American Airline and US Airways Merger Essay

American Airlines and US Airways Merger: Is it Good for Consumers?

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Is the new merger between American and US Airways a good thing for consumers or will it lead to higher ticket prices and less chance for people to travel? The latest merger between US Airways and American Airlines now gives people basically just four companies to choose from for their airline travel. Is this fair or is it creating a monopoly? The $11 billion dollar deal still has to be approved by American Airlines’ bankruptcy court judge and U.S. antitrust regulators. If approved, US Airways and American Airlines will merge and will be headquartered in Fort Worth, Texas. US Airways CEO, Doug Parker, will run the new company that will have nine hubs, 1500 planes, 100 million frequent fliers and $40 billion in annual revenue.

This is the second time Parker has attempted to merge his airline with another. His first attempt in 2006 between his company, US Airways, and Delta Airlines failed because he didn’t have the labor unions and creditors onboard so “this time around “Parker won his merger in large part by giving something to everyone” (CharlotteObserver.com).

“To the American Airlines’ unions, he offered the chance to avoid massive layoffs and pay cuts. To his own unions, he offered raises and unified contracts after years without them. To American Airlines’ creditors, he offered a plan that gave them full repayment and 72 percent ownership of the new company. To his shareholders, Parker offered 28 percent of

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a new, $11 billion airline with an international route network US Airways couldn’t create on its own. And for hub cities and travelers, he said the merged airline won’t significantly cut service” (CharlotteObserver).

It remains to be seen whether this merger, like so many of the other ones made in recent years, will pull the airline industry out of bankruptcy.

Airlines used to be highly profitable. The Civil Aeronautics Board (CAB) set fares on interstate routes which limited competition and made sure that the airlines stayed profitable. This kept airfares reasonably high until President Jimmy Carter decided to deregulate the airline industry in the late 1970’s. He, followed by President Ronald Reagan, phased out the CAB in an effort to create competition and lower prices for consumers. New airlines started up and ticket prices dropped but the major airlines also started losing lots of money. In the last 30 years the industry has lost over $30 billion dollars.

In an effort to stop massive losses and to avoid bankruptcy filings, many of the major airlines (especially those in bad financial shape) began merging with other major airlines. While mergers may seem like a good idea with even more flights with lower prices to choose from, that is not the case. These mergers actually produce less competition and less service for customers. Since both airlines in a merger may have the same routes some of the routes can be canceled. If the two airlines share the same hub it could lead to layoffs for many employees. Even worse, an entire hub can be eliminated if flights can be moved to another hub. According to an article in Slate Magazine, the latest merger is “not exactly a monopoly situation, but it does mean that the 30-plus year run of robust competition and ever-falling airfares is almost certainly over.” The

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mergers of Delta and Northwest, United and Continental, Southwest and AirTran, and now, American and US Airways definitely brought an end to competitive pricing on tickets.

The question is whether these mergers have actually created a monopoly or beginning to. “According to the Bureau of Transportation Statistics, the average round-trip ticket (net of fees paid at the airport, including baggage fees and on-board fees such as meals, both of which are important sources of new revenues) increased by 28% since 1995. In contrast, average retail prices in the dame time frame increased 47%” (Spiller). This is good for consumers because “if an airline attempts to gouge its customers on a particular destination, other airlines with reasonably located hubs will have a strong incentive to add such a destination to their networks, rustrating the gouging airline’s ability to raise prices” (Spiller). Consumers will definitely have to spend more time searching for lower fares and looking for connections that are convenient for their travel plans.

It remains to be seen whether the latest airline merger between American and US Airways costs consumers more money by creating a monopoly situation or not. Mergers between all of the major airline carriers can help consumers by offering alternative routes and lower prices but they can also create situations where the industry sets prices and eliminates competition between companies.

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Annotated Bibliography

“Business.” New American Airlines CEO-to-be Says Charlotte Hub Safe. N.p., n.d. Web. 08 Mar. 2013.
This article talks about the merger between US Airways and American Airlines and how the merger will affect many of the hubs throughout the US. It also discusses the merger and who benefits and who loses when it is all over.

Spiller, Pablo T., and The Opinions Expressed in This Commentary Are Solely Those of
Pablo T. Spiller. “Why American-US Airways Deal Is Good.” CNN. Cable News Network, 18 Feb. 2013. Web. 08 Mar. 2013.
Discusses how the latest merger will affect prices and consumer choices. Was deregulation a mistake?

“The US Airways/American Merger Will Mean Fewer Flights, Higher Prices, and Worse Service. But That’s OK.” Slate Magazine. N.p., n.d. Web. 08 Mar. 2013.
This article talks about how the major mergers of the different airlines have guaranteed higher prices for travelers. It covers the newest merger between US Airways and American Airlines.

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