American Airlines’ $11 billion merger with US Airways Group caps a wave of consolidation that has swept up five of the 10 biggest U.S. airlines since 2005 and leaves a three-way rivalry at the top of the industry.
Today’s tie-up will push American Airlines past United Continental and Delta Air Lines to be the world’s largest carrier, making it “hard to imagine” another U.S. combination of similar size, said US Airways Chief Executive Officer Doug Parker, who will run the new company.
“With the combination of American and US Airways, it’s creating a third, very strong competitor to United and Delta who have already gone through similar consolidation,” Parker said at a news conference at Dallas-Fort Worth International Airport near American’s headquarters. “You’re left with a very competitive, but much more rational business model.”
The merger will produce annual savings and new revenue totaling more than $1 billion by 2015, the airlines said. The deal making set in motion almost eight years ago when Parker led America West into a tie-up with US Airways will now leave American, United and Delta as the only U.S. carriers with full-service cabins and transoceanic routes.
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American and US Airways said they will follow through on orders for new planes from Boeing and Airbus, and the new company will honor American’s July 2011 decision to buy 460 single-aisle jets from both plane-makers, the industry’s largest order ever. US Airways is scheduled to receive 76 Airbus aircraft, according to the manufacturer’s website.
“The existing aircraft orders between the two companies we like and can remain in place as is, with deliveries as scheduled,” said Parker at Thursday’s news conference.
The deal shouldn’t affect Alaska Air Group, which has strong links to Delta that help feed traffic into Alaska’s Seattle hub. Alaska’s core territory is for flights up and down the West Coast, and even the merged American will still trail Delta and United in this part of the country.
For the new American, “One of the really nice things is how complementary the route networks are,” Parker, 51, said in an interview. “Of over 900 routes, only 12 have any overlap, which is phenomenal. We are going to need to keep all the hubs in place, the cities we fly to we will need to continue to fly to.”
His challenges at the combined company will include soothing a history of labor strife at American and meshing technology systems, union workforces and aircraft. Recent history has shown that airline mergers can take years to be bolted together seamlessly. United, for example, struggled in late 2012 with chronically tardy flights stemming from struggles to blend operations with 2010 merger partner Continental Airlines.
For Parker, taking over at American completes an 11-year quest to build a bigger airline. America West was the eighth-largest U.S. carrier when he became CEO there in 2001, four years before he combined the company with US Airways. A bid to buy Delta and two efforts at a United merger all fell through.
Parker began pursuing American shortly after it sought bankruptcy protection on Nov. 29, 2011. He wooed American’s unsecured creditors committee, an ad hoc bondholder group and American’s unions as the airlines agreed in August to swap confidential data as a prelude to a tie-up.
American had about 62,400 employees based on a three-month average as of Dec. 31, while US Airways’ total was 31,236, according to the airlines.
Members of each airline’s frequent-flier program will continue to earn benefits as the carriers operate separately, and the companies said they will detail the plans’ consolidation later.
The airlines don’t expect to have to divest any assets to secure U.S. antitrust approval, or any difficulty winning an endorsement from European Union competition regulators, Horton said on a conference call with analysts and reporters.
A report last year by PricewaterhouseCoopers concluded that the “megamergers over the last seven years have not caused U.S. domestic passengers to experience dramatically higher airfares or drastically reduced competition on most routes.”
But the merger came under scrutiny on Capitol Hill.
U.S. House Rep. Rick Larsen, D-Lake Stevens, and a ranking member of the aviation subcommittee, said he was relying on the antitrust regulators to consider the implications for passengers.
“Shareholder value may be in the interests of the airlines as companies, but choice and quality are in the interests of the consumer,” Larsen said.
Material from The Associated Press and The Washington Post is used
in this report.