Monday, February 18, 2013

American and US Airways to merge

The long-anticipated merger between American Airlines and US Airways was finally announced last week. The deal will create the world's largest airline.

What were once the "Big Six" legacy carriers - America, Continental, Delta, Northwest, United and US Airways - have now been consolidated to just three. The three, along with once-maverick, now-mainstream Southwest Airlines, now account for about 70 percent of the domestic air travel market. Welcome, fellow air travelers, to a true oligopoly of the skies.

So what can travelers expect from the merger? Most likely, the glitches that seem to accompany every airline merger in recent memory: flight delays, lost luggage and problems with reservation systems.
"You cannot find an airline merger in recent times that went well," said Joe Brancatelli, editor of JoeSentMe, a business travel web site. "The bigger the merger, the more problems there are. Computer integration is very complicated. If you records go awry, your bags will probably go awry." 
Those of us here in Houston know this all too well; the merger between hometown airline Continental and Chicago-based United has not exactly been a customer-relations success story. 

There's also the matter of combining two corporate cultures into a single, cohesive entity. It's hard to do, and it often leads to friction that reduces employee morale, which in turn affects customer service. This is especially the case when layoffs are part of the equation; as with any corporate merger, there are going to be redundancies that need to be eliminated.

Will higher fares be part of the post-merger equation as well?
Surprisingly, the one unpleasant by-product of mergers that passengers fear most -- higher fares due to reduced competition -- often doesn't materialize. Industry fares have increased less than 2% a year despite a rash of mergers since 2004, according to a study by PricewaterhouseCoopers. That's less than the cost of fuel and labor rose during that time.
Eh, color me a bit skeptical on that one. That may be the case on an overall, nationwide basis, but you'll have a tough time convincing me that reduced competition resulting from previous mergers hasn't resulted in higher fares between certain airport pairs. If you fly between Dallas-Fort Worth and Phoenix, or between Chicago O'Hare and Philadelphia, on a frequent basis, watch out.

The Cranky Flier, who is supportive of the merger, has some advice for the process and predicts what will happen to the combined airline's hubs. Time's Brad Tuttle, on the other hand, expects "nothing good to come from this merger." ABC News weighs the merger's pros and cons, while The Economist expects this to be, mercifully, the last of the major domestic airline mergers.

The merger still needs to be approved by federal agencies before it becomes official.

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