Tiffaney Gipson's List: American Airline

• Crews, routes, IT systems, and an endless of operational tools will be scrutinized and either changed or merged, affording equally endless opportunities for disruptions to travelers’ experiences. Thousands of people at American and US Airways will be affected, many of them not happily.
• In other words, the two airlines have announced that they’re going to share a balance sheet.
• Past experience is that big mergers end up being nightmares for most everyone involved, except those profiting from their implementation.

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• After the pilots rejected the airline’s offer, which included an equity stake amounting to more than one-eighth of the company, a federal judge ruled Sept. 4 that American could “scrap its existing contract with them and unilaterally impose its terms,” according to the New York Times.  That decision seemed to ratchet up animosity among the pilots, but the Dallas Morning News reported just yesterday [Oct. 15] that talks between the APA and the airline now “appear to be going well.”
• Chapter 11 bankruptcy seems to be helping American do what practically every other bankrupt airline has done – reduce its labor costs to competitive levels. Those costs are now about 28% of American’s revenue – “the highest of any major airline operating in the U.S. today,” according to Fortune. Compare that figure with labor costs of  20% at United; 18% at Delta; 17%, US Airways. American spends $600 million more on wages than its peers.
• American’s pilots’ union supports a merger while the company’s CEO, Tom Horton, prefers to keep the company whole through bankruptcy – for an obvious reason. If American Airlines gets through bankruptcy with reduced labor costs and thus stronger profitability, it will be in a better position to survive alone or to strike a better deal in a merger.  Horton is reported to have found investors willing to put up $1 billion to $2 billion in financing to help get American through bankruptcy intact.

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• But the merger was challenged by antitrust regulators who filed a lawsuit in August to block it on the grounds that it would harm competition and passengers. The airlines have vowed to fight the challenge and a trial is scheduled for November before a separate federal court in Washington.
• Updated, 9:02 p.m. | Both carriers have argued that they needed to combine their networks to be able to better compete with Delta Air Lines and United Airlines, both bigger carriers that completed mergers of their own in recent years.
• The domestic airline industry has been transformed in recent years by large-scale mergers that have allowed carriers to streamline operations and abandon unprofitable hubs. Consumer advocates have argued that the mergers allowed the airlines to charge higher fares and fees.
• The bankruptcy judge ruled against one provision of the airline’s restructuring, a plan to award American Airlines’ chairman, Thomas W. Horton, $20 million in severance after he ends a short stint as the chairman of the combined company and leaves. The judge said that was not compatible with bankruptcy law, although nothing stopped the airline from awarding the pay once the merger was done.
• The court’s involvement may not be over yet. A settlement with the Justice Department that required a divestiture of routes or airport slots by the airlines would have to be reviewed by the bankruptcy court. And if antitrust authorities prevailed in blocking the merger, American would have to submit a new restructuring plan to the court.

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• On Aug. 13, the Justice Department, along with the attorneys general of six states and the District of Columbia, filed a lawsuit seeking to block the merger between American Airlines and US Airways, saying it would substantially reduce competition, increase airfares and cut service.

   
• The consumer could see advantages and disadvantages to either outcome of the suit, according to George Hobica, the founder and president of Airfarewatchdog.com.
• On the downside, the merger would lead to a consolidation of routes, giving an airline a monopoly over a particular route, which might cause its fare to increase. But, he noted, “That opens doors to another airline to go in there and start charging less.”

• On the upside, Mr. Hobica said that mergers allow airlines to cut costs by eliminating redundant departments and by being able to invest in new fuel-efficient planes that are more comfortable for consumers.

   
• Without a merger, he said, American and US Airways may not be able to make such improvements to compete with rivals like Delta Air Lines, which merged with Northwest Airlines in 2008, and United Airlines, which merged with Continental in 2010. And a market without competition with Delta and United could hurt the consumer, he said

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