World's biggest: American, US Airways to merge

Charisse Jones, USA TODAY | USATODAY

American Airlines and US Airways said Thursday that they will join forces to become the largest carrier in the world, the last major merger in an industry that's shrunken with consolidation and is now dominated by a few super-sized players.

The boards for the airlines' parent companies, AMR and US Airways Group, voted Wednesday in favor of the $11 billion deal that will create a single carrier -- the biggest in the world based on revenue and the number of passengers it carries.

The new airline will be called American Airlines and be headquartered in American's hometown of Fort Worth while maintaining a significant corporate and operational presence in Phoenix. US Airways CEO Doug Parker will run the company. Tom Horton, CEO of American parent AMR, becomes chairman.

Parker told US Airways' employees in a letter that the combined airline will offer more than 6,700 daily flights to 336 destinations in 56 countries and was expected to maintain all hubs currently served by both airlines, while branching out to new cities.

American sought bankruptcy protection in November 2011, and its creditors are to have a 72% majority stake in the newly merged airline. Those with shares in US Airways would own the rest.

Parker said that the new airline will be expanding and upgrading its fleet of planes, while flying under American's iconic name.

"The combined airline will have the scale, breadth and capabilities to compete more effectively and profitably in the global marketplace," Parker said. "Our combined network will provide a significantly more attractive offering to customers, ensuring that we are always able to take them where they want to go."

The airlines said that they expect the merger to result in about $1 billion in benefits: With $900 million coming from the bigger airline's ability to woo corporate travelers away from competitors, and about $150 million in cost savings. But they said they also expect to spend $1.2 billion over the next three years to complete the combination.

Leaders from five major unions representing more than 60,000 American Airlines and US Airways employees, including pilots and flight attendants, said they strongly support the merger.

The merger still must be approved by the bankruptcy court overseeing American's restructuring, and federal anti-trust regulators will weigh in, making sure that the latest mega-sized airline doesn't quash competition or service along certain routes.

But if the deal gets a green light, it would be the last significant merger in the U.S. airline industry.

Delta and Northwest joined forces in 2008, United and Continental linked up in 2010, and low-cost giant Southwest completed its purchase of AirTran in 2011. The four carriers together would have 87% of the U.S. airline industry's seats under their control, according to Seth Kaplan, an analyst with Airline Weekly, an industry trade publication.

Combined, American and US Airways would have more than 900 planes and about 3,200 daily flights.

Parker, who's tried before without success to merge his airline with another, argues that the combination will contribute to a more stable industry and one that will benefit consumers.

"We'll be at a scale where you have three large global airlines,'' Parker told USA TODAY after the announcement. "It makes the industry more competitive right now. There were two airlines that through consolidation had gotten larger than American and US Airways, and it was difficult for either of us to compete with them on the same scale.''

US Airways and American, together, would be a stronger match for Delta and United, with a network that would include East Coast hubs in Charlotte and Philadelphia, a significant foothold at New York's JFK, and American's international service across the Atlantic and into Latin America.

US Airways' and American's non-stop service overlapped on only a dozen routes as of January. And if their combination creates a stronger, single airline, it would be good for passengers and the industry, some analysts say.

"From a competitive perspective you'll have four very healthy airlines and you'll also have some niche carriers such as Alaska and JetBlue and . . . that's still a very healthy competitive environment,'' says John Thomas, head of the global aviation and travel practice at L.E.K. Consulting. "It still gives consumers a lot of choice and there'll still be a lot of competition in the market.''

Less competition may lead to higher fares in some markets, some industry observers say.

"For consumers, you have a smaller, less competitive industry with somewhat higher fares than you would have had the mergers not happened,'' Kaplan says.

But "on the other hand, you have airlines that can now invest in their product,'' like roomier seats in the premium cabins or better entertainment, Kaplan says. "For years U.S. airlines were just trying to get through the day. They didn't have money for those types of things.''

Travelers on American and US Airways won't notice immediate changes, and each carrier will operate as it normally does. It will be months or longer before the frequent-flier programs are combined or ticketing or routes would change.

Eventually, a smaller hub, such as US Airways' foothold in Phoenix, may see some service migrate to a larger portal like Dallas-Fort Worth, American's base. But as of January, US Airways and American had overlapping non-stop service on only a dozen routes. That means they likely won't have to pare many destinations.

Instead, passengers on the newly merged airline will be able to fly across a vastly expanded map that would likely include US Airways' East Coast hubs of Charlotte and Philadelphia and American's strong international presence across the Atlantic and in Latin America. The combined carrier will also likely stick with American's frequent-flier program, the industry's oldest and one of its most popular.

"In the short term, frequent fliers will benefit from more routes and more choices, and a management that will likely want to reassure them that the benefits they're used to won't change,'' says Gary Leff, co-founder of the frequent-flier community Milepoint.com and author of the ViewFromTheWing.com blog.