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American and US Hit One Year Since Engagement, a Review

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American and US Hit One Year Since Engagement, a Review

American and US Hit One Year Since Engagement, a Review
February 14
09:45 2014

MIAMI — American Airlines and US Airways announced their intent to merge one year ago today, beginning a long and rocky road toward consummation last December. We take a brief look back. For more on any of the stories, click on our embedded links for the original Airchive story!

It all started on February 14, 2013, when the two carriers announced their intentions to the world. Not that it was that surprising – the two where the only remaining major legacy carriers that hadn’t yet trundled off into merger bliss. Still, American (AA) had fought back against consistent advances from US Airways CEO Doug Parker for a while.

It even seemed possible that Parker wouldn’t have his deal, until he managed to win AA union support and sweet talk AA’s creditors into believe a merger with US was the only way out of the hole. Creditors and unions pressured AA’s board, and Parker won his reluctant bride. Still, Airchive had to wonder whether this would be a marriage made in heaven…or in hell in our original story from last year.

(Credits: Chris Sloan)

(Credits: Chris Sloan)

Overall, things more or less progressed slowly but surely through the system as the spring came and went. Presumably the two spent the time together picking out napkin colors at Bed, Bath, and Beyond and planning which  hubs would stay, and which might not be needed anymore. As summer wore on, however, doubts began to creep in that the new AA might not be so popular with government regulators. Rumors began to circulate that the deal could be in jeopardy as the Department of Justice was considering building a case against the merger.

The rumors would wind up proving on the mark, as on August 13 the DOJ, along with six state attorney generals and the District of Columbia filed an antitrust lawsuit in federal court. The suit contended that the merger would result in “passengers paying higher airfares and receiving less service.

”The big problem appeared to center around slot restricted airports Reagan National (DCA) and New York’s LaGuardia Airport, both of which the combined carrier would wind up dominating once together. We didn’t really think there was much meat behind the suit from day one, and our senior business analyst went to work describing why the suit should be dead on arrival (Part One, Part Two).

The next several months saw a slew of court proceedings, motions, talking heads, and public lobbying leading up to an anticipated November 25th trial date. Rather than rehash every detail, we’ll refer you to our exhaustive post-DOJ suit announcement but pre-settlement timeline, located here.

The big takeaways? The Texas AG, part of the suit, agreed in late September to drop out if AA committed to staying headquartered in Dallas, and retained scheduled service to a bunch of small Texas cities. In early November the two sides seemed close to settling already, as negotiations centered on asset divestitures at key airports – particularly DCA and LGA. Sure enough, US Attorney Genera Eric Holder came out stating that there was a magic number of divestitures between slots and facilities that could give the deal a green light, but at the time declined to say what those were.

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At the same time, though, AA, along with everyone else in the industry, was suddenly proving rather profitable. It posted a $289 million profit in Q3, and would later finish out the year on a strong note, prompting critics of the merger to wonder if it was really necessary.

Not long after, AA and US sealed the deal with the DOJ on November 12, ending what likely would have been a protracted court battle. It turned out that Holder’s magic numbers were largely aimed at – you guessed it – DCA and LGA, where the new American would be forced to divest 69 slot pairs between the two airports.

It was also forced to give up a handful from other airports around the county, and agree to keep ‘current’ service levels at all existing hubs. Needless to say, responses from other airlines to the deal were largely in line with what each expected to get out of it. Once again our senior business analyst took the analysis a few steps further, detailing the winners and losers of the merger. Spoiler alert, the New American was a winner, and the DOJ a loser.

The dominos began to fall quickly into place thereafter. A federal bankruptcy judge cleared AA to exit Chapter 11 on November 27, clearing the way for an official merger.

The two finally joined hands, and balance books, on December 9th, 2013 in Dallas as both airlines collapsed into a unified stock symbol (AAG) on the NASDAQ. We recounted the struggle to reach that day, and ran down the list of obstacles the combined carriers now face before them.

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With the merger official and integration underway, it did not take long for changes to appear. On the same day that the carrier launched its highly vaunted Airbus A321T service, January 7th it also rolled out the first post-merger customer facing changes.

One week later it announced that American Eagle, the subsidiary airline, would be rebranded as Envoy, despite the fact that it would continue to operate as American Eagle the airline brand. The name change brought to the forefront the curious case of Eagle. Immediately post-merger, it was agreed that Eagle would remain part of the new American, despite repeated attempts to spin it off in years prior.

Still, we questioned whether or not Eagle (AE) was really out of the woods yet, and it turned out they were not. A deal that had been reached between AE management and the company’s pilot’s union ALPA in mid-January wound up imploding on Thursday of this week, leading parent company American Airlines Group to put an order for sixty new Embraer 175 jets back into the store window. AA would not say Eagle was out, but the road ahead certainly looks grim.

Things were looking equally unpleasant for a number of smaller communities that had (key word, had) service to New York LaGuardia and Washington Reagan, when on January 15 the new AA announced it had made its decisions on which routes to cut in order to comply with the DOJ settlement. The Charlotte hub, though very much key to the new American, received a route cut to Rio de Janeiro which suggested its international operations could be restructured.

Which, in short, takes us to today. One year later, where are we? Are we better off? American and US Airways certainly are with their merger complete and integration underway. But as we’ve said before and will say again – the road ahead remains long.

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A Global Review of Commercial Flight since 1994: the leading Commercial Aviation publication in North America and 35 nations worldwide. Based in Miami, Florida.

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