeff Smisek as the man in charge and would be based in Chicago. Continental’s livery would absorb United’s.
Despite the positive steps last week, several major milestones still need to be addressed before the merger gathers steam. Primarily, the airlines need to obtain regulatory approval from the government before joining forces, and in this political climate, that permission may be difficult to find.
Issues with unions, operations and finances will also take time and patience to address; as a result, even if an official announcement comes on Monday there are months left of negotiation and heartache. Get ready for a long ride.