US Airways-AMR deal: Bad for travelers

Like the death of Mark Twain, reports of a pending merger between US Airways and bankrupt American Airlines are greatly exaggerated, but travelers should still be prepared for higher prices and other challenges in the months to come. “Independent of whether they merge or not, you’re going to see higher prices because the airlines have figured out that there’s no point in competing for unprofitable business,” said consultant Robert Mann of R.W. Mann & Co. “But if a merger does occur, you’ll see an acceleration of that increase.” There’s certainly been no shortage of merger talk, especially after American’s parent company, AMR Corp., posted a $1.7-billion loss during the first quarter of the year and US Airways CEO Doug Parker announced the carrier had signed agreements with three unions representing nearly 55,000 American employees. Such talk is clearly premature — “Today's news does not mean we have agreed to merge with American Airlines,” wrote Parker to his employees late last week — but it does raise the question of what an eventual merger between the two carriers could mean for travelers. Higher fares Simple supply and demand, coupled with rising fuel prices, suggests higher ticket prices ahead. This time around, though, there’s added pressure because, unlike previous bouts of consolidation, low-cost carriers are unlikely to fill any gaps that result from post-merger cutbacks. “Historically, mergers have been an opportunity for Southwest to enter markets and provide [pricing] discipline,” said Mann. “But their costs aren’t that much lower than the network carriers anymore so it’s not as if they can suddenly find new pockets of revenue.” More labor unrest While the kerfuffle over US Airways’ overtures to American employees will pass, industry observers note that it’s been seven years since US Airways merged with America West Airlines and integrating those two work forces is still a work in progress. Integrating a third, says Mann, will likely complicate an already difficult situation. A better network Unlike previous mergers, in which overlapping networks led to service cuts and gutted hubs, the two carriers’ route maps are more complementary than conflicting. “There’s nothing intrinsically wrong with a merger from a route-map perspective,” said Joe Brancatelli, publisher of the business-travel website JoeSentme.com. “There’s very little competition in Phoenix [US Airways’ hometown] and American would pick up Philadelphia, Charlotte and Washington National.” Coupled with New York and Miami, the new additions could be especially beneficial to business travelers who make regular runs up and down the East Coast. Ultimately, the likelihood of a merger will have more to do with American’s post-bankruptcy viability and regulatory approval than with such operational details, although history suggests there will be a merger somewhere down the runway. “No carrier that has gone into bankruptcy since 2000 has survived without a merger,” said Brancatelli. “United went into bankruptcy, came out and merged with Continental. US Airways went into bankruptcy twice and merged with America West. And Delta and Northwest both went into bankruptcy on the same day, came out and merged with each other.” For Brancatelli — no fan of the legacy carriers — another merger will only accelerate the trend that has helped their competitors grow. “Every time the big guys get bigger, Southwest, JetBlue and AirTran look better to passengers.”