Topic 5: The Merger of American Airlines and US Airways

This Thursday American Airlines and US Airways announced that they are going to merge which will create the worlds largest airline. What does this mean for consumers? It can be argued two ways. The first argument is that larger airlines can better serve their customers overall than can two smaller airlines. The second, is that while the first side may be true, customers do not care as much about the benefits they receive as they do about prices and this merger will decrease competition and raise ticket prices in the long run (New York, 2013).

The two airlines are going with the first argument and saying that it will be good for passengers because it will allow the "New" American to better compete with Delta and United. There are also some analysts that say the deal should not result in higher fares because most of the routes of each airline complement each other (New York, 2013).

In the same article in The New York Times, it is stated that even though the route overlaps are not too large, it would still almost eliminate competition in certain cities such as Dallas, Phoenix, Philadelphia and Miami which are all hub airports for both airlines. Another concern that will cause a larger impact on competition is the dominance the "New" American will have over the percent of total flights out of large airports. At Dallas-Fort Worth they will control 86 percent of all the flights, 78 percent at Philadelphia, 60 percent at Washington's National Airport and 92 percent out of Charlotte. These percentages are kind of intimidating in a current airline system where control of major hubs is everything (New York, 2013).

I believe that when it comes to mergers, customers are more concerned with their bottom line and want cheaper prices. Decreasing competition, in my opinion, is never a good thing. As Joe Cahill (2013) states, "The merger of American and US Airways ... means three things for consumers: fewer choices, poorer service and higher prices. We're already suffering from all three." Once there is little to no competition left, companies are free do to whatever they want and the customer is left with no decisions and is at the mercy of whatever the one company is offering.

Customers are not the only people who have concerns when it comes to a merger, the pilots of the two airlines have a lot at stake. Each airline has a pilot seniority list which determines how much money they make, which airplanes they fly and what schedules they get. Another factor that is determined by the seniority list is who loses their job if/when the new airline downsizes. When you combine two airlines, with two different seniority lists, things tend to get messy. Someone who was at the top of a seniority list in one airline may end up closer to the middle once the merger happens. This is often one of the most difficult things to deal with during a merger (Kaufman, 2013).

ALPA has a manual that can help with the merger process, but each merger is different and may require different steps to come to a final conclusion (ALPA, 2006). If I were in charge of creating an industry standard for merging pilot seniority lists, I would make it very simple. Whoever has the earlier hire date has higher seniority. People that were hired on the same date would be further distinguished by alphabetical order of their last name. There truly is no good way to merge seniority lists because no matter what you come up with, there will be people who are unhappy. By using the pilots hire dates as the primary factor in determining seniority there is nothing to argue about, either you were hired before or after the next guy. When it comes to two pilots hired on the same date, the alphabetical system is something used in many applications and is something you can not argue. As I said earlier, you are not going to make everyone happy but you have to be as fair as possible about it.

Even though American and US Airways have stated they are going to merge, there are a few steps left in the process to make it final. One of these steps is the review by the U.S. Department of Justice's Antitrust Division. The goal of the Antitrust Division is to protect consumers by making sure that competitive markets continue to exist which create high quality and low prices. This review is done to determine whether or not it will lessen competition. They do not look at the entire industry to see how it will affect competition, they look at relevant markets to make a more accurate assessment (Department of Justice, 2005).

After doing a little bit of research and looking at some of the numbers I stated earlier, I think that at certain airports, such as Dallas-Fort Worth and Charlotte specifically, this merger may lessen competition and creates the potential to affect the consumer. Obviously I do not know all of what the Antitrust Division looks at when making their final decision, but based on their statement of what they do this merger may raise a red flag in my opinion.

If this merger does get approved, which is the current prediction, then 70 percent of the domestic market will be controlled by four airlines. I believe that this has the potential to affect my future career by lessening the amount of jobs available through consolidation. With the merger of each airline comes the eradication of jobs. I am not sure that I intend on working in the domestic airline industry but if jobs are being cut there, those people will be looking for work elsewhere which will increase competition across the board.

Thanks for reading,
Kyle Wagenknecht




References

ALPA. (2006). Merger and fragmentation policy. Retrieved February 17, 2013, from, http://www.wearealpa.org/about/adminmanual/Section_045_Merger_and_Fragmentation_Policy.pdf

Cahill, J. (2013). Why this airline merger is a bad deal. Retrieved February 16, 2013, from, http://www.chicagobusiness.com/article/20130216/ISSUE10/302169983/why-this-airline-merger-is-a-bad-deal

Department of Justice. (2005). Antitrust for airlines. Retrieved February 16, 2013, from, http://www.justice.gov/atr/public/speeches/217987.htm

Kaufman, W. (2013). Airline mega-mergers: 'Good, bad and ugly'. Retrieved February 16, 2013, from, http://www.npr.org/2013/02/14/172018757/airline-mega-mergers-good-bad-and-ugly

New York Times. (2013). American Airlines bulks up. Retrieved February 16, 2013, from, http://www.nytimes.com/2013/02/15/opinion/american-airlines-bulks-up.html